Energy Conservation Program: Energy Conservation Standards for Consumer Furnaces, 87502-87649 [2023-25514]

Download as PDF 87502 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations 10 CFR Part 430 [EERE–2014–BT–STD–0031] RIN 1904–AD20 Energy Conservation Program: Energy Conservation Standards for Consumer Furnaces Office of Energy Efficiency and Renewable Energy, Department of Energy. ACTION: Final rule. AGENCY: The Energy Policy and Conservation Act, as amended (‘‘EPCA’’), prescribes energy conservation standards for various consumer products and certain commercial and industrial equipment, including consumer furnaces. EPCA also requires the U.S. Department of Energy (‘‘DOE’’ or ‘‘the Department’’) to determine periodically whether more stringent standards would be technologically feasible and economically justified, and would result in significant energy savings. In this final rule, DOE is adopting amended energy conservation standards for consumer furnaces, specifically nonweatherized gas furnaces and mobile home gas furnaces. The Department has determined that the amended energy conservation standards for the subject products would result in significant conservation of energy, and are technologically feasible and economically justified. DATES: Effective date: The effective date of this rule is February 16, 2024. Compliance date: Compliance with the amended standards established for the subject consumer furnaces in this final rule is required on and after December 18, 2028. ADDRESSES: The docket for this rulemaking, which includes Federal Register notices, public meeting attendee lists and transcripts, comments, and other supporting documents/materials, is available for review at www.regulations.gov. All documents in the docket are listed in the www.regulations.gov index. However, not all documents listed in the index may be publicly available, such as information that is exempt from public disclosure. The docket web page can be found at www.regulations.gov/docket/EERE2014-BT-STD-0031. The docket web page contains instructions on how to access all documents, including public comments, in the docket. khammond on DSKJM1Z7X2PROD with RULES2 SUMMARY: VerDate Sep<11>2014 17:57 Dec 15, 2023 Ms. Julia Hegarty, U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, Building Technologies Office, EE–5B, 1000 Independence Avenue SW, Washington, DC 20585–0121. Telephone: (240) 597– 6737. Email: ApplianceStandardsQuestions@ ee.doe.gov. Mr. Eric Stas, U.S. Department of Energy, Office of the General Counsel, GC–33, 1000 Independence Avenue SW, Washington, DC, 20585–0121. Telephone: (202) 586–5827. Email: Eric.Stas@hq.doe.gov. For further information on how to review the docket, contact the Appliance and Equipment Standards Program staff at (202) 287–1445 or by email: ApplianceStandardsQuestions@ ee.doe.gov. SUPPLEMENTARY INFORMATION: FOR FURTHER INFORMATION CONTACT: DEPARTMENT OF ENERGY Jkt 262001 Table of Contents I. Synopsis of the Final Rule A. Benefits and Costs to Consumers B. Impact on Manufacturers C. National Benefits and Costs D. Conclusion II. Introduction A. Authority B. Background 1. Current Standards 2. History of Standards Rulemaking for Consumer Furnaces 3. Current Standards in Canada III. General Discussion A. General Comments 1. Comments Regarding Authority 2. Comments Opposing the July 2022 Proposal 3. Comments Expressing Support for the July 2022 Proposal 4. Regional Standards 5. Recommendations for Analytical Changes 6. Opportunity for Public Input 7. Federal Financial Assistance 8. Standby Mode and Off Mode Power Consumption Standards B. Product Classes and Scope of Coverage C. Test Procedure D. Technological Feasibility 1. General 2. Maximum Technologically Feasible Levels E. Energy Savings 1. Determination of Savings 2. Significance of Savings F. Economic Justification 1. Specific Criteria a. Economic Impact on Manufacturers and Consumers b. Savings in Operating Costs Compared to Increase in Price (LCC and PBP) c. Energy Savings d. Lessening of Utility or Performance of Products e. Impact of Any Lessening of Competition f. Need for National Energy Conservation g. Other Factors 2. Rebuttable Presumption PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 G. Compliance Date H. Impact From Other Rulemakings IV. Methodology and Discussion of Related Comments A. Market and Technology Assessment 1. Scope of Coverage and Product Classes a. General Approach b. Through-the-Wall Units c. Condensing and Non-Condensing Furnaces d. Mobile Home Gas Furnaces 2. Technology Options B. Screening Analysis 1. Screened-Out Technologies 2. Remaining Technologies C. Engineering Analysis 1. Efficiency Analysis a. Baseline Efficiency Level and Product Characteristics b. Higher Efficiency Levels 2. Cost Analysis a. Teardown Analysis b. Cost Estimation Method c. Manufacturing Production Costs d. Cost-Efficiency Relationship e. Manufacturer Markup f. Manufacturer Interviews g. Electric Furnaces D. Markups Analysis E. Energy Use Analysis 1. Building Sample 2. Furnace Sizing 3. Furnace Active Mode Energy Use a. Adjustments to Energy Use Estimates 4. Furnace Electricity Use F. Life-Cycle Cost and Payback Period Analysis 1. Product Cost 2. Installation Cost a. Basic Installation Costs b. Additional Installation Costs for NonWeatherized Gas Furnaces c. Additional Installation Costs for Mobile Home Gas Furnaces d. Contractor Survey and DOE’s Sources e. Summary of Installation Costs 3. Annual Energy Consumption 4. Energy Prices 5. Maintenance and Repair Costs 6. Product Lifetime 7. Discount Rates 8. Energy Efficiency Distribution in the NoNew-Standards Case a. Condensing Furnace Market Share in Compliance Year b. Market Shares of Different Condensing Furnace Efficiency Levels c. Assignment of Furnace Efficiency to Sampled Households 9. Alternative Size Thresholds for Small Consumer Gas Furnaces a. Accounting for Impacts of Downsized Equipment 10. Accounting for Product Switching Under Potential Standards a. Product Switching Resulting From Amended Standards for NonWeatherized Gas Furnaces b. Product Switching Resulting From Amended Standards for Mobile Home Gas Furnaces 11. Accounting for Furnace Repair as an Alternative to Replacement Under Potential Standards 12. Payback Period Analysis G. Shipments Analysis E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations 1. Shipments Model and Inputs a. Historical Shipments Data b. Shipment Projections in No-NewStandards Case 2. Impact of Potential Standards on Shipments a. Impact of Equipment Switching b. Impact of Repair vs. Replace H. National Impact Analysis 1. Product Efficiency Trends 2. National Energy Savings 3. Net Present Value Analysis I. Consumer Subgroup Analysis 1. Low-Income Households J. Manufacturer Impact Analysis 1. Overview 2. Government Regulatory Impact Model and Key Inputs a. Manufacturer Production Costs b. Shipments Projections c. Capital and Product Conversion Costs d. Manufacturer Markup Scenarios K. Emissions Analysis 1. Air Quality Regulations Incorporated in DOE’s Analysis L. Monetizing Emissions Impacts 1. Monetization of Greenhouse Gas Emissions a. Social Cost of Carbon b. Social Cost of Methane and Nitrous Oxide 2. Monetization of Other Emissions Impacts M. Utility Impact Analysis N. Employment Impact Analysis V. Analytical Results and Conclusions A. Trial Standard Levels B. Economic Justification and Energy Savings 1. Economic Impacts on Individual Consumers a. Life-Cycle Cost and Payback Period b. Consumer Subgroup Analysis c. Rebuttable Presumption Payback 2. Economic Impacts on Manufacturers a. Industry Cash-Flow Analysis Results b. Direct Impacts on Employment c. Impacts on Manufacturing Capacity d. Impacts on Subgroups of Manufacturers e. Cumulative Regulatory Burden 3. National Impact Analysis a. Significance of Energy Savings b. Net Present Value of Consumer Costs and Benefits c. Indirect Impacts on Employment 4. Impact on Utility or Performance of Products 5. Impact of Any Lessening of Competition 6. Need of the Nation to Conserve Energy 7. Other Factors 8. Summary of National Economic Impacts C. Conclusion 1. Benefits and Burdens of TSLs Considered for Non-Weatherized Gas Furnace and Mobile Home Gas Furnace AFUE Standards 2. Annualized Benefits and Costs of the Adopted Standards VI. Procedural Issues and Regulatory Review A. Review Under Executive Orders 12866, 13563, and 14094 VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 B. Review Under the Regulatory Flexibility Act C. Review Under the Paperwork Reduction Act D. Review Under the National Environmental Policy Act of 1969 E. Review Under Executive Order 13132 F. Review Under Executive Order 12988 G. Review Under the Unfunded Mandates Reform Act of 1995 H. Review Under the Treasury and General Government Appropriations Act, 1999 I. Review Under Executive Order 12630 J. Review Under the Treasury and General Government Appropriations Act, 2001 K. Review Under Executive Order 13211 L. Review Under the Information Quality Bulletin for Peer Review M. Congressional Notification VII. Approval of the Office of the Secretary I. Synopsis of the Final Rule The Energy Policy and Conservation Act, Public Law 94–163, (42 U.S.C. 6291–6317, as codified) as amended (‘‘EPCA’’),1 authorizes DOE to regulate the energy efficiency of a number of consumer products and certain industrial equipment. Title III, Part B 2 of EPCA established the Energy Conservation Program for Consumer Products Other Than Automobiles. (42 U.S.C. 6291–6309) These products include non-weatherized gas furnaces (NWGFs) and mobile home gas furnaces (MHGFs), the subject of this rulemaking. (42 U.S.C. 6292(a)(5)) Pursuant to EPCA, any new or amended energy conservation standard must be designed to achieve the maximum improvement in energy efficiency that DOE determines is technologically feasible and economically justified. (42 U.S.C. 6295(o)(2)(A)) Furthermore, the new or amended standard must result in significant conservation of energy. (42 U.S.C. 6295(o)(3)(B)) EPCA specifically provides that DOE must conduct two rounds of energy conservation standard rulemakings for NWGFs and MHGFs. (42 U.S.C. 6295(f)(4)(B) and (C)) EPCA also provides that not later than six years after issuance of any final rule establishing or amending a standard, DOE must publish either a notice of determination that standards for the product do not need to be amended, or a notice of proposed rulemaking 1 All references to EPCA in this document refer to the statute as amended through the Energy Act of 2020, Public Law 116–260 (Dec. 27, 2020), which reflect the last statutory amendments that impact Parts A and A–1 of EPCA. 2 For editorial reasons, upon codification in the U.S. Code, Part B was redesignated Part A. PO 00000 Frm 00003 Fmt 4701 Sfmt 4700 87503 (‘‘NOPR’’) including new proposed energy conservation standards (proceeding to a final rule, as appropriate). (42 U.S.C. 6295(m)) This rulemaking is being undertaken pursuant to the statutorily-required second round of rulemaking for NWGFs and MHGFs, and it also satisfies the statutorily-required 6-year-lookback review. In accordance with these and other relevant statutory provisions discussed in this document, DOE is adopting amended energy conservation standards for the subject consumer furnaces (i.e., NWGFs and MHGFs). The adopted standards, which are expressed in terms of minimum annual fuel utilization efficiency (‘‘AFUE’’), are shown in Table I.1. These standards apply to all products listed in Table I.1 and manufactured in, or imported into, the United States starting on December 18, 2028. For the reasons discussed in section III.A of this document, DOE is not adopting standby mode or off mode power consumption standards for NWGFs and MHGFs in this final rule. TABLE I.1—AFUE ENERGY CONSERVATION STANDARDS FOR NONWEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES [Compliance Starting December 18, 2028] Product class AFUE (%) Non-Weatherized Gas Furnaces ................................. Mobile Home Gas Furnaces 95.0 95.0 A. Benefits and Costs to Consumers Table I.2 summarizes DOE’s evaluation of the economic impacts of the adopted standards on consumers of NWGFs and MHGFs, as measured by the average life-cycle cost (‘‘LCC’’) savings and the simple payback period (‘‘PBP’’).3 The average LCC savings are positive for all product classes, and the PBP is less than the average lifetime of both NWGFs and MHGFs, which is estimated to be 21.5 years (see section IV.F of this document). 3 The average LCC savings refer to consumers that are affected by a standard and are measured relative to the efficiency distribution in the no-newstandards case, which depicts the market in the compliance year in the absence of new or amended standards (see section IV.F of this document). The simple PBP, which is designed to compare specific efficiency levels, is measured relative to the baseline product (see section IV.F of this document). E:\FR\FM\18DER2.SGM 18DER2 87504 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations TABLE I.2—IMPACTS OF ADOPTED ENERGY CONSERVATION STANDARDS ON CONSUMERS OF NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES Average LCC savings (2022$) Furnace class Non-Weatherized Gas Furnaces ............................................................................................................................. Mobile Home Gas Furnaces .................................................................................................................................... 7.6 3.2 DOE’s analyses indicate that the adopted AFUE energy conservation standards for NWGFs and MHGFs would save a significant amount of energy. Relative to the case without amended standards, the lifetime energy savings for NWGFs and MHGFs purchased in the 30-year period that begins in the anticipated year of compliance with the amended standards (2029–2058), are estimated to amount to 4.77 quadrillion British thermal units (‘‘Btu’’), or quads.5 This represents a savings of 3.2 percent relative to the energy use of these products in the case without amended standards (referred to as the ‘‘no-new-standards case’’). The cumulative net present value (‘‘NPV’’) of total consumer benefits of the amended standards for NWGFs and MHGFs ranges from $4.8 billion (at a 7percent discount rate) to $16.3 billion (at a 3-percent discount rate). This NPV expresses the estimated total value of future operating-cost savings minus the estimated increased product and installation costs for NWGFs and MHGFs purchased in years 2029 through 2058. In addition, the adopted standards for NWGFs and MHGFs are projected to yield significant environmental benefits. DOE estimates that the amended standards will result in cumulative emission reductions (over the same period as for energy savings) of 332 million metric tons (Mt) 6 of carbon dioxide (CO2), 4.3 million tons of methane (CH4), 0.38 thousand tons of nitrous oxide (N2O), and 0.9 million tons of nitrogen oxides (NOX). The amended standards will result in cumulative emission increases of 10.0 thousand tons of sulfur dioxide (SO2) and 0.08 tons of mercury (Hg).7 DOE estimates the value of climate benefits from a reduction in greenhouse gases (GHG) using four different estimates of the social cost of CO2 (SC– CO2), the social cost of methane (SC– CH4), and the social cost of nitrous oxide (SC–N2O). Together these represent the social cost of GHG (SC– GHG). DOE used interim SC–GHG values developed by an Interagency Working Group on the Social Cost of Greenhouse Gases (IWG).8 The derivation of these values is discussed in section IV.L.1 of this document. For presentational purposes, the climate benefits associated with the average SC– GHG at a 3-percent discount rate are estimated to be $17.3 billion. DOE does not have a single central SC–GHG point estimate, and it emphasizes the importance and value of considering the benefits calculated using all four sets of SC–GHG estimates. DOE estimated the monetized net health benefits of NOX and SO2 emissions changes, using benefit per ton estimates from the scientific literature, as discussed in section IV.L of this document.9 DOE estimated the present value of the health benefits would be $8.7 billion using a 7-percent discount rate, and $26.6 billion using a 3-percent discount rate.10 DOE is currently only monetizing (for SO2 and NOX) particulate matter (PM2.5) precursor health benefits and (for NOX) ozone precursor health benefits, but will continue to assess the ability to monetize other effects such as health benefits from reductions in direct PM2.5 emissions. Table I.3 summarizes the monetized benefits and costs expected to result from the amended standards for NWGFs and MHGFs. There are other important unquantified effects, including certain unquantified climate benefits, unquantified public health benefits from the reduction of toxic air pollutants and other emissions, unquantified energy security benefits, and distributional effects, among others. 4 All monetary values in this document are expressed in 2022 dollars (2022$). 5 The quantity refers to full-fuel-cycle (FFC) energy savings. FFC energy savings include the energy consumed in extracting, processing, and transporting primary fuels (i.e., coal, natural gas, petroleum fuels), and, thus, presents a more complete picture of the impacts of energy efficiency standards. For more information on the FFC metric, see section IV.H.2 of this document. 6 A metric ton is equivalent to 1.1 short tons. Results for emissions other than CO2 are presented in short tons. 7 DOE calculated emissions reductions relative to the no-new-standards-case, which reflects key assumptions in the Annual Energy Outlook 2023 (AEO2023). AEO2023 represents current Federal and State legislation and final implementation of regulations as of the time of its preparation. See section IV.K of this document for further discussion of AEO2023 assumptions that effect air pollutant emissions. The increase in emissions of some pollutants is due to an increase in electricity consumption. 8 To monetize the benefits of reducing GHG emissions this analysis uses the interim estimates presented in the Technical Support Document: Social Cost of Carbon, Methane, and Nitrous Oxide Interim Estimates Under Executive Order 13990 published in February 2021 by the IWG. (February 2021 SC–GHG TSD) (Available at: www.whitehouse.gov/wp-content/uploads/2021/02/ TechnicalSupportDocument_ SocialCostofCarbonMethaneNitrousOxide.pdf) (Last accessed August 1, 2023). 9 DOE did not monetize mercury emissions because the quantity is very small. 10 DOE estimates the economic value of these emissions reductions resulting from the considered TSLs for the purpose of complying with the requirements of Executive Order 12866. DOE’s analysis of the impacts of the adopted standards on consumers is described in section IV.F of this document. B. Impact on Manufacturers 4 The industry net present value (INPV) is the sum of the discounted cash flows to the industry from the base year through the end of the analysis period (2023–2058). The change in INPV is the present value of all changes in industry cash flow, including changes in production costs, conversion costs, and manufacturer profit margins. Using a real discount rate of 6.4 percent, DOE estimates that the INPV for manufacturers of NWGFs and MHGFs in the case without amended standards is $1,371.8 million in 2022$. Under the adopted standards, DOE estimates the change in INPV to range from ¥26.8 percent to ¥2.5 percent, which is a reduction of approximately ¥$367.3 million to ¥$33.8 million. In order to bring products into compliance with amended standards, it is estimated that industry will incur total conversion costs of $162.0 million (which are incorporated into the calculation of INPV). DOE’s analysis of the impacts of the adopted energy conservation standards on manufacturers is described in sections IV.J and V.B.2 of this document. C. National Benefits and Costs khammond on DSKJM1Z7X2PROD with RULES2 350 616 Simple payback period (years) VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 PO 00000 Frm 00004 Fmt 4701 Sfmt 4700 E:\FR\FM\18DER2.SGM 18DER2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations 87505 TABLE I.3—SUMMARY OF MONETIZED BENEFITS AND COSTS OF ADOPTED AFUE ENERGY CONSERVATION STANDARDS FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES [Trial Standard Level (TSL) 8] Billion 2022$ 3% discount rate Consumer Operating Cost Savings ..................................................................................................................................... Climate Benefits * ................................................................................................................................................................. Net Health Benefits ** .......................................................................................................................................................... 24.8 17.3 26.6 Total Monetized Benefits † .................................................................................................................................................. Consumer Incremental Product Costs ‡ .............................................................................................................................. 68.7 8.5 Net Monetized Benefits ....................................................................................................................................................... 60.2 Change in Producer Cashflow (INPV ‡‡) ............................................................................................................................ (0.37)—(0.03) 7% discount rate Consumer Operating Cost Savings ..................................................................................................................................... Climate Benefits * (3% discount rate) .................................................................................................................................. Net Health Benefits ** .......................................................................................................................................................... 9.3 17.3 8.7 Total Monetized Benefits † .................................................................................................................................................. Consumer Incremental Product Costs ‡ .............................................................................................................................. 35.3 4.5 Net Monetized Benefits ................................................................................................................................................ 30.8 Change in Producer Cashflow (INPV ‡‡) ............................................................................................................................ (0.37)—(0.03) khammond on DSKJM1Z7X2PROD with RULES2 Note: This table presents the costs and benefits associated with the subject consumer furnaces shipped in 2029–2058. These results include benefits to consumers which accrue after 2058 from the products shipped in 2029–2058. * Climate benefits are calculated using four different estimates of the social cost of carbon (SC–CO2), methane (SC–CH4), and nitrous oxide (SC–N2O) (model average at 2.5-percent, 3-percent, and 5-percent discount rates; 95th percentile at 3-percent discount rate) (see section IV.L of this document). Together these represent the global SC–GHG. For presentational purposes of this table, the climate benefits associated with the average SC–GHG at a 3-percent discount rate are shown; however, DOE emphasizes the importance and value of considering the benefits calculated using all four sets of SC–GHG estimates. To monetize the benefits of reducing GHG emissions, this analysis uses the interim estimates presented in the Technical Support Document: Social Cost of Carbon, Methane, and Nitrous Oxide Interim Estimates Under Executive Order 13990 published in February 2021 by the IWG. ** Health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only monetizing (for SO2 and NOX) PM2.5 precursor health benefits and (for NOX) ozone precursor health benefits, but will continue to assess the ability to monetize other effects such as health benefits from reductions in direct PM2.5 emissions. See section IV.L of this document for more details. † Total and net benefits include those consumer, climate, and health benefits that can be quantified and monetized. For presentation purposes, total and net benefits for both the 3-percent and 7-percent cases are presented using the average SC–GHG with 3-percent discount rate. ‡ Costs include incremental equipment costs as well as installation costs. ‡‡ Operating Cost Savings are calculated based on the LCC analysis and national impact analysis as discussed in detail below. See sections IV.F and IV.H of this document. DOE’s national impact analysis includes all impacts (both costs and benefits) along the distribution chain beginning with the increased costs to the manufacturer to manufacture the product and ending with the increase in price experienced by the consumer. DOE also separately conducts a detailed analysis on the impacts on manufacturers (the MIA). See section IV.J of this document. In the detailed MIA, DOE models manufacturers’ pricing decisions based on assumptions regarding investments, conversion costs, cashflow, and margins. The MIA produces a range of impacts, which is the rule’s expected impact on the INPV. The change in INPV is the present value of all changes in industry cash flow, including changes in production costs, capital expenditures, and manufacturer profit margins. Change in INPV is calculated using the industry weighted average cost of capital value of 6.4 percent that is estimated in the MIA (see chapter 12 of the final rule technical support document (‘‘TSD’’) for a complete description of the industry weighted average cost of capital). For NWGFs and MHGFs, those values are ¥$367 million to ¥$34 million. DOE accounts for that range of likely impacts in analyzing whether a TSL is economically justified. See section V.C of this document. DOE is presenting the range of impacts to the INPV under two manufacturer markup scenarios: the Preservation of Gross Margin scenario, which is the manufacturer markup scenario used in the calculation of Consumer Operating Cost Savings in this table, and the Tiered scenario, which models a reduction of manufacturer markups due to reduced product differentiation as a result of amended standards. DOE includes the range of estimated INPV in the above table, drawing on the MIA explained further in section IV.J of this document, to provide additional context for assessing the estimated impacts of this final rule to society, including potential changes in production and consumption, which is consistent with the Office of Management and Budget’s (OMB) Circular A–4 and E.O. 12866. If DOE were to include the INPV into the net benefit calculation for this final rule, the net benefits would range from $59.83 billion to $60.17 billion at 3-percent discount rate and would range from $30.43 billion to $30.77 billion at 7-percent discount rate. Parentheses ( ) indicate negative values. VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 PO 00000 Frm 00005 Fmt 4701 Sfmt 4700 E:\FR\FM\18DER2.SGM 18DER2 87506 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations The benefits and costs of the adopted standards can also be expressed in terms of annualized values. The monetary values for the total annualized net benefits are: (1) the reduced consumer operating costs, minus (2) the increase in product purchase prices and installation costs, plus (3) the value of climate and health benefits of emission reductions, all annualized.11 The national operating cost savings are domestic private U.S. consumer monetary savings that occur as a result of purchasing the covered products and are measured for the lifetime of NWGFs and MHGFs shipped in 2029–2058. The health benefits associated with reduced emissions achieved as a result of the adopted standards are also calculated based on the lifetime of NWGFs and MHGFs shipped in 2029–2058. Total benefits for both the 3-percent and 7percent cases are presented using the average GHG social costs with 3-percent discount rate.12 Estimates of total benefits are presented for all four SC– GHG discount rates in section V.B of this document. Table I.4 presents the total estimated monetized benefits and costs associated with the adopted standard, expressed in terms of annualized values. The results under the primary estimate are as follows. Using a 7-percent discount rate for consumer benefits and costs and health effects from changes in NOX and SO2 emissions, and the 3-percent discount rate case for climate benefits from reduced GHG emissions, the estimated cost of the standards adopted in this rule is $511 million per year in increased equipment costs, while the estimated annual benefits are $1,054 million in reduced equipment operating costs, $1,021 million in climate benefits, and $987 million in net health benefits. In this case, the net benefit amounts to $2,551 million per year. Using a 3-percent discount rate for all benefits and costs, the estimated cost of the adopted standards is $500 million per year in increased equipment costs, while the estimated annual benefits are $1,467 million in reduced operating costs, $1,021 million in climate benefits, and $1,574 million in net health benefits. In this case, the net benefit amounts to $3,561 million per year. TABLE I.4—ANNUALIZED MONETIZED BENEFITS AND COSTS OF ADOPTED STANDARDS FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES [TSL 8] Million 2022$/year Primary estimate Low-netbenefits estimate High-netbenefits estimate 3% discount rate Consumer Operating Cost Savings ............................................................................................. Climate Benefits * ......................................................................................................................... Net Health Benefits ** .................................................................................................................. Total Monetized Benefits † ................................................................................................... Consumer Incremental Product Costs ‡ ...................................................................................... Net Monetized Benefits ............................................................................................................... Change in Producer Cashflow (INPV ‡‡) .................................................................................... 1,467 1,021 1,574 4,061 500 3,561 (27)–(2) 1,528 1,003 1,546 4,077 520 3,557 (27)–(2) 1,440 1,028 1,585 4,053 489 3,564 (27)–(2) Consumer Operating Cost Savings ............................................................................................. Climate Benefits * (3% discount rate) .......................................................................................... Health Benefits ** ......................................................................................................................... Total Monetized Benefits † .......................................................................................................... Consumer Incremental Product Costs ‡ ...................................................................................... Net Monetized Benefits ............................................................................................................... 1,054 1,021 987 3,062 511 2,551 1,094 1,003 972 3,069 528 2,541 1,051 1,028 994 3,073 501 2,572 Change in Producer Cashflow (INPV ‡‡) .................................................................................... (27)–(2) (27)–(2) (27)–(2) 7% discount rate khammond on DSKJM1Z7X2PROD with RULES2 Note: This table presents the costs and benefits associated with the subject consumer furnaces shipped in 2029–2058. These results include consumer, health, and climate benefits which accrue after 2058 from the products shipped in 2029–2058. * Climate benefits are calculated using four different estimates of the global SC–GHG (see section IV.L of this document). For presentational purposes of this table, the climate benefits associated with the average SC–GHG at a 3-percent discount rate are shown; however, DOE emphasizes the importance and value of considering the benefits calculated using all four sets of SC–GHG estimates. To monetize the benefits of reducing GHG emissions, this analysis uses the interim estimates presented in the Technical Support Document: Social Cost of Carbon, Methane, and Nitrous Oxide Interim Estimates Under Executive Order 13990 published in February 2021 by the IWG. **Health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only monetizing (for SO2 and NOX) PM2.5 precursor health benefits and disbenefits and (for NOX) ozone precursor health benefits, but will continue to assess the ability to monetize other effects such as health benefits from reductions in direct PM2.5 emissions. See section IV.L of this document for more details. † Total benefits for both the 3-percent and 7-percent cases are presented using the average SC–GHG with 3-percent discount rate. ‡ Costs include incremental equipment costs as well as installation costs. 11 To convert the time-series of costs and benefits into annualized values, DOE calculated a present value in 2029, the year used for discounting the NPV of total consumer costs and savings. For the benefits, DOE calculated a present value associated with each year’s shipments in the year in which the shipments occur (e.g., 2030), and then discounted VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 the present value from each year to 2029. Using the present value, DOE then calculated the fixed annual payment over a 30-year period, starting in the compliance year, that yields the same present value. 12 As discussed in section IV.L.1 of this document, DOE agrees with the IWG that using consumption-based discount rates (e.g., 3 percent) PO 00000 Frm 00006 Fmt 4701 Sfmt 4700 is appropriate when discounting the value of climate impacts. Combining climate effects discounted at an appropriate consumption-based discount rate with other costs and benefits discounted at a capital-based rate (i.e., 7 percent) is reasonable because of the different nature of the types of benefits being measured. E:\FR\FM\18DER2.SGM 18DER2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations 87507 ‡‡ Operating Cost Savings are calculated based on the LCC analysis and national impact analysis as discussed in detail below. See sections IV.F and IV.H of this document. DOE’s national impact analysis includes all impacts (both costs and benefits) along the distribution chain beginning with the increased costs to the manufacturer to manufacture the product and ending with the increase in price experienced by the consumer. DOE also separately conducts a detailed analysis on the impacts on manufacturers (the MIA). See section IV.J of this document. In the detailed MIA, DOE models manufacturers’ pricing decisions based on assumptions regarding investments, conversion costs, cashflow, and margins. The MIA produces a range of impacts, which is the rule’s expected impact on the INPV. The change in INPV is the present value of all changes in industry cash flow, including changes in production costs, capital expenditures, and manufacturer profit margins. The annualized change in INPV is calculated using the industry weighted average cost of capital value of 6.4 percent that is estimated in the manufacturer impact analysis (see chapter 12 of the final rule TSD for a complete description of the industry weighted average cost of capital). For NWGFs and MHGFs, those values are ¥$27 million to ¥$2 million. DOE accounts for that range of likely impacts in analyzing whether a TSL is economically justified. See section V.C of this document. DOE is presenting the range of impacts to the INPV under two manufacturer markup scenarios: the Preservation of Gross Margin scenario, which is the manufacturer markup scenario used in the calculation of Consumer Operating Cost Savings in this table, and the Tiered scenario, where DOE assumed amended standards would result in a reduction of product differentiation and a compression of the markup tiers. DOE includes the range of estimated annualized change in INPV in the above table, drawing on the MIA explained further in section IV.J of this document, to provide additional context for assessing the estimated impacts of this final rule to society, including potential changes in production and consumption, which is consistent with OMB’s Circular A–4 and E.O. 12866. If DOE were to include the INPV into the annualized net benefit calculation for this final rule, the annualized net benefits would range from $3,534 million to $3,559 million at 3percent discount rate and would range from $2,524 million to $2,549 million at 7-percent discount rate. Parentheses ( ) indicate negative values. khammond on DSKJM1Z7X2PROD with RULES2 DOE’s analysis of the national impacts of the adopted standards is described in sections IV.H, IV.K, and IV.L of this document. D. Conclusion DOE concludes that the standards adopted in this final rule represent the maximum improvement in energy efficiency that is technologically feasible and economically justified, and would result in the significant conservation of energy. Specifically, with regards to technological feasibility, products achieving these standard levels are already commercially available for all product classes covered by this final rule. As for economic justification, DOE’s analysis shows that the benefits of the standards exceed, to a great extent, the burdens of the standards. Using a 7-percent discount rate for consumer benefits and costs and NOX and SO2 emissions reduction benefits, and a 3-percent discount rate case for GHG social costs, the estimated cost of the standards for NWGFs and MHGFs is $511 million per year in increased product costs, while the estimated annual benefits are $1,054 million in reduced product operating costs, $1,021 million in climate benefits, and $987 million in health benefits. The net benefit amounts to $2,551 million per year. DOE notes that the net benefits are substantial even in the absence of the climate benefits,13 and DOE would adopt the same standards in the absence of such benefits. The significance of energy savings offered by a new or amended energy conservation standard cannot be determined without knowledge of the specific circumstances surrounding a given rulemaking.14 For example, some covered products and equipment have 13 The information on climate benefits is provided in compliance with Executive Order 12866. 14 Procedures, Interpretations, and Policies for Consideration in New or Revised Energy Conservation Standards and Test Procedures for Consumer Products and Commercial/Industrial Equipment, 86 FR 70892, 70901 (Dec. 13, 2021). VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 most of their energy consumption occur during periods of peak energy demand. The impacts of these products on the energy infrastructure can be more pronounced than products with relatively constant demand. Accordingly, DOE evaluates the significance of energy savings on a caseby-case basis. As previously mentioned, the standards are projected to result in estimated national energy savings of 4.77 quad (full-fuel-cycle (‘‘FFC’’)), the equivalent of the primary annual energy use of 51 million homes. Based on these findings, DOE has determined that the energy savings from the standard levels adopted in this final rule are ‘‘significant’’ within the meaning of 42 U.S.C. 6295(o)(3)(B). A more detailed discussion of the basis for these conclusions is contained in the remainder of this document and the accompanying technical support document (‘‘TSD’’). II. Introduction The following section briefly discusses the statutory authority underlying this final rule, as well as some of the relevant historical background related to the amended standards for consumer NWGFs and MHGFs. A. Authority EPCA authorizes DOE to regulate the energy efficiency of a number of consumer products and certain industrial equipment. Title III, Part B of EPCA established the Energy Conservation Program for Consumer Products Other Than Automobiles. (42 U.S.C. 6291–6309) These products include the consumer furnaces that are the subject of this document. (42 U.S.C. 6292(a)(5)) EPCA prescribed energy conservation standards for these products (42 U.S.C. 6295(f)(1) and (2)), and directs DOE to conduct future rulemakings to determine whether to amend these standards. (42 U.S.C. PO 00000 Frm 00007 Fmt 4701 Sfmt 4700 6295(f)(4)) EPCA further provides that, not later than six years after the issuance of any final rule establishing or amending a standard, DOE must publish either a notice of determination that standards for the product do not need to be amended, or a NOPR including new proposed energy conservation standards (proceeding to a final rule, as appropriate). (42 U.S.C. 6295(m)(1)) The energy conservation program under EPCA consists essentially of four parts: (1) testing, (2) labeling, (3) the establishment of Federal energy conservation standards, and (4) certification and enforcement procedures. Relevant provisions of the EPCA specifically include definitions (42 U.S.C. 6291), coverage (42 U.S.C. 6292), test procedures (42 U.S.C. 6293), labeling provisions (42 U.S.C. 6294), energy conservation standards (42 U.S.C. 6295), and the authority to require information and reports from manufacturers (42 U.S.C. 6296). Federal energy efficiency requirements for covered products established under EPCA generally supersede State laws and regulations concerning energy conservation testing, labeling, and standards. (42 U.S.C. 6297(a)–(c)) DOE may, however, grant waivers of Federal preemption in limited instances for particular State laws or regulations, in accordance with the procedures and other provisions set forth under EPCA. (42 U.S.C. 6297(d)) Subject to certain statutory criteria and conditions, DOE is required to develop test procedures that are reasonably designed to produce test results that measure the energy efficiency, energy use, or estimated annual operating cost of each covered product during a representative average use cycle and that are not unduly burdensome to conduct. (42 U.S.C. 6293(b)(3), 6295(o)(3)(A), and 6295(r)) Manufacturers of covered products must use the prescribed Federal test procedure as the basis for: (1) certifying to DOE that their products comply with E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 87508 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations the applicable energy conservation standards adopted pursuant to EPCA and (2) making representations regarding the energy use or efficiency of those products. (42 U.S.C. 6293(c) and 6295(s)) Similarly, DOE must use these test procedures to determine whether the products comply with the relevant energy conservation standards promulgated under EPCA. (42 U.S.C. 6295(s)) The DOE test procedures for consumer furnaces appear at title 10 of the Code of Federal Regulations (CFR), part 430, subpart B, appendix N. DOE must follow specific statutory criteria for prescribing new or amended energy conservation standards for covered products, including consumer furnaces. Any new or amended standard for a covered product must be designed to achieve the maximum improvement in energy efficiency that the Secretary of Energy determines is technologically feasible and economically justified. (42 U.S.C. 6295(o)(2)(A) and 6295(o)(3)(B)) Furthermore, DOE may not adopt any standard that would not result in the significant conservation of energy. (42 U.S.C. 6295(o)(3)) Moreover, DOE may not prescribe a standard: (1) for certain products, including NWGFs and MHGFs, if no test procedure has been established for the product, or (2) if DOE determines by rule that the standard is not technologically feasible or economically justified. (42 U.S.C. 6295(o)(3)(A)–(B)) In deciding whether a proposed standard is economically justified, DOE must determine whether the benefits of the standard exceed its burdens. (42 U.S.C. 6295(o)(2)(B)(i)) DOE must make this determination after receiving comments on the proposed standard, and by considering, to the greatest extent practicable, the following seven statutory factors: (1) The economic impact of the standard on manufacturers and on consumers of the products subject to the standard; (2) The savings in operating costs throughout the estimated average life of the covered products in the type (or class) compared to any increase in the price of, initial charges for, or maintenance expenses of, the covered products which are likely to result from the imposition of the standard; (3) The total projected amount of energy (or as applicable, water) savings likely to result directly from the imposition of the standard; (4) Any lessening of the utility or the performance of the covered products likely to result from the imposition of the standard; (5) The impact of any lessening of competition, as determined in writing VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 by the Attorney General, that is likely to result from the imposition of the standard; (6) The need for national energy and water conservation; and (7) Other factors the Secretary of Energy (Secretary) considers relevant. (42 U.S.C. 6295(o)(2)(B)(i)(I)–(VII)) Further, EPCA establishes a rebuttable presumption that a standard is economically justified if the Secretary finds that the additional cost to the consumer of purchasing a product complying with an energy conservation standard level will be less than three times the value of the energy savings during the first year that the consumer will receive as a result of the standard, as calculated under the applicable test procedure. (42 U.S.C. 6295(o)(2)(B)(iii)) EPCA also contains what is known as an ‘‘anti-backsliding’’ provision, which prevents the Secretary from prescribing any amended standard that either increases the maximum allowable energy use or decreases the minimum required energy efficiency of a covered product. (42 U.S.C. 6295(o)(1)) Also, the Secretary may not prescribe an amended or new standard if the Secretary finds (and publishes such finding) that interested persons have established by a preponderance of the evidence that the standard is likely to result in the unavailability in the United States in any covered product type (or class) of performance characteristics (including reliability), features, sizes, capacities, and volumes that are substantially the same as those generally available in the United States at the time of the Secretary’s finding. (42 U.S.C. 6295(o)(4)) Additionally, EPCA specifies requirements when promulgating an energy conservation standard for a covered product that has two or more subcategories that warrant separate product classes and energy conservation standards with a different level of energy efficiency or energy use than that which would apply for such group of covered products which have the same function or intended use. DOE must specify a different standard level for a type or class of products that has the same function or intended use if DOE determines that products within such group: (A) consume a different kind of energy from that consumed by other covered products within such type (or class); or (B) have a capacity or other performance-related feature which other products within such type (or class) do not have and such feature justifies a higher or lower standard. (42 U.S.C. 6295(q)(1)) In determining whether a performance-related feature justifies a different standard for a group of PO 00000 Frm 00008 Fmt 4701 Sfmt 4700 products, DOE must consider such factors as the utility to the consumer of such a feature and other factors DOE deems appropriate. Id. Any rule prescribing such a standard must include an explanation of the basis on which such higher or lower level was established. (42 U.S.C. 6295(q)(2)) Pursuant to amendments contained in the Energy Independence and Security Act of 2007 (EISA 2007), Public Law 110–140, DOE may consider the establishment of a regional energy conservation standard for furnaces (except boilers). (42 U.S.C. 6295(o)(6)) Specifically, in addition to a base national standard for a product, DOE may establish for furnaces a single more-restrictive regional standard. (42 U.S.C. 6295(o)(6)(B)) The region must include only contiguous States (with the exception of Alaska and Hawaii, which may be included in a region with which they are not contiguous), and each State may be placed in only one region (i.e., an entire State cannot simultaneously be placed in two regions, nor can it be divided between two regions).15 (42 U.S.C. 6295(o)(6)(C)) Further, DOE can establish the additional regional standard for furnaces only: (1) where doing so would produce significant energy savings in comparison to a single national standard; (2) if the regional standard is economically justified; and (3) after considering the impact of such standard on consumers, manufacturers, and other market participants, including product distributors, dealers, contractors, and installers. (42 U.S.C. 6295(o)(6)(D)) Finally, pursuant to the amendments contained in EISA 2007, any final rule for new or amended energy conservation standards promulgated after July 1, 2010, is required to address standby mode and off mode energy use. (42 U.S.C. 6295(gg)(3)) Specifically, when DOE adopts a standard for a covered product after that date, it must, if justified by the criteria for adoption of standards under EPCA (42 U.S.C. 6295(o)), incorporate standby mode and off mode energy use into a single standard, or, if that is not feasible, adopt a separate standard for such energy use for that product if doing so would be consistent with section 6295(o). (42 U.S.C. 6295(gg)(3)(A)–(B)) DOE’s current test procedures for consumer furnaces address standby mode and off mode 15 DOE notes that the regional standards provision at 42 U.S.C. 6295(o)(6) also applies to central air conditioners and heat pumps, products for which the statute permits either one or two regional standards. This is in contrast to furnaces, for which EPCA permits only one regional standard. As a result, the statute frequently employs plural language in these provisions. E:\FR\FM\18DER2.SGM 18DER2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations energy use for all covered consumer furnaces. DOE’s energy conservation standards address standby mode and off mode energy use only for nonweatherized oil-fired and electric furnaces. 10 CFR 430.32(e)(1)(iii). In the NOPR published in the Federal Register on July 7, 2022 (‘‘the July 2022 NOPR’’), DOE proposed to specify new energy conservation standards to address the standby mode and off mode energy use of NWGFs and MHGFs. 87 FR 40590, 40706. However, for the reasons discussed in section III.A.8 of this document, DOE has concluded that it would not be consistent with section 6295(o) to adopt standby mode and off mode energy standards for NWGFs and MHGFs in this final rule. DOE will continue to investigate and analyze appropriate standby mode and off mode energy consumption standards for these products in a future rulemaking. B. Background 1. Current Standards The most recent energy conservation standards for NWGFs and MHGFs were adopted in a final rule published in the Federal Register on November 19, 2007 (‘‘November 2007 Final Rule’’), in which DOE prescribed amended energy conservation standards for consumer furnaces manufactured on or after November 19, 2015. 72 FR 65136. The November 2007 Final Rule revised the energy conservation standards to 80percent AFUE for NWGFs, to 81-percent AFUE for weatherized gas furnaces, to 80-percent AFUE for MHGFs, and to 82percent AFUE for non-weatherized oilfired furnaces.16 72 FR 65136, 65169. Based on market assessment and the standard levels under consideration (and that were ultimately adopted), the November 2007 Final Rule established 87509 standards without regard to the certified input capacity of a furnace. Id. Following a series of publications described in section II.B.2 of this document and discussed in further detail in the July 2022 NOPR (see 87 FR 40590, 40601–40602 (July 7, 2022)), required compliance with the standards established in the November 2007 Final Rule for these products began on November 19, 2015. The standards currently applicable to all consumer furnaces, including the two product classes for which DOE is amending standards in this final rule, are set forth in DOE’s regulations at 10 CFR 430.32(e)(1)(ii). Table II.1 presents the currently applicable standards for NWGFs and MHGFs and the date on which compliance with that standard was required. TABLE II.1—CURRENT FEDERAL ENERGY CONSERVATION STANDARDS FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES Minimum annual fuel utilization efficiency (%) Product class Non-weatherized Gas .............................................................................................................................................. Mobile Home Gas .................................................................................................................................................... 11/19/2015 11/19/2015 Given the somewhat complicated interplay of recent DOE rulemakings and statutory provisions related to consumer furnaces, DOE provides the following regulatory history as background leading to this document. Amendments to EPCA in the National Appliance Energy Conservation Act of 1987 (‘‘NAECA’’), Public Law 100–12, established EPCA’s original energy conservation standards for furnaces, consisting of the minimum AFUE levels for mobile home furnaces 17 and for all other furnaces except ‘‘small’’ gas furnaces. (42 U.S.C. 6295(f)(1)–(2)) The original standards established a minimum AFUE of 75 percent for mobile home furnaces and 78 percent for all other furnaces. Pursuant to 42 U.S.C. 6295(f)(1)(B), in a final rule published in the Federal Register on November 17, 1989 (‘‘the November 1989 Final Rule’’), DOE adopted a mandatory minimum AFUE level for ‘‘small’’ furnaces. 54 FR 47916. The standards established by NAECA and the November 1989 Final Rule for ‘‘small’’ gas furnaces are still in effect for mobile home oil-fired furnaces, weatherized oil-fired furnaces, and electric furnaces. Pursuant to EPCA, DOE was required to conduct two rounds of rulemaking to consider amended energy conservation standards for furnaces. (42 U.S.C. 6295(f)(4)(B) and (C)) In satisfaction of this first round of amended standards rulemaking under 42 U.S.C. 6295(f)(4)(B), as noted previously, DOE published the November 2007 Final Rule that revised these standards for most furnaces, but left them in place for two product classes (i.e., mobile home oil-fired furnaces and weatherized oilfired furnaces).18 The standards amended in the November 2007 Final Rule were to apply to furnaces manufactured or imported on and after November 19, 2015; this compliance date was consistent with the 8-year statutory lead time provided under 42 U.S.C. 6295(f)(4)(B). 72 FR 65136 (Nov. 19, 2007). The energy conservation standards in the November 2007 Final Rule consist of a minimum AFUE level for each of the six classes of furnaces. Id. at 72 FR 65169. As previously noted, based on the market analysis for the November 2007 Final Rule and the standards established under that rule, the November 2007 Final Rule 16 Although the November 2007 Final Rule did not explicitly state the standards for oil-fired furnaces were applicable only to non-weatherized oil-fired furnaces, the NOPR that preceded the final rule made clear that DOE did not perform analysis of and was not proposing standards for weatherized oil-fired furnaces or mobile home oil-fired furnaces. 71 FR 59203, 52914 (Oct. 6, 2006). Thus, the proposed standards that were ultimately adopted in the November 2007 Final Rule only applied to nonweatherized oil-fired furnaces. 17 DOE notes that prior to June 15, 1976, prefabricated homes that were built in a factory were commonly referred to as ‘‘mobile homes,’’ as reflected in the terminology used in EPCA. However, such dwellings built after that date came to be known as ‘‘manufactured homes’’ and have to meet specific construction standards required by the U.S. Department of Housing and Urban Development (HUD) Code. (24 CFR part 3280) DOE’s mobile home furnace standards apply to furnaces designed for and intended to be used in both mobile and manufactured homes that meet DOE’s ‘‘mobile home furnace’’ definition at 10 CFR 430.2. 18 The November 2007 Final Rule adopted amended standards for ‘‘oil-fired furnaces’’ generally. However, on July 28, 2008, DOE published a final rule technical amendment in the Federal Register that clarified that the amended standards adopted in the November 2007 Final Rule for oil-fired furnaces did not apply to mobile home oil-fired furnaces and weatherized oil-fired furnaces; rather they were only applicable for nonweatherized oil-fired furnaces. 73 FR 43611, 43613. 2. History of Standards Rulemaking for Consumer Furnaces khammond on DSKJM1Z7X2PROD with RULES2 80 80 Compliance date VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 PO 00000 Frm 00009 Fmt 4701 Sfmt 4700 E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 87510 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations eliminated the distinction between furnaces based on their certified input capacity (i.e., the standards applicable to ‘‘small’’ furnaces were established at the same level and as part of their appropriate class of furnace generally). Id. On June 27, 2011, DOE published a direct final rule (‘‘DFR’’) in the Federal Register (‘‘June 2011 DFR’’) revising the energy conservation standards for residential furnaces pursuant to the voluntary remand in State of New York, et al. v. Department of Energy, et al. 76 FR 37408 (June 27, 2011). In the June 2011 DFR, DOE considered the amendment of the same six product classes considered in the November 2007 Final Rule analysis plus electric furnaces. Id. at 76 FR 37445. The June 2011 DFR amended the existing AFUE energy conservation standards for NWGFs, MHGFs, and non-weatherized oil furnaces, and amended the compliance date (but left the existing standards in place) for weatherized gas furnaces.19 Id. at 76 FR 37410. The existing AFUE standards were left in place for three classes of consumer furnaces (i.e., weatherized oil-fired furnaces, mobile home oil-fired furnaces, and electric furnaces). The June 2011 DFR also established electrical standby mode and off mode energy conservation standards for NWGFs (including mobile home furnaces), non-weatherized oil furnaces (including mobile home furnaces), and electric furnaces. DOE confirmed the standards and compliance dates promulgated in the June 2011 DFR in a notice of effective date and compliance dates published in the Federal Register on October 31, 2011. 76 FR 67037. Compliance with the energy conservation standards promulgated in the June 2011 DFR was to be required on May 1, 2013, for non-weatherized furnaces and on January 1, 2015, for weatherized furnaces. 76 FR 37408, 37547–37548 (June 27, 2011); 76 FR 67037, 67051 (Oct. 31, 2011). The amended energy conservation standards and compliance dates in the June 2011 DFR superseded those standards and compliance dates promulgated by the November 2007 Final Rule for NWGFs, MHGFs, and non-weatherized oil furnaces. Similarly, the amended compliance date for weatherized gas furnaces in the June 2011 DFR 19 For NWGFs and MHGFs, the standards were amended to a level of 80-percent AFUE nationally with a more-stringent 90-percent AFUE requirement in the Northern region. For non-weatherized oilfired furnaces, the standard was amended to 83percent AFUE nationally. 76 FR 37408, 37410 (June 27, 2011). VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 superseded the compliance date in the November 2007 Final Rule. Following DOE’s adoption of the June 2011 DFR, the American Public Gas Association (‘‘APGA’’) filed a petition for review with the United States Court of Appeals for the District of Columbia Circuit (‘‘D.C. Circuit’’) to invalidate the DOE rule as it pertained to NWGFs. Petition for Review, American Public Gas Ass’n, et al. v. U.S. Dep’t of Energy, et al., No. 11–1485 (D.C. Cir. filed Dec. 23, 2011).20 The parties to the litigation engaged in settlement negotiations which ultimately led to filing of an unopposed motion on March 11, 2014, seeking to vacate DOE’s rule in part and to remand to the agency for further rulemaking. On April 24, 2014, the Court granted a motion that approved a settlement agreement that was reached between DOE and APGA, in which DOE agreed to a partial vacatur and remand of the NWGFs and MHGFs portions of the June 2011 DFR in order to conduct further notice-and-comment rulemaking. Accordingly, the Court’s order vacated the June 2011 DFR in part (i.e., those portions relating to NWGFs and MHGFs) and remanded to the agency for further rulemaking. As part of the settlement, DOE agreed to use best efforts to issue a notice of proposed rulemaking within one year of the remand, and to issue a final rule within the later of two years of the issuance of remand, or one year of the issuance of the proposed rule, including at least a 90-day public comment period. Due to the extensive and recent rulemaking history for residential furnaces, as well as the associated opportunities for notice and comment described previously, DOE forwent the typical earlier rulemaking stages (e.g., framework document, preliminary analysis) and instead published a NOPR in the Federal Register on March 12, 2015 (‘‘March 2015 NOPR’’). 80 FR 13120. DOE concluded that there was a sufficient recent exchange of information between interested parties and DOE regarding the energy conservation standards for residential furnaces such as to allow for this proceeding to move directly to the NOPR stage. Moreover, under 42 U.S.C. 6295(p) and 5 U.S.C. 553(b) and (c), EPCA requires that DOE publish only a notice of proposed rulemaking and accept public comments before amending energy conservation standards in a final rule (i.e., DOE is not 20 After APGA filed its petition for review on December 23, 2011, various entities subsequently intervened. PO 00000 Frm 00010 Fmt 4701 Sfmt 4700 required by statute to conduct any earlier rulemaking stages).21 In the March 2015 NOPR, DOE proposed adopting a national standard of 92-percent AFUE for all NWGFs and MHGFs. 80 FR 13120, 13198 (March 12, 2015). In response, while some stakeholders supported the national 92percent AFUE standard, others opposed the proposed standards and encouraged DOE to withdraw the March 2015 NOPR. Multiple parties suggested that DOE should create a separate product class for furnaces based on input capacity and set lower standards for ‘‘small furnaces’’ in order to mitigate some of the negative impacts of the proposed standards. Among other reasons, commenters suggested that such an approach would reduce the number of low-income consumers switching to electric heat due to higher installation costs, because those consumers typically have smaller homes in which a furnace with a lower input capacity would be installed and, therefore, would not be impacted if a condensing standard were adopted only for higher-input-capacity furnaces. To explore the potential impacts of such an approach, DOE published a notice of data availability (‘‘NODA’’) in the Federal Register on September 14, 2015 (‘‘September 2015 NODA’’). 80 FR 55038. The September 2015 NODA contained analysis that considered thresholds for defining the small NWGF product class from 45 thousand British thermal units per hour (‘‘kBtu/h’’) to 65 kBtu/h certified input capacity and maintaining a non-condensing 80percent AFUE standard for that product class, while increasing the standard to a condensing level (i.e., either 90-percent, 92-percent, 95-percent, or 98-percent AFUE) for large NWGFs. Id. at 80 FR 55042. The results indicated that lifecycle cost savings increased and that the share of consumers with net costs decreased as a result of an 80-percent AFUE standard for a small NWGF product class. Id. at 80 FR 55042–55044. It also showed that national energy savings increased because fewer consumers switched to electric heat.22 Id. at 80 FR 55038, 55044. Therefore, DOE published a supplemental notice of proposed rulemaking (‘‘SNOPR’’) in the Federal 21 This aligns with the direction provided in the final rule published in the Federal Register on December 13, 2021, regarding the procedures, interpretations, and policies for consideration in new or revised energy conservation standards and test procedures for consumer products and commercial/industrial equipment (December 2021 Final Rule). 86 FR 70892, 70922. 22 In terms of full-fuel-cycle energy, switching from gas to electricity increases energy use because of the losses in thermal electricity generation. E:\FR\FM\18DER2.SGM 18DER2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 Register on September 23, 2016 (‘‘September 2016 SNOPR’’) that proposed separate standards for small and large NWGFs.23 81 FR 65720. For NWGFs with input capacities of 55 kBtu/h or less, DOE proposed to maintain the standard at 80-percent AFUE. Id. at 81 FR 65852. For all other NWGFs and for all MHGFs, DOE proposed a standard of 92-percent AFUE. Id. As was the case in the September 2015 NODA, a small NWGF product class was shown to reduce the number of consumers experiencing net costs due to higher installation costs for condensing furnaces or switching to electric heat. In the September 2016 SNOPR, DOE initially determined that the combination of a 55 kBtu/h product class threshold and a 92-percent AFUE standard for all NWGFs above that size appropriately balanced the costs and benefits. DOE also noted in that SNOPR that a 60 kBtu/h threshold may also be economically justified based on the analysis, and sought further comment regarding the particular size threshold proposed. 81 FR 65720, 65755 (Sept. 23, 2016). In addition, for the March 2015 NOPR and September 2016 SNOPR, DOE analyzed energy conservation standards for the standby mode and off mode energy use of NWGFs and MHGFs, as required by EPCA. (42 U.S.C. 6295(gg)(3); 80 FR 13120, 13198; 81 FR 65720, 65759–65760) In both the March 2015 NOPR and the September 2016 SNOPR, DOE proposed a maximum energy use of 8.5 watts (‘‘W’’) in both standby mode and off mode for NWGFs and MHGFs. 80 FR 13120, 13198 (March 12, 2015) and 81 FR 65720, 65852 (Sept. 23, 2016). On January 15, 2021, in response to a petition for rulemaking 24 submitted by the American Public Gas Association, Spire, Inc., the Natural Gas Supply Association, the American Gas Association, and the National Propane Gas Association (the ‘‘Gas Industry Petition’’), DOE published a final interpretive rule (‘‘January 2021 Final Interpretive Rule’’) 25 in the Federal Register, determining that, in the 23 DOE initially provided 60 days for comment on the SNOPR, and subsequently reopened the comment period an additional 30 days. 81 FR 87493 (Dec. 5, 2016). 24 DOE published the Gas Industry Petition in the Federal Register for comment on November 1, 2018. 83 FR 54838. 25 DOE published a proposed interpretive rule (‘‘July 2019 Proposed Interpretive Rule’’) in the Federal Register for comment on July 11, 2019. 84 FR 22011. DOE also published a supplemental proposed interpretive rule (‘‘September 2020 Supplemental Proposed Interpretive Rule’’) in the Federal Register for comment on September 24, 2020. 85 FR 60090. VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 context of residential furnaces, commercial water heaters, and similarly situated products/equipment, use of non-condensing technology (and associated venting) constitutes a performance-related ‘‘feature’’ under EPCA that cannot be eliminated through adoption of an energy conservation standard. 86 FR 4776. Correspondingly, on the same day, DOE published in the Federal Register a notification withdrawing the March 2015 NOPR and the September 2016 SNOPR for NWGFs and MHGFs, because DOE determined that those rulemaking documents were inconsistent with its revised interpretation. 86 FR 3873 (Jan. 15, 2021). The interpretation adopted by the January 2021 Final Interpretive Rule reflected a significant departure from DOE’s previous and long-standing interpretation (reflected in practice through decades of rulemaking and explicitly discussed in the December 2021 Final Interpretive Rule, with examples) that the type of technology (e.g., non-condensing technology (and associated venting)) used to generate a furnace’s heat did not provide a distinct consumer utility as would constitute a performance-related ‘‘feature’’ pursuant to 42 U.S.C. 6295(o)(4) that DOE may not eliminate by way of an energy conservation standard. The January 2021 Final Interpretive Rule justified this change by focusing on: (1) the potential space constraints arising from switching from non-condensing furnaces (and associated venting) to condensing furnaces (and associated venting) in replacement applications, including certain situations where such changes may not be possible; (2) the potential need for significant and unwelcome physical modifications to a home or business (e.g., by adding new venting into the living/commercial space or decreasing closet or other storage/retail space), thereby impacting consumer utility, and (3) a policy decision to remain neutral regarding competing energy sources in the marketplace and maintaining a broader range of consumer choice for the relevant appliances across fuel types. 86 FR 4776, 4816 (Jan. 15, 2021). (See the January 2021 Final Interpretive Rule for a more complete discussion of DOE’s rationale for its changed interpretation.) The anticipated result of DOE’s change in interpretation was that the Department would set separate product classes and standards for condensing and non-condensing furnaces in its ongoing furnaces energy conservation standards rulemaking. On January 20, 2021, the President issued Executive Order 13990, PO 00000 Frm 00011 Fmt 4701 Sfmt 4700 87511 ‘‘Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis.’’ 86 FR 7037 (Jan. 25, 2021). Section 1 of that order lists several policies related to the protection of public health and the environment, including reducing greenhouse gas emissions and bolstering the Nation’s resilience to climate change. Id. at 86 FR 7037. Section 2 of the order also asks all agencies to review ‘‘existing regulations, orders, guidance documents, policies, and any other similar agency actions (‘‘agency actions’’) promulgated, issued, or adopted between January 20, 2017, and January 20, 2021, that are or may be inconsistent with, or present obstacles to, [these policies].’’ Id. Agencies are then directed, as appropriate and consistent with applicable law, to consider suspending, revising, or rescinding these agency actions and to immediately commence work to confront the climate crisis. Id. In light of the requirements under the EPCA, and in a manner consistent with E.O. 13990, DOE undertook a re-evaluation of the final interpretation and withdrawal of proposed rulemakings published in the Federal Register on January 15, 2021, and DOE published a proposed interpretive rule in the Federal Register on August 27, 2021, to once again address this matter. 86 FR 48049. Following the re-evaluation of the January 2021 Final Interpretive Rule and consideration of public comments, DOE published a final interpretive rule in the Federal Register on December 29, 2021 (‘‘December 2021 Final Interpretive Rule’’),26 that returns to DOE’s previous and long-standing interpretation (in effect prior to the January 2021 Final Interpretive Rule).27 86 FR 73947. Residential furnaces were one of the two primary focuses of the December 2021 Final Interpretive Rule (along with commercial water heaters), and in that document, DOE offered an extensive explanation for why it does not view non-condensing technology and associated venting to be a performance-related feature warranting 26 DOE published a proposed interpretive rule (‘‘August 2021 Proposed Interpretive Rule’’) in the Federal Register for comment on August 27, 2021. 86 FR 48049. 27 Prior to the January 2021 Final Interpretive Rule, DOE had not had a formal interpretation of EPCA’s ‘‘features’’ provision at 42 U.S.C. 6295(o)(4), but instead, it had examined the consumer utility of potential appliance features in the context of individual energy conservation standards rulemakings. These rulemakings, which outline relevant DOE precedent prior to the January 2021 Final Interpretive Rule, are presented in some detail in the December 2021 Final Interpretive Rule (see 86 FR 73947, 73952–73958 (Dec. 29, 2021)). E:\FR\FM\18DER2.SGM 18DER2 87512 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations a separate product class for such furnaces. As noted previously, in the December 2021 Final Interpretive Rule, DOE also included examples in other rules that are consistent with DOE’s previous and long-standing interpretation. As DOE explained, noncondensing technology is not a performance-related feature because it does not affect the consumer utility of the product (i.e., providing heat, irrespective of venting type). DOE noted the availability of technological alternatives for difficult installation situations and explained that it would properly account for the costs of such installations when considering a standard’s economic justification. DOE has considered concerns regarding specific installation circumstances in the context of this product-specific rulemaking. See 86 FR 73947 (Dec. 29, 2021). In conducting its review of the January 2021 Final Interpretive Rule under the requirements of EPCA and in a manner consistent with E.O. 13990, DOE ultimately arrived at a different determination in the December 2021 Final Interpretive Rule, based on a policy that emphasizes furtherance of the congressional purpose of improving the energy efficiency of covered products and equipment. DOE reasoned that maintaining less-efficient technologies which do not provide distinct consumer utility is contrary to the purposes of EPCA ‘‘to conserve energy supplies through energy conservation programs, and, where necessary, the regulation of certain energy uses’’ (42 U.S.C. 6201(4)) and ‘‘to provide for improved energy efficiency of . . . major appliances, and certain other consumer products’’ (42 U.S.C. 6201(5)). Such purposes are further reflected in the specific provisions of EPCA granting DOE authority to prescribe energy conservation standards designed to achieve the maximum improvement in energy efficiency, which are technologically feasible and economically justified. (42 U.S.C. 6295(o)(2)(A)). As discussed more fully in the December 2021 Final Interpretive Rule, DOE concluded that the concerns motivating its changed interpretation reflected in the January 2021 Final Interpretive Rule (i.e., space constraints/ difficult installation situations, the potential for unwanted physical modifications, and maintaining consumer choice of appliances across fuel types) could be addressed by other means. DOE found that these issues could be resolved through available technological solutions or by switching to an appliance using alternative technologies (e.g., a heat pump). 86 FR 73947, 73960 (Dec. 29, 2021). DOE further concluded that the potential for fuel switching is likely to be limited and that there will continue to be a range of product availability across fuel types. Id. at 86 FR 73964. Given the binary nature of the question at hand—whether noncondensing technology (and associated venting) is or is not a ‘‘feature’’ under 42 U.S.C. 6295(o)(4)—DOE did not identify any other policy alternatives on this matter. DOE further notes that it does not anticipate any strong reliance interests associated with the rescinded January 2021 Final Interpretive Rule, given that it was rescinded less than a year after its issuance and the fact that it was never applied in the context of any energy conservation standards rulemaking for a specific appliance.28 On July 7, 2022, DOE published the July 2022 NOPR in the Federal Register. 87 FR 40590. Consistent with the December 2021 Final Interpretive Rule, in conducting the analysis for the July 2022 NOPR, DOE did not consider identifying separate product classes based on condensing technologies and associated venting systems when analyzing potential energy conservation standards. Based on the results of the NOPR analysis, DOE proposed amended AFUE standards at 95-percent AFUE for both NWGFs and MHGFs, as well as an 8.5 W energy use standard for standby mode and off mode energy consumption. 87 FR 40590, 40706 (July 7, 2022). Additionally, on August 30, 2022, DOE published in the Federal Register a Notice of Data Availability (NODA) (August 2022 NODA) announcing an extension of the comment period, making available a revised version of the LCC spreadsheet supporting the July 2022 NOPR, and announcing a public meeting webinar on September 6, 2022, to assist stakeholders with operation of the LCC spreadsheet. 87 FR 52861. DOE received 3,636 comments in response to the July 2022 NOPR and August 2022 NODA from the interested parties listed in Table II.2. (Note that of these total comments, 3,552 comments were ‘‘form letter’’ email submissions contained in docket entry EERE–2014– BT–STD–0031–0348. Additionally, several commenters submitted more than one comment to the docket.) khammond on DSKJM1Z7X2PROD with RULES2 TABLE II.2—JULY 2022 NOPR COMMENTS Comment number in the Docket Commenter(s) Abbreviation Eduardo Veiga ....................................................................... Scott Willis ............................................................................. Johanna E. Neumann ............................................................ Anonymous 1 ......................................................................... American Public Gas Association; American Gas Association; Spire Inc.; Spire Missouri Inc.; Spire Alabama Inc.; National Propane Gas Association. A. Kessler Consulting, LLC ................................................... Natalie Guarin ........................................................................ Hayes Arnold ......................................................................... Christina Haag ....................................................................... Adelita G. Cantu .................................................................... Kim Marcellini ........................................................................ Kaitlynn Liset ......................................................................... Raelene Shippee-Rice ........................................................... Veiga ..................................... Willis ...................................... Neumann ............................... Anonymous 1 ........................ Joint Gas Commenters 29 ...... 326 327 328 329 330 Individual. Individual. Individual. Individual. Utilities and Utility Trade Associations. A. Kessler Consulting ............ Guarin .................................... Arnold .................................... Haag ...................................... Cantu ..................................... Marcellini ............................... Liset ....................................... Shippee-Rice ......................... 331 332 333 334 335 336 338 339 Industry Representative. Individual. Individual. Individual. Individual. Individual. Individual. Individual. 28 A number of States and municipalities filed a legal challenge to the January 2021 Final Interpretive Rule in the U.S. Circuit Court of Appeals for the Second Circuit on March 16, 2021. State of New York, et al. v. U.S. Dep’t of Energy, No. 21–602 (2d Cir. filed March 16, 2021). VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 29 Although the stakeholders who authored the comments EERE–2014–BT–STD–0031–0330, EERE– 2014–BT–STD–0031–0345, EERE–2014–BT–STD– 0031–0356, and EERE–2014–BT–STD–0031–0362 refer to themselves as the ‘‘Joint Requestors,’’ Atmos Energy was not listed as a contributor to EERE– PO 00000 Frm 00012 Fmt 4701 Sfmt 4700 Commenter type 2014–BT–STD–0031–0330. Therefore, to distinguish the groups of authors, the authors of EERE–2014–BT–STD–0031–0330 are herein referred to as the ‘‘Joint Gas Commenters.’’ E:\FR\FM\18DER2.SGM 18DER2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations 87513 TABLE II.2—JULY 2022 NOPR COMMENTS—Continued Abbreviation Lee’s Air, Plumbing, & Heating ............................................. Lee’s Air, Plumbing, & Heating. NGSA .................................... MHI ........................................ Joint Requesters ................... Natural Gas Supply Association ............................................ Manufactured Housing Institute ............................................. American Public Gas Association; American Gas Association; Spire Inc.; Spire Missouri Inc.; Spire Alabama Inc.; National Propane Gas Association; Atmos Energy. Anonymous 2 ......................................................................... Ohio Partners for Affordable Energy ..................................... Individual Commenters .......................................................... Todd Snyder .......................................................................... Middle Tennessee Natural Gas Utility District ...................... Watertown Municipal Utilities ................................................ Southwest Gas Corporation .................................................. Consumer Energy Alliance .................................................... Lake Apopka Natural Gas District ......................................... Christopher Lish .................................................................... National Caucus of Environmental Legislators ..................... 342 Commenter type Industry Representative. 343 344; 363; 365 345; 356; 362 Utility Trade Association. Trade Association. Utilities and Utility Trade Associations. 346 347 348 349 350 351 353 354 355 358 359 Individual. Efficiency Advocate. Individual. Individual. Utility. Utility. Utility. Efficiency Advocate. Utility. Individual. State/Local Government Officials. Individual. Consumer Advocate. Trade Association. Efficiency/Environmental Advocate. Consumer Advocate. Efficiency/Environmental Advocate. Efficiency/Environmental Advocate. Consumer Advocate. Theodore Trampe .................................................................. Consumer Federation of America ......................................... Edison Electric Institute ......................................................... Environment America ............................................................ Anonymous 2 ........................ OPAE ..................................... Individual Commenters .......... Snyder ................................... MTNGUD ............................... WMU ...................................... Southwest Gas Corporation .. Consumer Energy Alliance .... LANGD .................................. Lish ........................................ National Caucus of Environmental Legislators. Trampe .................................. CFA ....................................... Edison Electric Institute ......... Environment America ............ 361 363 363; 4099 363 National Consumer Law Center ............................................ Natural Resources Defense Council ..................................... NCLC ..................................... NRDC .................................... 363 363 Philadelphia Solar Energy Association ................................. PSEA ..................................... 363 Physicians for Social Responsibility ...................................... Physicians for Social Responsibility. Evergreen Action ................... Mark Strauch ......................... Georgia Gas Authority ........... NEEA ..................................... 363 Evergreen Action ................................................................... Mark Strauch ......................................................................... Municipal Gas Authority of Georgia ...................................... Northwest Energy Efficiency Alliance .................................... khammond on DSKJM1Z7X2PROD with RULES2 Comment number in the Docket Commenter(s) 364 366 367 368 Environmental Advocate. Individual. Utility. Efficiency/Environmental Advocates. Other Stakeholders. Competitive Enterprise Institute, Consumers’ Research, Center for the American Experiment, JunkScience.com, Project 21, Caesar Rodney Institute, Rio Grande Foundation, Committee for a Constructive Tomorrow, FreedomWorks Foundation, Heartland Institute, Thomas Jefferson Institute, Independent Women’s Forum, Independent Women’s Voice, and Institute for Energy Research. National Comfort Products .................................................... Green & Healthy Homes Initiative ......................................... Joint Market and Consumer Organizations. 369, 373 NCP ....................................... GHHI ...................................... 370 363; 371 Distribution Contractors Association ..................................... Napoleon (aka Wolf Steel Limited) ....................................... Pennsylvania Department of Environmental Protection; State of Nevada; New Jersey Board of Public Utilities; New York State Energy Research and Development Authority; Washington State Department of Commerce; Colorado Energy Office; New Mexico Energy, Minerals, and Natural Resources Department; California Energy Commission; Vermont Department of Public Service; Hawai’i State Energy Office. The Heartland Institute .......................................................... Carrier Global Corporation .................................................... The Manufactured Housing Institute; National Apartment Association; National Association of Home Builders; National Leased Housing Association; National Multifamily Housing Council. New York State Energy Research and Development Authority. The Natural Gas Association of Georgia .............................. DCA ....................................... Napoleon ............................... State Agencies ...................... 372 374 375 Manufacturer. Efficiency/Environmental Advocates. Trade Association. Manufacturer. State Agencies. The Heartland Institute .......... Carrier .................................... The Coalition ......................... 376 377 378 Other Stakeholder. Manufacturer. Trade Associations. NYSERDA ............................. 379 State Agency. NGA of Georgia ..................... 380 Utility Trade Association. VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 PO 00000 Frm 00013 Fmt 4701 Sfmt 4700 E:\FR\FM\18DER2.SGM 18DER2 87514 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations TABLE II.2—JULY 2022 NOPR COMMENTS—Continued khammond on DSKJM1Z7X2PROD with RULES2 Commenter(s) The Appliance Standards Awareness Project; American Council for Energy-Efficient Economy, CLASP, Consumer Federation of America, Government of the District of Columbia—Department of Energy & Environment, National Consumer Law Center; Natural Resources Defense Council; Northeast Energy Efficiency Partnerships; Southwest Energy Efficiency Project. California Energy Commission .............................................. The National Consumer Law Center on behalf of its low-income clients: Alliance for Affordable Energy; Pennsylvania Utility Law Project; Consumer Federation of America; Southface; Massachusetts Energy Directors’ Association; Green Energy Consumers Alliance; Georgia Watch; North Carolina Justice Center; Texas Legal Services Center; Consumers Council of Missouri; Wildfire; Renew Missouri; Virginia Citizens Consumer Council. Heating, Air-conditioning & Refrigeration Distributors International. Gas Analytic & Advocacy Services ....................................... Weil-McLain; Williamson-Thermoflo; Marley Engineered Products, LLC; Patterson-Kelley, LLC. American Public Gas Association ......................................... Center for Climate and Energy Solutions; Institute for Policy Integrity, New York University School of Law; Montana Environmental Information Center; Natural Resources Defense Council; Sierra Club; Union of Concerned Scientists. Lennox International Inc. ....................................................... Jack Spencer and Kevin Dayaratna, Ph.D. .......................... American Gas Association American; Pipeline Contractors Association; American Public Gas Association; American Society of Gas Engineers; American Supply Association; Arkansas Gas Association; Consumer Energy Alliance; Distribution Contractors Association; Hearth, Patio & Barbecue Association; Hispanics in Energy; Louisiana Gas Association; Manufactured Housing Institute; National Apartment Association; National Association of Home Builders; National Leased Housing Association; National Multifamily Housing Council; National Propane Gas Association; National Utility Contractors Association; Natural Gas Supply Association; Northeast Gas Association; Plastics Pipe Institute; Plumbing-Heating-Cooling Contractors Association; Rinnai America Corporation; Thermo Products LLC; U.S. Chamber of Commerce; Utility Workers Union of America, AFL–CIO; Williams Furnace Co. dba Williams Comfort Products or Williams. American Coke and Coal Chemicals Institute; American Gas Association; American Public Gas Association; Independent Petroleum Association of America; National Mining Association; Plumbing-Heating-Cooling Contractors— National Association; U.S. Chamber of Commerce. Climate Smart Missoula; Environmental Defense Fund; Elevate Energy; Energy Efficiency Alliance of New Jersey; Campaign for 100% Renewable Energy; Evergreen Action; Green Energy Consumers Alliance; Green & Healthy Homes Initiative; Keystone Energy Efficiency Alliance; Montana Environmental Info Center; New Buildings Institute; New York Geothermal Energy Organization; Climate & Clean Energy Program; Rewiring America; RMI; Sealed; Sierra Club; Union of Concerned Scientists; Urban Green Council; Utah Clean Energy. Rheem Manufacturing Company ........................................... National Propane Gas Association ....................................... VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 Comment number in the Docket Abbreviation PO 00000 Commenter type Joint Efficiency Commenters 381 Efficiency/Environmental Advocates. CEC ....................................... NCLC et al. ............................ 382 383 State Agency. Consumer Advocates. HARDI ................................... 384 Trade Association. GAS ....................................... The Marley Companies ......... 385 386 Other Stakeholder. Manufacturers. APGA ..................................... Climate Commenters ............. 387 388 Utility Trade Association. Efficiency/Environmental Advocates. Lennox ................................... Spencer and Dayaratna ........ AGA et al. .............................. 389 390 391 Manufacturer. Other Stakeholder. Manufacturers, Trade Associations, and Other Stakeholders. The Associations ................... 392 Trade Associations. Climate Smart Missoula et al. 393 Efficiency/Environmental Advocates. Rheem ................................... NPGA .................................... 394 395 Manufacturer. Utility Trade Association. Frm 00014 Fmt 4701 Sfmt 4700 E:\FR\FM\18DER2.SGM 18DER2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations 87515 TABLE II.2—JULY 2022 NOPR COMMENTS—Continued khammond on DSKJM1Z7X2PROD with RULES2 Commenter(s) Comment number in the Docket Abbreviation Commenter type ACTION-Housing Inc.; Audubon Mid-Atlantic; Clean Air Council; Community Action Association of Pennsylvania; Conservation Voters of Pennsylvania; Energy Coordinating Agency; Environmental Justice Center of Chestnut Hill United Church; Evangelical Environmental Network; Green Building United; Green & Healthy Homes Initiative; Housing Alliance of Pennsylvania; Keystone Energy Efficiency Alliance; National Housing Trust; PA Jewish Earth Alliance; PennEnvironment; Pennsylvania Council of Churches; Pennsylvania Interfaith Power and Light; Pennsylvania Utility Law Project; Performance Systems Development; Philadelphia Energy Authority; Philadelphia Solar Energy Association; Physicians for Social Responsibility Pennsylvania; Schuylkill Community Action; Vote Solar; Working for Justice Ministry. Black Hills Energy ................................................................. Air Condition Contractors of America .................................... Allergy & Asthma Network; Alliance of Nurses for Healthy Environments; American Geophysical Union; American Lung Association; American Public Health Association; American Thoracic Society; Asthma and Allergy Foundation of America; Children’s Environmental Health Network; Climate for Health/ecoAmerica; National Carbon Monoxide Awareness Association; Oregon Physicians for Social Responsibility; Physicians for Social Responsibility; Physicians for Social Responsibility Florida; Physicians for Social Responsibility Pennsylvania; Texas Physicians for Social Responsibility; Washington Physicians for Social Responsibility. Pacific Gas and Electric Company, San Diego Gas and Electric, and Southern California Edison; collectively referred to as ‘‘the California Investor-Owned Utilities’’. Sierra Club and Earthjustice ................................................. ACTION-Housing Inc. et al. 396 Other Stakeholders. Black Hills Energy ................. ACCA ..................................... Climate and Health Coalition 397 398 399 Utility. Trade Association. Efficiency/Environmental Advocates. The CA IOUs ......................... 400 Utilities. Sierra Club et al. ................... 401 Avangrid; Consolidated Edison; Eversource; Exelon; Liberty Utilities; National Grid; Unitil; PG&E Corporation; Xcel. Plumbing-Heating-Cooling Contractors—National Association. Plastics Pipe Institute ............................................................ American Gas Association .................................................... Nortek Global HVAC, LLC ..................................................... National Grid .......................................................................... Offices of the Attorney General for the States of Illinois, Maine, Maryland, Minnesota, Nevada, New Jersey, New Mexico, New York, Oregon, and Vermont, Washington, The Commonwealth of Massachusetts, the District of Columbia, and the City of New York. State of Washington, Department of Commerce .................. Mortex Products, Inc. ............................................................ Johnson Controls ................................................................... Trane Technologies ............................................................... Spire Inc.; Spire Alabama Inc.; Spire Missouri Inc. .............. Air-Conditioning, Heating, & Refrigeration Institute .............. Atmos Energy Corporation .................................................... Daikin Comfort Technologies Manufacturing, L.P. ................ The Joint Utilities ................... 402 Efficiency/Environmental Advocates. Utilities. PHCC .................................... 403 Trade Association. PPI ......................................... AGA ....................................... Nortek .................................... National Grid ......................... Attorneys General ................. 404 405 406 407 408 Trade Association. Utility Trade Association. Manufacturer. Utility. State/Local Government Agencies. State of Washington .............. Mortex .................................... JCI ......................................... Trane ..................................... Spire ...................................... AHRI ...................................... Atmos Energy ........................ Daikin ..................................... 409 410 411 412 413; 4099 414 415 416 A parenthetical reference at the end of a comment quotation or paraphrase provides the location of the item in the public record.30 To the extent that parenthetical reference provides a reference for information located in the docket of DOE’s rulemaking to develop energy conservation standards for NWGFs and MHGFs. (Docket No. EERE–2014–BT–STD–0031, which is maintained at www.regulations.gov) The references are arranged as follows: (commenter name, comment docket ID number, page of that document). interested parties have provided written comments that are substantively consistent with any oral comments provided during the public meetings held on August 3, 2022,31 or September 30 The VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 31 The transcript for the August 3, 2022, public meeting can be found at Docket No. EERE–2014– BT–STD–0031–0363, which is maintained at www.regulations.gov. PO 00000 Frm 00015 Fmt 4701 Sfmt 4700 State Agency. Manufacturer. Manufacturer. Manufacturer. Utilities. Trade Association. Utility. Manufacturer 6, 2022,32 DOE cites the written comments throughout this final rule. 3. Current Standards in Canada Although climate and fuel prices differ between the United States and Canada and will yield different results 32 The transcript for the September 6, 2022, public meeting can be found at Docket No. EERE– 2014–BT–STD–0031–4099, which is maintained at www.regulations.gov. E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 87516 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations in terms of costs and benefits of the standard, there are similarities in the equipment and venting materials used in both the United States and Canada with respect to NWGFs. Because the stock of buildings using NWGFs in Canada has many similarities to the stock using NWGFs in northern parts of the United States, the Canadian experience in terms of installation of condensing furnaces has relevance to the United States. As such, multiple stakeholders discussed the Canadian standards in their comments on the July 2022 NOPR, and DOE references these standards several times later in this document. Further, as discussed in section V.C.1 of this document, the standard levels adopted for NWGFs by this final rule align with the Canadian regulations. Consumer furnaces are a regulated product in Canada and are subject to energy efficiency regulations. On December 24, 2008, Natural Resources Canada published regulations in the Canada Gazette, Part II amending the energy efficiency regulations for consumer furnaces, among other appliances and equipment.33 The revised regulation, required on or after December 31, 2009, sets a minimum efficiency of 90-percent AFUE for gas furnaces. This standard is applicable to gas furnaces, other than those with an integrated cooling component that are outdoor or through-the-wall gas furnaces, that have an input rate no greater than 65.92 kilowatts (‘‘kW’’) (225,000 Btu/h), and that use singlephase electric current. On June 12, 2019, Natural Resources Canada published regulations in the Canada Gazette, Part II amending the energy efficiency regulations for consumer furnaces, among other appliances and equipment.34 In addition to the definition of ‘‘gas furnaces,’’ Natural Resources Canada added a separate definition for ‘‘gas furnaces for relocatable buildings’’ (e.g., MHGFs). The revised regulation, which applies to covered gas furnaces (excluding gas furnaces for relocatable building, replacement gas furnaces, outdoor furnaces with an integrated cooling component, and through-the wall furnaces with an integrated cooling component) manufactured for sale or import into the Canadian market on or after July 3, 2019, sets a minimum 33 See Canada Gazette, Part II, Vol. 142, No. 26, pp. 2512–2570. (Available at: www.gazette.gc.ca/rppr/p2/2008/2008-12-24/pdf/g2-14226.pdf) (Last accessed Feb. 15, 2022) 34 See Canada Gazette, Part II, Vol. 153, No. 12, pp. 2423–2517. (Available at www.gazette.gc.ca/rppr/p2/2019/2019-06-12/pdf/g2-15312.pdf) (Last accessed Feb. 15, 2022) VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 efficiency of 95-percent AFUE. Furthermore, the revised regulation also sets a minimum efficiency of 80-percent AFUE for gas furnaces for relocatable buildings.35 III. General Discussion DOE developed this final rule after considering comments, data, and information from interested parties that represent a variety of interests. The following discussion addresses issues raised by these commenters regarding rulemaking timing and process, product classes and scope of coverage, the test procedure, technological feasibility, significance of energy savings, economic justification, the compliance date, and impacts from other rulemakings. A. General Comments This section summarizes general comments received from interested parties regarding rulemaking timing and process. 1. Comments Regarding Authority The Marley Companies commented that the regulation of multiple levels of components (e.g., motors and furnace fans, which are themselves covered products under EPCA) internal to an appliance limits the utility of the appliance, because the specifications for such components (necessary for compliance with DOE energy conservation standards for those components as covered products) place constraints on the covered product’s design and operation. (The Marley Companies, No. 386 at pp. 7–9) The Marley Companies argued that changes to the efficiency of a component, prescriptive requirements, and test procedures are all cumulatively subject to the 6-year window between standards provided to manufacturers per 42 U.S.C. 6295(m)(4)(B), so according to the commenter, any change to the standard for a covered product, to the standard for an internal component of that product, or to the test procedure should preclude further regulation of that product for six years pursuant to 42 U.S.C. 6295(m)(4)(B). (Id. at p. 7) Further, Marley asserted that the cumulative impact of multiple component efficiency regulations within a regulated appliance is that the operating range of the entire product is reduced. (Id.) The Marley Companies commented that the definition of ‘‘energy conservation standard’’ includes a reference to 42 U.S.C. 35 ‘‘Gas furnace for relocatable buildings’’ is defined in that regulation as a gas furnace that is intended for use in a temporary modular building that can be relocated from one site to another and is marked for use in relocatable buildings. PO 00000 Frm 00016 Fmt 4701 Sfmt 4700 6295(r), which discusses the inclusion in standards of test procedures and other requirements, and, therefore, the term ‘‘standard’’ includes test procedures used to determine the efficiency of covered products. (Id. at p. 9) The Marley Companies commented that 42 U.S.C. 6293(e)(4) conveys that Congress realized and stated in EPCA that test procedures should not be altered at the same time as appliance level efficiencies, and, therefore, the Marley Companies asserted that Congress established that any change in an efficiency of any component, combination of components, or the entire covered product, as well as any required construction change through prescriptive requirements and any change in the test procedure used to determine efficiency, would reset the 6year timeframe established by 42 U.S.C. 6295(m)(4)(B). (Id. at p. 9) In contrast, Sierra Club et al. commented that DOE correctly interprets furnaces and furnaces fan as two separate products for the purposes of the ‘‘6-year lock-out’’ provision at 42 U.S.C. 6295(m)(4)(B). (Sierra Club et al., No. 401 at p. 3) There are two products that can be found as a component of a consumer furnace and which are separately regulated by DOE: consumer furnace fans and certain types of electric motors. In response to comments from Marley Companies and the Sierra Club, DOE notes that consumer furnaces, consumer furnace fans, and electric motors are all separately covered products under EPCA. (42 U.S.C. 6292(a)(5); 42 U.S.C. 6295(f)(4)(D); 42 U.S.C. 6311(1)(A)) As such, DOE considers their timelines separately in the context of the requirement established by 42 U.S.C. 6295(m)(4)(B) that a manufacturer ‘‘shall not be required to apply new standards to a product with respect to which other new standards have been required during the prior 6-year period.’’ 36 The 6-year period applies to covered products individually, and ECPA does not provide exceptions to the review requirements when related products or components have overlapping review timeframes. Furthermore, DOE notes that 42 U.S.C. 6295(m) applies to energy conservation standards, not test 36 DOE notes that EPCA set a deadline of December 31, 2013, for the Department to prescribe an energy conservation standard or energy use standard for electricity used for purposes of circulating air through ductwork (colloquially referred to as ‘‘furnace fans’’). (42 U.S.C. 6295(f)(4)(D)) EPCA likewise set deadlines for the Department to set standards for certain motors, including a five-years lead time for compliance. (42 U.S.C. 6313(b)(4)(B)) These deadlines are independent of the standard-setting provisions for consumer furnaces at 42 U.S.C. 6295(f) and the sixyear-lookback provisions at 42 U.S.C. 6295(m). E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations procedures. Under this provision, DOE is directed to amend energy conservation standards for a covered product if such standards would be technologically feasible, economically justified, and result in significant conservation of energy. (42 U.S.C. 6295(m)(1)(B); 42 U.S.C. 6295(o)) As such, DOE does not agree with the Marley Companies’ contention that this statutory provision applies more broadly to test procedure changes, and the Department has concluded that the Marley Companies have advanced an incorrect reading of 42 U.S.C. 6295(r) to support their point. That provision of EPCA simply acknowledges that most energy conservation standards (i.e., performance-based ones) will require an accompanying test procedure and may necessitate additional ancillary requirements to facilitate compliance. Further, 42 U.S.C. 6295(r) specifically refers to test procedures prescribed in accordance with 42 U.S.C. 6293. As such, there simply is no statutory basis for applying the 6-year timeframe, which applies to standards prescribed under 42 U.S.C. 6295(m), to test procedures prescribed under 42 U.S.C. 6293.37 NPGA stated that DOE has failed to provide a fair and transparent rulemaking process. (NPGA, No. 395 at p. 3) NPGA and AGA both commented that they believe the proposal to be unlawful because DOE is not authorized to create design standards for furnaces, but NPGA and AGA suggested that is what the proposed rule effectively does. (NPGA, No. 395 at p. 9; AGA, No. 405 at pp. 50–51) NPGA stated that the proposal sets a de facto standard for building design by requiring the alteration of building venting systems. (NPGA, No. 395 at p. 22) Additionally, NPGA and AGA stated that the necessity to include condensing technology, as well as other associated design elements, including new venting, electric fans, and a condensate drainage system, is effectively enforcing a design requirement. (NPGA, No. 395 at pp. 9– 10; AGA, No. 405 at pp. 50–51) AGA further commented that Congress’s decision to exclude furnaces from the list of products for which DOE can include design requirements, as outlined in 42 U.S.C. 6291(6)(B), demonstrates that DOE may not develop design requirements for furnaces. (AGA, No. 405 at pp. 50–52) In response, DOE is not creating a prescriptive design requirement for consumer furnaces in this final rule. In its definition of ‘‘energy conservation standard’’ at 42 U.S.C. 6291(6), EPCA provides that a performance standard is one which prescribes a minimum level of energy efficiency or a maximum quantity of energy use for a covered product, determined in accordance with test procedures developed under 42 U.S.C. 6293. (42 U.S.C. 6291(6)(A)) In this case, the standards adopted in this final rule are set in terms of AFUE, which is a performance metric and is determined through testing consumer furnaces under the applicable DOE test procedure, as discussed in section III.C of this document. DOE does not mandate any specific design for achieving compliance with the amended standard, as would constitute a design requirement under 42 U.S.C. 6291(6)(B). Thus, the final rule complies with the statutory requirements for setting a performance standard under EPCA. The possibility that some technologies may not be sufficient to achieve compliance is true for any performance standard, and does not transform a performance standard into a de facto design requirement. DOE acknowledges that the NWGFs and MHGFs that currently achieve 95-percent AFUE do employ condensing technology. However, the performance-based standards adopted in this final rule do not preclude new or alternative heat exchanger designs, venting systems, or materials from being used in future furnace product designs, which may provide additional avenues (alone or in combination) for increasing furnace AFUE. In addition, this final rule provides a five-year lead time before compliance with the amended standards is required, so further innovation may be possible during that time. DOE’s approach has been explained at length and in detail in both the July 2022 NOPR and this final rule, as well as the TSDs accompanying those documents. 37 For example, DOE previously published in the Federal Register a direct final rule establishing new energy conservation standards for consumer furnaces on June 27, 2011 (76 FR 37408), and then published in the Federal Register a final rule amending the test procedure for consumer furnaces on January 15, 2016 (81 FR 2628). DOE previously published in the Federal Register a final rule amending the test procedure for furnace fans on January 3, 2014 (79 FR 500), and then published in the Federal Register a final rule establishing new energy conservation standards for furnace fans on July 3, 2014 (79 FR 38130). 2. Comments Opposing the July 2022 Proposal This section summarizes comments opposing the July 2022 proposal. Several commenters stated that DOE should withdraw the proposed rule. (Georgia Gas Authority, No. 367 at p. 1; MHI, No. 365 at p. 1; DCA, No. 372 at p. 2; The Heartland Institute, No. 376 at p. 1; HARDI, No. 384 at p. 2; Nortek, No. 406 at pp. 5–6) Plastics Pipe Institute VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 PO 00000 Frm 00017 Fmt 4701 Sfmt 4700 87517 commented that it opposes the proposed rule due to negative impacts on consumers (including senior and lowincome households), small businesses, the overall gas furnace market, and the gas industry. (Plastics Pipe Institute, No. 404 at p. 1) Spire commented that the proposed standards place undue burden on consumers because many homes are not set up so as to be compatible with condensing gas furnaces. (Spire, No. 413 at pp. 20–21) The Heartland Institute commented that this rule is unnecessary. (The Heartland Institute, No. 376 at pp. 1–2) HARDI stated disagreement with the methodology and conclusions used to support the proposed standards. (HARDI, No. 384 at p. 2) A number of individuals urged DOE to reject the proposed rule on gasburning residential furnaces because of considerations such as individual preferences, higher upfront costs, and higher maintenance costs. (Veiga, No. 326 at p. 1; Willis, No, 327 at p. 1; Anonymous 1, No. 329 at p. 1) PHCC commented that it does not support the proposed standards for NWGFs and MHGFs, as there are parts of the NOPR that are overly optimistic, do not reflect current market conditions, make inaccurate assumptions, minimize installation issues for condensing-type products, and would generally create negative impacts for manufacturers and consumers. (PHCC, No. 403 at p. 1) Strauch recommended that both condensing and non-condensing furnaces remain available on the market. (Strauch, No. 366 at p. 2) Spencer and Dayaratna stated that the standards proposed in the July 2022 NOPR are unnecessary because condensing furnaces are readily available in the marketplace and have already achieved significant market penetration. (Spencer and Dayaratna, No. 390 at p. 10) The Heartland Institute expressed concern that the proposed standard would negatively impact energy consumption, emissions, and the economy. (The Heartland Institute, No. 376 at p. 1) The Heartland Institute further stated that there is a lack of economic justification. (Id. at p. 2) Additionally, the Heartland Institute argued that, while the highest-efficiency products may produce long-run savings for consumers under ideal laboratory settings, these gains from an increased efficiency are often not replicated in the real world. (Id. at p. 1) Atmos Energy similarly commented that the technical analyses do not reasonably consider economic impacts, particularly those on affordability and the potential disruption to highly-effective energy E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 87518 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations conservation programs. (Atmos Energy, No. 415 at p. 2) As discussed in section II.A of this document, EPCA provides DOE with the authority to regulate the energy efficiency of a number of consumer products, including NWGFs and MHGFs, which are a subset of consumer furnaces. (42 U.S.C. 6292(a)(5)) EPCA prescribed energy conservation standards for these products (42 U.S.C. 6295(f)(1) and (2)) and directs DOE to conduct future rulemakings to determine whether to amend these standards (42 U.S.C. 6295(f)(4) and 42 U.S.C. 6295(m)(1)). Any such new standards for NWGFs and MHGFs must, under 42 U.S.C. 6295(o)(2)(A), be designed to achieve the maximum improvement in energy efficiency that is technologically feasible and economically justified. DOE’s analyses supporting its conclusion that it has met these criteria for the standards adopted in this final rule are presented in section IV and section V of this document, respectively. Atmos Energy disagreed that the proposed standards would ‘‘represent the maximum improvement in energy efficiency that is technologically feasible and economically justified,’’ alleging that DOE’s underlying technical analyses do not reasonably consider relevant economic impacts. (Atmos Energy, No. 415 at p. 2) Atmos Energy also disagreed with the July 2022 NOPR’s tentative conclusion that the benefits of the proposed standards greatly exceed the burdens. (Id.) Atmos Energy commented that DOE should improve the accuracy of its analysis by tailoring its consideration of consumer behavior, life-cycle evaluations, and costs. (Id. at p. 5) Atmos Energy further commented that the proposed rule uses unsupported and broad assumptions that are not reflective of actual consumer behavior and information. (Id.) Similarly, the Coalition commented that DOE has failed to adequately consider the cost impacts of the proposed standards and has failed to properly assess the balancing of benefits and burdens. (The Coalition, No. 378 at p. 5) Spencer and Dayaratna stated that the standards proposed in the July 2022 NOPR do not meet the ‘‘economically justified’’ criteria for prescribing new or amended standards. (Spencer and Dayaratna, No. 390 at pp. 1–2) Specifically, Spencer and Dayaratna stated that the analysis in the July 2022 NOPR is questionable regarding all seven of the factors set by EPCA. (Id.) Spencer and Dayaratna suggested that DOE did not present sufficient rationale for factors 5 (i.e., the effect of any lessening of competition, as determined VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 in writing by the Attorney General, that is likely to result from the standard) and 6 (i.e., the need for national energy and water conservation). (Id.) AGA commented that the NOPR suffers from many evidentiary shortcomings that fail to meet the statutory requirement that energy conservation standards must be ‘‘supported by substantial evidence’’ on the record. (AGA, No. 405 at pp. 29–30) AGA commented that the NOPR’s conclusion that the proposed standards would be economically justified and technically feasible relies on unexplained assumptions and conclusions. (Id.) AGA asserted that the NOPR fundamentally fails to adhere to the Process Rule,38 and specifically found fault with DOE’s LCC model and the lack of sufficient time for public comment. (Id. at pp. 21–23) AGA commented that particularly in the LCC model, the qualitative and quantitative analytical methods are not fully documented for the public and do not produce results that can be explained and reproduced. (Id.) AGA commented that these issues prevent stakeholders from evaluating compliance with other aspects of EPCA’s and the Process Rule’s requirements, and the commenter encouraged DOE to correct these deficiencies. (Id.) Trampe commented that he does not support the proposed 95-percent AFUE standard, and that the standard should be maintained at 80percent AFUE. (Trampe, No. 361 at p. 1) Lennox suggested that DOE should reconsider whether a 92-percent AFUE standard is an appropriate minimum efficiency level for NWGFs. (Lennox, No. 389 at p. 2) Lennox also commented that, based on DOE’s analysis, AFUE levels above 95 percent are not economically justified and have significant negative consumer impacts. (Id.) In regard to the proposed MHGF standards, Nortek and JCI commented that they do not support the proposed 95-percent AFUE standard for MHGFs. (Nortek, No. 406 at p. 2; JCI, No. 411 at p. 1) Nortek commented that DOE should maintain the 80-percent AFUE requirement for MHGFs. (Nortek, No. 406 at pp. 5–6) JCI added that the 95percent AFUE standard for MHGFs would impose costs on consumers with, on average, lower household incomes. (JCI, No. 411 at p. 1) JCI recommended that DOE should exclude MHGFs from this rulemaking and gather additional data on that product class, particularly 38 The ‘‘Process Rule’’ refers to 10 CFR part 430, subpart C, appendix A, ‘‘Procedures, Interpretations, and Policies for Consideration of New or Revised Energy Conservation Standards and Test Procedures for Consumer Products and Certain Commercial/Industrial Equipment’’. PO 00000 Frm 00018 Fmt 4701 Sfmt 4700 in replacement applications. (Id.) AHRI also stated that DOE should reconsider active mode energy conservation standards for MHGFs. (AHRI, No. 414– 2 at p. 2) Mortex commented that it too does not believe that DOE’s proposed 95-percent AFUE standard is economically justified for MHGFs, and that DOE should retain the current standard for MHGFs. (Mortex, No. 410 at p. 1) In support of its recommendation, Mortex pointed to the two-tiered standards that Canada has developed for furnaces, with a 95percent AFUE level for most residential gas furnaces and 80-percent AFUE level for gas furnaces in relocatable buildings and replacements in manufactured housing. (Mortex, No. 410 at p. 4) Mortex recommended this structure as a model for DOE to utilize. (Id.) MHI commented that the current MHGF AFUE standards strike a balance between energy savings and affordability, and the commenter urged DOE to withdraw the NOPR or replace the proposed 95-percent AFUE level for MHGF with a standard at 80-percent AFUE for gas furnaces used in manufactured homes. (MHI, No. 365 at pp. 2–3) As discussed in section II.A of this document, EPCA provides specific statutory criteria for amending energy conservation standards. EPCA generally requires a public notice-and-comment process (see 42 U.S.C. 6295(p)), which affords members of the public the opportunity to comment on the rulemaking, and DOE makes all relevant documents publicly available at www.regulations.gov. As part of the process for this rulemaking, DOE convened two public meetings, including one aimed at helping stakeholders understand its analytical models, to ensure the transparency of its process. Additionally, DOE carefully considers the benefits and burdens of amended standards to determine whether the amended standards are the maximum standard levels that are technologically feasible and economically justified, and would conserve a significant amount of energy, as required by EPCA (see 42 U.S.C. 6295(o)(2)–(3)). Section IV of this document outlines DOE’s approach to analyzing various potential amended standard levels, and section V of this document provides the results of those analyses, as well as a detailed explanation of DOE’s weighing of the benefits and burdens and the rationale for the amended standards adopted by this final rule. As detailed in those sections, DOE has determined that its rulemaking process for the subject E:\FR\FM\18DER2.SGM 18DER2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 furnaces has satisfied the applicable requirements of EPCA and the Process Rule and that the adopted standards are supported by substantial evidence in the record. Further, DOE notes that the webinar held on September 6, 2022, provided further opportunity for clarification regarding the LCC model and extended the comment period to provide sufficient time to provide written comments. Plastics Pipe Institute expressed concern with the precedent that would accompany this rule change, adding that it would open the door for future restrictions on natural gas. (Plastics Pipe Institute, No. 404 at p. 3) In response, DOE notes that the amended energy conservation standards for NWGFs and MHGFs do not prohibit the sale and use of gas-fired furnaces, nor do they restrict the use of natural gas, but instead, they improve the energy efficiency of those gas-burning products. 3. Comments Expressing Support for the July 2022 Proposal This section summarizes comments expressing support for the July 2022 proposal. DOE received comments from the OPAE, NCEL, State of Washington, NEEA, the Joint Utilities, the National Grid, Climate Smart Missoula et al., Evergreen Action, the CA IOUs, the PSEA, the NCLC et al., and the NRDC expressing support for the proposed energy conservation standards for NWGFs and MHGFs. (OPAE, No. 347 at p. 1; NCEL, No. 359 at p. 1; State of Washington, No. 409 at pp. 1–2; NEEA, No. 368 at pp. 1–2; the Joint Utilities, No. 402 at p. 1; National Grid, No. 407 at p. 1; Climate Smart Missoula et al., No. 393 at pp. 1–2; Evergreen Action, No. 364 at p. 1; The CA IOUs, No. 400 at p. 1; PSEA, Public Meeting Webinar Transcript, No. 363 at p. 37; NCLC et al., No. 383 at p. 9; NRDC, Public Meeting Webinar Transcript, No. 363 at p. 30;) GHHI, the Attorneys General, and Sierra Club et al. further encouraged DOE to adopt the proposed efficiency standards for consumer gas furnaces. (GHHI, No. 371 at p. 1; Attorneys General, No. 408 at pp. 1–2; Sierra Club et al., No. 401 at p. 1) The Joint Efficiency Commenters added that they strongly support DOE’s proposed standards for minimum efficiency of NWGFs and MHGFs and standby mode and off mode power consumption. (Joint Efficiency Commenters, No. 381 at p. 1) The CA IOUs further explained that the proposed rule would allow consumers to have greater access to energy-efficient products that are technologically feasible and economically justified. (The CA IOUs, No. 400 at p. 1) Daikin stated VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 that despite some concerns regarding the accuracy of some portions of the TSD concerning costs due to the confidential nature of some manufacturer cost data, the company generally finds that DOE’s analysis is reasonable in most areas based on the data that is publicly available. (Daikin, No. 416 at p. 3) The Joint Utilities stated that they support common-sense, costsaving improvements to existing efficiency standards coupled with programs to provide the financial resources to enable customers to make the transition to higher-efficiency furnace products and minimize the impact of upfront costs. (The Joint Utilities, No. 402 at p. 1) National Grid stated that Federal energy conservation standards ensure that the benefits of efficiency gains can reach all customer segments, including renters who often do not make decisions about appliances. (National Grid, No. 407 at p. 1) The State of Washington added that it understands the cost savings and emissions benefits that more efficient standards can provide. (State of Washington, No. 409 at pp. 1–2) DOE also received over 3,000 submissions of a form letter encouraging DOE to enact strong efficiency standards for furnaces that phase out the leastefficient furnace models. (Individual Commenters, No. 348 at pp. 1–3552) The commenters stated that heating homes should not produce pollution, and they stated that outdated and inefficient gas furnaces are emitting millions of tons of avoidable climate emissions and other harmful pollutants. (Id.) A number of other individual commenters expressed similar views. (Neumann, No. 328 at p. 1; Guarin, No. 332 at p. 1; Haag, No. 334 at p. 1; Cantu, No. 335 at p. 1; Marcellini, No. 336 at p. 1; Liset, No. 338 at p. 1; Snyder, No. 349 at p. 1; Lish, No. 358 at p. 1) In addition to expressing support for the standards via the form letter, Guarin, Haag, Cantu, Marcellini, NCEL, and Liset all commented that by requiring furnaces to use about 15-percent less energy, the proposed standard would cut 373 million metric tons of carbon emissions and 833 thousand tons of NOX over 30 years of sales, as outlined in the July 2022 NOPR. (Guarin, No. 332 at p. 1; Haag, No. 334 at p. 1; Cantu, No. 335 at p. 1; Marcellini, No. 336 at p. 1; NCEL, No. 359 at p. 1; Liset, No. 338 at p. 1) These commenters added that the proposed standard would help with breathing since it would reduce needless greenhouse gas emissions. (Guarin, No. 332 at p. 1; Haag, No. 334 at p. 1; Cantu, No. 335 at p. 1; Marcellini, No. 336 at p. 1; Liset, No. PO 00000 Frm 00019 Fmt 4701 Sfmt 4700 87519 338 at p. 1) The CA IOUs similarly stated that this standard will significantly improve ambient and indoor air quality in the United States. (The CA IOUs, No. 400 at p. 2) Other commenters similarly discussed the beneficial impacts that the proposed standards would have on health and the environment. Arnold asked DOE to help work toward a cleaner and more sustainable future by increasing the efficiency standards for furnaces. (Arnold, No. 333 at p. 1) Shippee-Rice urged DOE to enact these ‘‘long overdue’’ standards, stating that doing so will decrease pollutants that threaten human, animal, and plant health. Shippee-Rice also noted that this proposed standard will help to decrease the harmful effects of current climate change dangers. (Shippee-Rice, No. 339 at p. 1) Daikin agreed with DOE’s initiatives to address emission reductions and set higher standards with climate change, decarbonization, and electrification in mind. (Daikin, No. 416 at pp. 2–3) Lee’s Air, Plumbing & Heating commented that a higher standard would eliminate pollution and wasted energy. (Lee’s Air, Plumbing & Heating, No. 342 at p. 1) The Physicians for Social Responsibility commented that pollutants from gas furnaces may be back-drafted into homes when indoor air pressure is reduced. Alternatively, they stated that pollutants can be vented out into the surrounding community. The commenter added that those pollutants from gas appliances can lead to the development of childhood asthma, increase susceptibility to other respiratory infections, decrease general cognitive and neurological functioning, and exacerbate cardiovascular disease. The commenter also stated that these pollutants can cause community-wide harm, particularly among low-income communities and communities of color. (The Physicians for Social Responsibility, Public Meeting Webinar Transcript, No. 363 at pp. 5–6) The commenter further argued that the proposed standards can help lower utility bills, which on its own can positively impact consumers’ health. The commenter concluded that higher efficiency standards will reduce the health effects from air pollution and limit the impacts of climate change such as extreme heat, population displacement, and injuries and fatalities due to natural disasters. (Id. at p. 7) Evergreen Action noted that residential heating is the biggest utility in most U.S. households. Evergreen Action stated that gas heating appliances account for two-thirds of on-site household greenhouse gas emissions, and that gas E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 87520 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations furnaces are a significant source of NOX. (Evergreen Action, No. 364 at p. 1) Climate Smart Missoula et al. also stated that furnaces have lifespans of 20 years or more and suggested that adopting updated standards will lead to benefits for consumers’ pocketbooks, as well as the planet, through emission reduction. (Climate Smart Missoula et al., No. 393 at p. 2) Environment America commented that the proposed standards would reduce pollution that causes climate change and negatively impacts health. (Environment America, Public Meeting Webinar Transcript, No. 363 at pp. 18–19) Environment America suggested that, based on the reduced energy use and emissions, along with reduced annual home heating bills, DOE should finalize the proposed standards. (Id.) The National Caucus of Environmental Legislators recommended that DOE not to give in to industry-delaying tactics because action has been delayed and stymied numerous times in the past 30 years. They further commented in support of the proposal to increase the efficiency level of gas furnaces to 95-percent AFUE. (National Caucus of Environmental Legislators, No. 359 at p. 1) NEEA supported DOE’s finding in the July 2022 NOPR that implementing a 95-percent AFUE standard for NWGFs and MHGFs would lead to significant, cost-effective energy savings. (NEEA, No. 368 at pp. 1–2) NEEA stated that the consumer furnace market is ready for a furnace standard set at a condensing level, as evidenced by the market maturity and the lack of insurmountable barriers. (Id. at pp. 2–3) NEEA noted that condensing furnaces make up the majority of sales in the Northwest and their market share is growing. (Id.) NEEA stated that a study commissioned by NEEA and other stakeholders demonstrated the lack of barriers as would prevent a condensing furnace installation. (Id.) Additionally, NEEA commented that a 5-year transition time would allow sufficient time for manufacturers to convert their production and close the remaining sales gap. (Id.) Daikin commented that it believes the results of DOE’s analysis would not substantially change even if DOE were provided additional data, and, therefore, it expressed support for the proposed 95-percent standard for NWGFs. (Daikin, No. 416 at p. 3) Carrier and Trane also expressed support for the 95percent AFUE standard for NWGF, and Trane added that this level will provide significant CO2 savings. (Carrier, No. 377 at p. 1; Trane, No. 412 at p. 1) AHRI stated that DOE has conducted VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 sufficient analysis to amend active mode energy conservation standards for NWGFs and recommended that DOE finalize this rulemaking to bring resolution to the process and to bring certainty to the marketplace. (AHRI, No. 414–1 at p. 1) The CEC commented that it supports DOE’s proposed standard for consumer furnaces at 95-percent AFUE and 8.5 W, and that DOE should finalize these standards. (CEC, No. 382 at pp. 1– 2) AHRI and Rheem agreed with DOE’s conclusion that a 98-percent AFUE standard would be unreasonable and not economically justified for NWGFs. (AHRI, No. 414–1 at pp. 1–2; Rheem, No. 394 at p. 2) The State Agencies supported the proposed TSL 8 standard and methodology and encouraged DOE to adopt the rule. (State Agencies, No. 375 at pp. 1–2) The State Agencies further commented that the proposed TSL 8 standard is technologically achievable, beneficial to American consumers’ physical and financial health, and is an important step in reducing emissions. (Id. at p. 1) NYSERDA supported DOE’s proposal to adopt TSL 8 for MHGFs and NWGFs and recommended that DOE consider an even more stringent standard at 96-percent AFUE for NWGF. (NYSERDA, No. 379 at pp. 1–2) NYSERDA further commented that TSL 8 leads to significant energy and economic savings over the lifetime of the equipment. (Id.) The NCLC et al. and the Joint Efficiency Commenters also stated that the proposed TSL 8 efficiency levels promise substantial financial benefits to consumers and added that these financial benefits are especially promising for low-income consumers. (NCLC et al., No. 383 at p. 4; Joint Efficiency Commenters, No. 381 at p. 2) The NCLC commented that lowincome rental properties are more likely to have less-efficient furnaces and to pass the associated larger energy bills on to tenants. (NCLC, Public Meeting Webinar Transcript, No. 363 at pp. 8– 10) NCLC noted that this could amount to $2,000 to $3,000 in incremental costs for tenants over the life of the furnace. (Id. at p. 9) The commenter also stated that low-income consumers have the fewest resources to address the harms of rising temperatures and would be further adversely impacted. The NCLC commented that this presents an equity issue and accordingly concluded that DOE should adopt a strong furnace efficiency standard. (Id. at p. 10) The Philadelphia Solar Energy Association commented in support of the proposed standards, stating that high-efficiency furnaces help lowincome consumers in Philadelphia reduce their energy costs, as well as PO 00000 Frm 00020 Fmt 4701 Sfmt 4700 indoor air pollution from atmospheric furnaces. (Philadelphia Solar Energy Association, Public Meeting Webinar Transcript, No. 363 at p. 37) The Joint Efficiency Commenters stated that DOE should not adopt TSL 7 as an alternative to TSL 8, adding that the percentage of low-income consumers benefitting from the potential standards is significantly greater at TSL 8 compared to TSL 7. (Joint Efficiency Commenters, No. 381 at p. 2) In response to the July 2022 NOPR, The NCLC et al. commented that if the standard is set too high, many consumers will be saddled with purchasing expensive products where energy savings do not outweigh initial costs. However, the NCLC et al. commented that, if the standard is set too low, then the percentage of customers who end up with higher LCC will increase. (NCLC et al., No. 383 at p. 6) Therefore, the NCLC et al. commented that DOE should not reject a standard because some consumers will experience net costs over the life of the product. (Id.) NCLC et al. noted that, at TSL 8, the average net benefits are more significant than the average net costs for NWGFs. (Id.) As discussed in section II.A of this document, DOE is directed by EPCA to conduct periodic rulemakings to determine whether to amend the standards for various products, including consumer furnaces. (42 U.S.C. 6295(f)(4) and 42 U.S.C. 6295(m)(1)) The standards adopted by this final rule, which include the same AFUE levels as those proposed in the July 2022 NOPR, adhere to the requirements of EPCA in that they are designed to achieve the maximum improvement in energy efficiency that DOE determines is technologically feasible and economically justified. (42 U.S.C. 6295(o)(2)(A) and 42 U.S.C. 6295(o)(3)(B)) The analytical results showing both the benefits and burdens of the standards, along with DOE’s rationale for adopting these amended standards, are discussed in section V of this document. 4. Regional Standards Nortek, AHRI, and MHI encouraged DOE to consider regional standards that align with the U.S. Department of Housing and Urban Development (‘‘HUD’’) zones. (Nortek, No. 406 at p. 6; AHRI, No. 414–2 at pp. 3–4; MHI, No. 365 at pp. 1–2) MHI commented that the HUD code for manufactured homes prescribes energy efficiency features that are specific to the region where the home will be sited. (MHI, No. 365 at pp. 1–2) MHI suggested that consulting with E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations HUD will assist DOE in understanding how furnace standards impact consumer access to affordable housing, including manufactured housing. (Id.) PHCC commented that DOE’s early efforts for this consumer furnace rulemaking considered creating regional standards to establish a pathway for higherefficiency products that could not be justified on a national scale due to differences in usage and energy consumption of different climate zones. (PHCC, No. 403 at pp. 1–2) Trampe commented that the entire United States should not have to follow the same standard and added that what applies in Minnesota may not apply in Kansas, Tennessee, Texas, or other States. (Trampe, No. 361 at p. 1) Nortek pointed to NRCan’s standards, which were set at 95-percent AFUE for NWGFs and 80percent AFUE for MHGFs in 2019. Nortek noted that the climate in Canada has more severe winters than many parts of the United States. Nortek also stated that setting standards at a condensing level disproportionately impacts southern homeowners because most manufactured homes are in the South where mild winters allow furnaces to run for only 3 months a year. (Nortek, No. 406 at pp. 3–4) Like Nortek, the Heartland Institute also discussed regional differences, stating that in Northern States, such as Minnesota or Wisconsin, most residential natural gas furnaces already meet 95-percent AFUE. In Southern States, such as Texas, Georgia, and Florida, a smaller percentage of homeowners have adopted higher-efficiency furnace models. The Heartland Institute further offered that condensing models are already installed in regions where furnaces are heavily used, which mitigates the need for this mandate. (The Heartland Institute, No. 376 at p. 2) JCI commented that it believes a regional standard with a condensing level for the Northern region and a noncondensing level for the Southern region would be more economically justified and would align with the existing central air conditioning/heat pump standards. JCI commented that, in southern installations, the additional installation cost would result in a negative LCC using the amended values JCI supplied for manufacturer production costs (‘‘MPCs’’). (JCI, No. 411 at p. 2) Conversely, Daikin commented that there are logistical and operational challenges associated with regional standards; therefore, Daikin supported a national energy conservation standard, stating that it does not support TSL 4. (Daikin, No. 416 at p. 2) Similarly, VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 Rheem commented that DOE should maintain a single, nationwide and capacity-wide standard for NWGFs to avoid costly supply and inventory planning problems for manufacturers, distributors, and contractors. (Rheem, No. 394 at p. 3) The CFA commented that DOE should consider a uniform standard, arguing that certain furnaces no longer need to be exempted from the standard. (CFA, Public Meeting Webinar Transcript, No. 363 at p. 22) In response, DOE’s analyses of each considered efficiency level accounts for regional differences (e.g., in terms of climate data, shipments) when appropriate, as discussed throughout this document. For the July 2022 NOPR and for this final rule, in addition to considering uniform national standard, DOE included consideration of a potential regional standard (i.e., TSL 4; see section V.A of this document) consisting of efficiency levels at 95percent AFUE for the Northern region and 80-percent AFUE for the rest of the country, for both NWGFs and MHGFs. However, as discussed in section V of this document, DOE conducts a walkdown analysis to determine the TSL that represents the maximum improvement in energy efficiency that is technologically feasible and economically justified, as required under EPCA. In this final rule, DOE has found that a national standard for both NWGFs and MHGFs corresponding to 95-percent AFUE (i.e., TSL 8) meets those statutory criteria, and, therefore, DOE is adopting a national standard rather than regional standards. 5. Recommendations for Analytical Changes Atmos Energy commented that DOE should supplement its technical analysis in accordance with consumer welfare recommendations identified by the National Academy of Science peer review report before proceeding with a final rule, arguing that this would increase the accuracy of the technical analysis and have a material impact on the final standards. (Atmos Energy, No. 415 at p. 5) AGA commented that DOE should follow, or at a minimum respond to, the National Academies of Sciences, Engineering, and Medicine’s (NAS) Recommendations (the NAS Report) on its process. (AGA, No. 405 at pp. 25–27) AGA stated that DOE should revisit the proposed rule to address NAS’s recommendations and allow stakeholders an opportunity to comment on the revisions. (Id.) APGA stated that many months after the NAS Report, DOE does not reflect the NAS findings in the NOPR but merely states that DOE ‘‘is in the process of evaluating the PO 00000 Frm 00021 Fmt 4701 Sfmt 4700 87521 resulting report.’’ (APGA, No. 387 at p. 56) APGA pointed out that the residential furnace rulemaking was one of the three rulemakings studied in depth by the NAS committee. (Id.) APGA noted that NAS came to conclusions about consumer behavior that are extremely critical to the NOPR. APGA cited the NAS Report’s recommendation that ‘‘[f]or some commercial goods in particular, there should be a presumption that the market actors behave rationally unless DOE can provide evidence or argument to the contrary.’’ (Id.) In response, DOE notes that the rulemaking process for energy conservation standards for covered products and equipment are outlined in appendix A to subpart C of 10 CFR part 430, and DOE periodically examines and revises these provisions in separate rulemaking proceedings. DOE notes that discussion of the recommendations of the NAS report, which pertain to the processes by which DOE analyzes energy conservation standards, will be addressed as part of a separate noticeand-comment process. Rheem commented that DOE should consider a simplified analysis and reproducible model for future rulemakings. (Rheem, No. 394 at p. 2) Specifically, Rheem encouraged DOE to adopt a consistent and predictable approach to quantifying energy savings to ensure the recommendations will result in the estimated savings. (Id.) GAS argued that ‘‘Uncertainties . . . include numerous variables contained within DOE’s overly complex ‘determination’ apparatus,’’ and that DOE has failed to ‘‘use transparent and robust analytical methods.’’ (GAS, No. 385 at pp. 4–5) AHRI suggested that, for future rulemakings, DOE should modify the way that it analyzes consumer economic impact to look at the probability that individual consumers will benefit from standards rather than whether the aggregate benefit is positive and stated that these changes would be best accomplished in an open review process. (AHRI, No. 414–1 at p. 2) Although DOE understands the desire for simplicity, the Department notes that its analysis is informed by the Process Rule and includes a number of modifications in response to comments from interested parties on prior notices, which recommended that DOE consider a variety of additional factors when evaluating the impacts of potential standards. These additional considerations, while adding complexity to the analysis, are responsive to commenters and increase the granularity of results. A simplified analysis would run counter to those E:\FR\FM\18DER2.SGM 18DER2 87522 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 recommendations,39 which have proven to have merit. In response to AHRI’s comment that consumer impacts should be assessed individually, DOE notes that as discussed in section IV.F of this document, the LCC includes a Monte Carlo analysis that allows DOE to assess impacts on a wide range of installations. DOE uses this information to assess and consider how consumers would likely be impacted by potential standards. DOE also conducts a consumer subgroup analysis (described in section IV.I of this document) that evaluates the economic impacts of standards on specific groups. DOE further notes that its analysis is designed to be reproducible to interested parties, and DOE provides a range of statistics, including the percentage of consumers that will be negatively and positively impacted by an amended energy conservation standard. Therefore, for this final rule, DOE continued to conduct the energy savings and economic rulemakings using largely the same methodologies used in the July 2022 NOPR of this rulemaking, which are generally consistent with those used for prior rulemakings. ACCA suggested that DOE should focus its attention on efficiency improvements, such as installing heating, ventilation, and airconditioning (HVAC) systems according to the industry’s recommended standards (including proper equipment sizing, duct re-design and sealing, and appropriate refrigerant charge levels), that would reduce peak electricity demand without requiring revised installation or design standards. (ACCA, No. 398 at p. 2) As discussed in section IV.F.4 of this document, DOE’s analysis accounts for the electricity consumption of NWGFs and MHGFs. Although reducing peak electricity demand can be a benefit of energy conservation standards, as discussed in section II.A of this document, EPCA provides specific factors that DOE must consider when establishing or amending energy conservation standards. One of these factors is the total projected energy savings that would result from the standard (see 42 U.S.C. 6295(o)(2)(B)(i)(III)), and DOE includes 39 For example, sections 12 through 16 of the Process Rule outlines factors to be considered in the process for developing energy conservation standards, including delineating several factors relating to identification of candidate standard levels and other factors to be considered in the selection of proposed standards, as well as the subsequent selection of a final standard. These analyses, along with the accompanying sensitivity analyses, are necessary to ensure the robustness of the Energy Conservation Standards amendment process. VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 impacts on electricity consumption when evaluating the projected energy savings. DOE follows the statutory obligations laid out in EPCA when evaluating the potential for energy savings, technological feasibility, and economic justification. 6. Opportunity for Public Input MTNGUD, Watertown Municipal Utilities, and LANGD recommended that DOE hold a workshop to further discuss this rulemaking. (MTNGUD, No. 350 at pp. 1–2; WMU, No. 351 at p. 1; LANGD, No. 355 at p. 2) MTNGUD and LANGD specifically noted that at the workshop, DOE should further discuss its LCC analysis with stakeholders in order to achieve a common understanding, and these parties added that the LCC is a central part of the proposed standard. (MTNGUD, No. 350 at p. 1; WMU, No. 351 at p. 2; Consumer Energy Alliance, No. 354 at p. 1, LANGD, No. 355 at p. 2) MTNGUD, Watertown Municipal Utilities, and Joint Requesters stated that holding a workshop and extending the associated comment period would be in accordance with the objectives of the Process Rule. (MTNGUD, No. 350 at pp. 1–2; WMU, No. 351 at pp. 1–2; Joint Requesters, No. 356 at pp. 1–4) Joint Requesters requested another webinar to cover comments and questions related to DOE’s LCC model that were not addressed during the webinar held on September 6, 2022. (Joint Requesters, No. 362 at p. 2) Additionally, the Consumer Energy Alliance urged that an extension of the comment period by DOE and hosting the requested workshop would allow for sufficient time for all stakeholders to analyze the NOPR so as to develop meaningful comments. (Consumer Energy Alliance, No. 354 at pp. 1–2) MTNGUD, Watertown Municipal Utilities, Consumer Energy Alliance, and LANGD also encouraged DOE to extend the comment period at least 45 days after the workshop to give commenters additional time to effectively comment on the July 2022 NOPR. (MTNGUD, No. 350 at p. 2; WMU, No. 351 at p. 2; Consumer Energy Alliance, No. 354 at 2; LANGD, No. 355 at p. 2) LANGD and Watertown Municipal Utilities stated that more time is needed to evaluate the impacts on low-income households, seniors, and energy insecure consumers. (LANGD, No. 355 at p. 1; WMU, No. 351 at p. 1) Consumer Energy Alliance commented that the proposal and supporting documents are highly technical and voluminous, so it will take additional time to sufficiently analyze everything DOE has issued, adding that DOE’s PO 00000 Frm 00022 Fmt 4701 Sfmt 4700 proposal will impact millions of consumers while also raising complex legal, regulatory, economic, and technical issues. (Consumer Energy Alliance, No. 354 at p. 1) Consumer Energy Alliance further commented that stakeholders should have a sufficient opportunity to evaluate the various issues raised in the NOPR, including how such issues may impact the stakeholders’ members/customers. (Id.) Consumer Energy Alliance requested that an extension of the comment period be granted by DOE, and the commenter argued that hosting the requested workshop would allow for sufficient time for all stakeholders to analyze the NOPR and develop meaningful comments. (Id. at p. 2) Several parties requested an extension of at least 60 days to sufficiently analyze the NOPR and the related documents. (Joint Commenters, No. 330 at p. 1; NGSA, No. 343, at p. 1; MHI, No. 344, at p. 1). They stated that DOE did not follow the Process Rule, and that the 60day comment period made meaningful comment impossible. (Joint Commenters, No. 330 at p. 1; NPGA, No. 395 at pp. 26–27) Similarly, LANGD and the Consumer Energy Alliance commented that the 60-day comment period does not allow for a meaningful opportunity to verify DOE’s analysis and provide substantive comments to aid in a productive rulemaking process. (LANGD, No. 355 at p. 1; Consumer Energy Alliance, No. 354 at p. 1) APGA and AGA noted that the Administrative Procedure Act (APA) requires that agencies provide a ‘‘meaningful’’ opportunity for comment. (APGA, No. 387 at p. 65; AGA, No. 405 at p. 24) APGA commented that DOE has violated the APA due to the deviation from past public comment periods and the complexities of the models in this rulemaking. (APGA, No. 387 at p. 65) APGA stated that DOE’s justifications for fewer days to comment are unavailing, and that it appears DOE is rushing to judgment by denying APGA and other stakeholders a reasonable process to comment. (APGA, No. 387 at p. 67) AGA also commented that stakeholders have been denied a meaningful opportunity to evaluate the NOPR. (AGA, No. 405 at pp. 24–25) Conversely, AHRI stated that by holding the webinar focused on the LCC model on September 6, 2022 and extending the comment period for the July 2022 NOPR, DOE provided all commenters with sufficient opportunity to review its models and make thoughtful comments. (AHRI, No. 414– 1 at p. 1) Sierra Club et al. commented that the deviations from the Process Rule are justified in light of the long E:\FR\FM\18DER2.SGM 18DER2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 delay on these standards, which is in violation of the statutory deadline for this action and the schedule to which DOE agreed as part of a settlement agreement. (Sierra Club et al., No. 401 at p. 1) In response, DOE conducts all appliance standards rulemakings in accordance with its authority under EPCA, which involves making its analyses publicly available and providing the public an opportunity to comment on the rulemaking. (42 U.S.C. 6295(m)(2)) As explained in the July 2022 NOPR, DOE initially found it necessary and appropriate to provide a 60-day comment period given the overdue statutory deadline and because the analytical methods used for the NOPR were similar to those used in previous rulemaking notices regarding the subject furnaces. 87 FR 40590, 40607 (July 7, 2022). DOE held a public meeting webinar to discuss the July 2022 NOPR on August 3, 2022. Subsequently, as stakeholders requested, DOE held a second public meeting webinar on September 6, 2022 focused on helping stakeholders understand and operate the Department’s analytical models. DOE also extended the comment period by 30 days, which totaled 90 days for stakeholders to provide input. 87 FR 52861 (August 30, 2022). As mentioned, interested parties such as AHRI and Sierra Club, et al. attested to the adequacy of the comment opportunity which DOE provided. (AHRI, No. 414– 1, at p. 1; Sierra Club et al., No. 401, at p. 1) As a result, DOE concludes that stakeholders have had ample time and opportunity to provide input on the rulemaking analyses and process related to the amended energy conservation standards for NWGFs and MHGFs. 7. Federal Financial Assistance The Attorneys General commented that with new Federal funding available under the Infrastructure Investment and Jobs Act and the Inflation Reduction Act, the transition to more-efficient space heating will be cost-effective and affordable. (Attorneys General, No. 408 at p. 2) The Attorneys General added that the multibillion-dollar Congressional investment in weatherization, energy efficiency, and beneficial electrification programs will help alleviate equipment cost concerns for low- to moderate-income households and small businesses. (Id.) Similarly, Trane commented that aid should be provided through the Inflation Reduction Act to homeowners to offset any costs incurred from this standard due to increased purchase and installation costs. (Trane, No. 412 at pp. VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 1–2) Trane further stated that this assistance could help with the necessary advancements in venting technology that will accompany the standard. (Id.) The Joint Utilities commented that they believe DOE can help Americans achieve meaningful cost savings while benefitting the environment by establishing rebates and incentive programs that could be used to support State-regulated efficiency and rebate programs. Furthermore, the Joint Utilities stated that this would assist electric and natural gas customers by reducing the upfront costs of achieving greater home heating efficiency. (The Joint Utilities, No. 402 at p. 1) DOE agrees that Federal funding, specifically funding available through the Inflation Reduction Act, may be able to assist in the transition to moreefficient space heating. However, DOE also notes that such funding is separate from this rulemaking process and has yet to be fully implemented. Consequently, while DOE agrees that the costs of more-efficient furnaces could be reduced for certain consumers, DOE did not include impacts of any Federal funding in its reference case analysis. However, as discussed in section IV.F.10 of this document, DOE performed a sensitivity analysis in which tax credits significantly reduce the cost of a heat pump system as an alternative space-heating option, thereby incentivizing some consumers to switch from gas furnaces to heat pumps. The results of this sensitivity analysis are available in appendices 8J and 10E of the final rule TSD. Additionally, any potential incentives for more-efficient gas furnaces would only improve the consumer benefits as determined in the final rule analysis. Therefore, as discussed in section V of this document, DOE concludes that the amended standards are justified, and this decision is not dependent on whether additional Federal subsidies or investments are available. 8. Standby Mode and Off Mode Power Consumption Standards As discussed in section II.A of this document, EPCA requires any final rule for new or amended energy conservation standards promulgated after July 1, 2010, to address standby mode and off mode energy use. (42 U.S.C. 6295(gg)(3)) ‘‘Standby mode’’ and ‘‘off mode’’ energy use are defined in the DOE test procedure for residential furnaces and boilers (i.e., ‘‘Uniform Test Method for Measuring the Energy Consumption of Consumer Furnaces Other Than Boilers,’’ 10 CFR part 430, subpart B, appendix N). In that test procedure, PO 00000 Frm 00023 Fmt 4701 Sfmt 4700 87523 DOE defines ‘‘standby mode’’ as any mode in which the furnace is connected to a mains power source and offers one or more of the following space heating functions that may persist: (a) To facilitate the activation of other modes (including activation or deactivation of active mode) by remote switch (including thermostat or remote control), internal or external sensors, and/or timer; and (b) Continuous functions, including information or status displays or sensor based functions. 10 CFR part 430, subpart B, appendix N, section 2. ‘‘Off mode’’ for consumer furnaces is defined as a mode in which the furnace is connected to a mains power source and is not providing any active mode or standby mode function, and where the mode may persist for an indefinite time. The existence of an off switch in off position (a disconnected circuit) is included within the classification of off mode. 10 CFR part 430, subpart B, appendix N, section 2. An ‘‘off switch’’ is defined as the switch on the furnace that, when activated, results in a measurable change in energy consumption between the standby and off modes. 10 CFR part 430, subpart B, appendix N, section 2. As discussed previously, DOE does not currently prescribe standby mode or off mode standards for NWGFs and MHGFs. In the July 2022 NOPR, DOE analyzed new standby mode and off mode power standards for NWGFs and MHGFs and proposed that the maximum allowable standby mode and off mode power consumption should be 8.5 W for NWGFs and MHGFs. 87 FR 40590, 40592 (July 7, 2022). Table IV.5 of the July 2022 NOPR shows the standby mode and off mode efficiency levels that DOE analyzed, along with a description of the design options anticipated to be used to achieve each efficiency level above baseline. The baseline efficiency level was determined to be 11 W, and it corresponds to the use of a linear power supply and a 40VA linear transformer (LTX). Other technology options that were analyzed to achieve efficiency levels above baseline include a low-loss LTX (‘‘LL–LTX’’) and two types of switching mode power supply (SMPS). 87 FR 40590, 40619 (July 7, 2022). In response to DOE’s proposed technology options and watt levels associated with each efficiency level for standby mode and off mode standards, Carrier commented that it agreed with DOE’s statement that most furnaces use 40VA transformers, and further described that 40VA transformers provide power to sensors and components in the furnace, as well as a E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 87524 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations variety of external devices. (Carrier, No. 377 at p. 2) Carrier also commented that it does not believe the use of an SMPS will lower the transformer size without limiting the external devices and sensors that can be powered by the furnace, which would impact consumer experience and product performance. The commenter stated that DOE only considered thermostats, but noted that there are other devices that could be powered by the transformer. (Carrier, No. 377 at pp. 2–3) Carrier encouraged DOE to defer the standby mode and off mode power standards, asserting that the 8.5W level has the potential to reduce the utility of consumer furnaces, and therefore would not meet the requirements of 42 U.S.C. 6295(o)(2)(B)(iv). (Carrier, No. 377 at pp. 1–2) Carrier asserted that its analysis found that a maximum standby watt limit of 8.5 is achievable in only their furnaces with the lowest AFUE efficiency and least features. (Carriers, No. 377 at p. 2) Carrier argued that products that incorporate a 20VA transformer do not meet DOE’s screening criteria of product utility or availability, nor will they have the ability to support the safety sensors that will or could be required in the future such as those that may be needed due to the Consumer Protection Safety Commission’s stated intention to establish a requirement for carbon monoxide sensors on furnaces. (Carrier, No. 377 at p. 3) Carrier explained that efficiency level (EL) 1 is the only feasible technology option to support the safety sensors that will be required in the future. (Carrier, No. 377 at pp. 3– 4) Carrier explained that potential requirements for new safety sensors would mean that a standard lower than 11 W could create an adverse impact on product utility. (Carrier, No. 377 at pp. 3–4) Carrier asserted that contractors would need to install larger transformers to maintain utility, which defeats the purpose of having a standby power limit and adds additional installation complexity. (Carrier, No. 377 at pp. 2–3) Therefore, Carrier commented that it opposed DOE’s proposed 8.5W standby mode and off mode power standard for NWGFs. (Carrier, No. 377 at pp. 1–2) Carrier explained that it conducted an analysis of standby mode and off mode power on their furnaces and found that the limit of 8.5W is achievable for their lowerefficiency furnaces, but not for their mid-tier and deluxe furnaces without lessening the utility. (Carrier, No. 377 at p. 2) Overall, Carrier recommended that DOE defer standby mode and off mode power standards until further testing VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 and analysis is conducted. (Carrier, No. 377 at pp. 3–4) Trane also commented that DOE’s assumption that furnaces would transition to a 20VA transformer at standby mode and off mode ELs 2 and 3 is inaccurate, because the transformer supplies power not only to the furnace but also to the attached air conditioner or heat pump, as well as the thermostat and other accessories. (Trane, No. 412 at p. 2) Trane commented that setting the standard at 8.5W would result in manufacturers adding transformers to supply power to the needed features; therefore, Trane recommended maintaining a standard of 11W. (Id.) Lennox stated that 40VA transformers are utilized to provide adequate low voltage power for components and accessory items. (Lennox, No. 389 at pp. 4–5) Lennox commented that it offers transformers ranging up to 70VA to accommodate situations where several accessories are included in the HVAC system. (Lennox, No. 389 at p. 4) Lennox argued that DOE’s assumption of a unit with SMPS having a transformer sized at 20VA is incorrect, since a 20VA transformer often does not provide sufficient power capability to drive the internal components necessary for all furnace/air conditioner/heat pump functions and a thermostat. (Lennox, No. 389 at p. 4) Lennox explained that SMPS are currently used in Lennox products controls, and the company is not aware of ways to further reduce standby mode and off mode power consumption. (Id.) Lennox also stated that the proposed standby mode and off mode standard level would inhibit implementation of additional safety features. (Lennox, No. 389 at pp. 3–4) Lennox commented that the 8.5W limit for consumer furnaces will prevent advances in communicating controls, installation and diagnostic features, and zoning. (Lennox, No. 389 at p. 4) Lennox further stated that programs, including ENERGY STAR, are considering measures that would require these monitoring, diagnostic, and prognostic features that would require additional standby power, but would save more energy overall. (Id.) The commenter argued that future innovations and safety requirements (e.g., thermostats, WiFi controls, extra power supplies) may force the power usage to rise above the 11W limit. (Lennox, No. 389 at p. 6) Lennox commented that DOE should not mandate standby mode and off mode power levels with de minimis energy savings that prevent the integration of controls and other features that enable significantly larger energy savings at the PO 00000 Frm 00024 Fmt 4701 Sfmt 4700 furnace and HVAC systems level. (Lennox, No. 389 at pp. 4–5) Lennox commented that DOE should not only reconsider the proposed standby mode and off mode standard of 8.5W but should also consider whether an 11W baseline would be sufficient. (Lennox, No. 389 at p. 6) Lennox further commented that the analysis for DOE’s proposed standard for standby mode and off mode also does not consider system level impacts. (Lennox, No. 389 at p. 5) Nortek commented that DOE should not implement a standby mode and off mode standard lower than 11W. (Nortek, No. 406 at pp. 1–2) Nortek commented that they do not support DOE’s proposed standard of 8.5 W for standby mode and off mode, as it would limit necessary innovation in furnace controls, programming and usage displays, thermostats, and other devices. (Nortek, No. 406 at p. 1) Rheem commented that DOE should adjust its proposed standby mode and off mode energy standards for NWGF. Rheem asserted that 8.5W may be overly limiting due to the previously mentioned shift toward smart products, and the shift to low global warming potential (GWP) refrigerants that require additional power for supporting communication and safety controls. The commenter warned that reductions in standby wattage limits potential diagnostic and installation functionality, advancements which could also result in energy savings. (Rheem, No. 394 at p. 1) Rheem commented that DOE should maintain a baseline standby mode and off mode power level of 11W, as would allow future improvements such as safety and communicating controls to be incorporated into future furnace designs. (Rheem, No. 394 at p. 2) Daikin commented that it does not support DOE’s proposed 8.5W standard for standby mode and off mode. (Daikin, No. 416 at p. 1) Daikin also stated that DOE has significantly underestimated the incremental MPCs for each of the standby mode and off mode efficiency levels, and that the cost increase for a Low-Loss Linear Transformer is more likely to be five to ten times higher than DOE’s estimate. (Id. at p. 4) Daikin noted that many manufacturers offer a 70VA transformer as an accessory or service part to provide adequate low voltage power to all system components, and that manufacturers would likely need to limit accessory items to meet the proposed standby mode/off mode standards. (Id. at p. 5) Daikin recommended that DOE establish a standby mode and off mode criteria of 15W for condensing NWGFs with E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations communicating features, multiple heating stages, ultra-low NOX, an electrically commutated (ECM) motor, and controls associated with alternate refrigerants. (Daikin, No. 416 at p. 6) AHRI explained that a maximum level of 8.5W of standby power would limit necessary innovation in furnaces and related connected devices powered through the furnace and could possibly prohibit significant energy-saving features. (AHRI, No. 414–1 at p. 2) AHRI stated that DOE should reconsider the standby mode and off mode energy standards proposed for NWGFs, as well as the max-tech level based upon the use of a 20VA low-loss linear transformer (‘‘LL–LTX’’) and SMPS. (AHRI, No. 414–1 at p. 3) AHRI also noted that the NAS Peer Review Report 40 mentions the need to not stifle innovation, particularly regarding connected products. (AHRI, No. 414–1 at p. 2) AHRI stated that if the standby mode and off mode standards for furnaces are set too low, then connected products such as thermostats and Wi-Fi controls will use add-on power supplies, mentioning that such auxiliary power supplies are already available on the market. (AHRI, No. 414–1 at p. 3) AHRI expressed concern that the current baseline value of 11W may need to be adjusted in the future to remove the effects of safety and other control measures. (AHRI, No. 414–1 at p. 3) AHRI likewise stated that DOE should reconsider the standby mode and off mode energy standards proposed for MHGFs, referencing the comments it submitted for NWGFs. Specifically, AHRI stated that the proposed maximum of 8.5 watts would stifle innovation and could reduce energy savings from connected products, and is inadequate to power safety and communication controls necessary for consumer utility. (AHRI, No. 414–2 at p. 3) Mortex commented that DOE’s proposed 8.5W limit for standby mode and off mode would not be adequate to power safety and communicating controls necessary for consumer utility and that 11W should be retained. (Mortex, No. 410 at p. 4) JCI commented that the 8.5W limit for standby mode and off mode power of NWGFs and MHGFs is too restrictive due to the additional requirements associated with the new A2L refrigerant requirement and other future 40 National Academies of Sciences, Engineering, and Medicine, Review of Methods Used by the U.S. Department of Energy in Setting Appliance and Equipment Standards. (2021) Washington, DC: The National Academies Press. pp. 2–3; 111–113. doi.org/10.17226/25992. VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 communication and monitoring advancements. (JCI, No. 411 at p. 3) Several commenters argued that furnaces will need to incorporate safety sensors for controlling components such as carbon monoxide, carbon dioxide, refrigerant leak detectors and/or low GWP along with other changes in the future, and they noted that such functionalities must be accounted for in meeting the currently proposed limit for standby mode and off mode power. (Lennox, No. 389 at pp. 4–5; Rheem, No. 394 at pp. 1–2; Carrier, No. 377 at pp. 3–4; Daikin, No. 416 at pp. 5–6; AHRI, No. 414–1 at pp. 2–3) Daikin, Lennox, Trane and AHRI listed numerous components that are powered by transformers in consumer furnaces. The combined list of components includes: integrated furnace control board, indoor and outdoor air conditioning/heat pump (AC/HP) fan motors, gas valves, combustion air inducers, thermostats, ultraviolet (UV) germicidal lights, humidifiers, AC/HP outdoor control board, AC/HP defrost controls, AC/HP heat pump reversing valve, indoor air circulating blowers, indoor and outdoor electronic expansion valves, condensate pumps, communicating controls that aid in proper commissioning, AC/HP IoT devices, system performance monitoring and reporting, identification of faults, zoning systems consumer interface, temperature sensors, air pressure sensors, refrigerant pressure sensors, gas pressure sensors, proprietary diagnostic sensors, refrigerant leak detection systems for A2L refrigerants, carbon monoxide (CO) sensors, CO2 sensors, and dual fuel HPs that require more power. (Daikin, No. 416 at p. 6; Lennox, No. 389 at pp. 4–5; Trane, No. 412 at p. 2; AHRI, No. 414–1 at pp. 2–3) AHRI stated that it is impossible at this time to determine the power draw from these components that may be added to furnaces in the future and suggested that DOE reevaluate these proposed standards for NWGFs in the next round of standards. (AHRI, No. 414–1 at p. 3) Trane argued that a 20VA transformer is inadequate to power all these items. (Trane, No. 412 at p. 2) Daikin recommended taking these future requirements into account, as these standards will not come into effect until after the new A2L refrigerant is required. (Daikin, No. 416 at pp. 5–6) The CA IOUs commented that they analyzed the dataset of ten consumer furnaces shared by AHRI in which they found that 50 percent of the furnaces with AFUEs of 97 or higher would not meet the proposed standby mode and off mode requirement. They further stated that 70 percent would meet a PO 00000 Frm 00025 Fmt 4701 Sfmt 4700 87525 standard of 9 W and that 100 percent would meet a standard of 10 W. (The CA IOUs, No. 400 at p. 3) The CA IOUs requested that DOE confirm that the proposed standby mode and off mode energy conservation standard would not significantly reduce the market availability of the most efficient consumer furnaces and would preserve design flexibility for future products. The CA IOUs suggested that these design flexibilities could include diagnostic features to verify installation and monitor ongoing performance or additional safety features or reduce consumer costs through higher operational energy savings. The CA IOUs suggested that DOE should consider a separate standby mode and off mode adder for furnaces with higher energy efficiency than baseline furnaces. (The CA IOUs, No. 400 at p. 3) The CA IOUs commented in support of a standby mode and off mode energy conservation standard; however, they stated that, in their experience, products with higher operational efficiencies sometimes have higher standby mode and off mode energy requirements. (The CA IOUs, No. 400 at pp. 2–3) They commented that, as an example, furnace fans with ECMs have higher standby mode energy consumption compared with furnaces fans outfitted with lower efficiency motors. (Id.) CEC commented that consumer products in the marketplace already meet the proposed DOE standard of 8.5W in standby mode. The commenter conducted an analysis on AHRI’s condensing data set, which showed 74 percent of condensing furnaces as using an ECM motor, and only 8 percent of those furnaces were shown to have a standby energy consumption greater than 8.5W. CEC stated that the average of this data was 6.1W and that the median was 5.7W for condensing furnaces with ECM motors. Therefore, CEC claimed that the 8.5W limit is both realistic and leaves room for additional functionality to be added. (CEC, No. 382 at p. 3) NYSERDA expressed support for DOE’s proposed standards for standby mode and off mode power consumption and agreed with DOE’s findings that more-efficient transformers are realistic and attainable. (NYSERDA, No. 379 at pp. 7–8) NYSERDA also noted that the sample of condensing furnaces from the data set provided by AHRI to DOE in 2018 41 supports DOE’s proposed standby mode and off mode power 41 The comment submitted by AHRI was in response to a separate proceeding, and can be found at: www.regulations.gov/document/EERE-2018-BTPET-0017-0002. E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 87526 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations standards. (NYSERDA, No. 379 at p. 8) According to NYSERDA, the majority of models tested at the time had standby mode and off mode power efficiencies at or below the proposed standard levels, thereby demonstrating the proposed standards to be technologically feasible and readily available. (Id.) After considering this feedback, DOE understands that typical and baseline levels of power consumption of NWGFs and MHGFs in standby mode or off mode are likely to increase in the future as manufacturers continue to build increasingly complex controls into consumer furnaces, and that many of the likely changes are related to features such as safety sensors or to other improvements in functionality that would provide utility for the consumer. In addition, DOE understands that manufacturers may be introducing more sophisticated controls for furnaces that are intended to get paired with central heat pumps in the field, whose operation can be optimized for efficient performance. DOE takes Carrier’s point that such innovations could contribute to the overall utility or performance of the covered product, an important consideration when assessing the economic justification of a potential standard (see 42 U.S.C. 6295(o)(2)(B)(i)(IV)). However, DOE further notes that this one EPCA factor in isolation is not dispositive of a potential standard’s economic justification or lack thereof, but instead, the Department must weigh all seven factors under 42 U.S.C. 6295(o)(2)(B)(i) before setting any standby mode and off mode power standards. Based on the totality of these comments, DOE has found that there is some degree of uncertainty that exists with respect to the appropriateness of the standby mode/off mode efficiency levels analyzed in the July 2022 NOPR—particularly for products that are in development but also possibly in some products already on the market. Consequently, DOE has determined that it lacks the necessary information to set appropriate standby mode and off mode standards pursuant to 42 U.S.C. 6295(gg)(3) at this time. Particularly since some of the functionalities at issue could have significant safety or energysavings benefits, DOE does not wish to stymie such developments through well-intentioned but ultimately counterproductive standby mode/off mode standards. Instead, DOE needs to have a better understanding of the legitimate power consumption needs of the subject furnaces when operating in these modes. The Department has concluded that it does not currently have the requisite evidence to support VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 standby mode and off mode standards under the applicable statutory criteria in 42 U.S.C. 6295(o)(2)(B)(i). Therefore, DOE is not adopting the standby mode/ off mode power standards for NWGFs/ MHGFs proposed in the July 2022 NOPR at this time, but instead, the Department will continue to investigate these issues and may consider such standards in a future rulemaking. In summary, based on the stakeholder feedback received, DOE concludes that more data is necessary to determine the appropriate baseline level for standby mode and off mode energy usage to allow for safety features, features that reduce active mode energy use, or other features that would provide additional functionality for consumers. In response to the July 2022 NOPR, Daikin commented that it does not support DOE’s proposed standby mode and off mode standard because the consumer life-cycle savings are negligible, the energy savings potential is extremely small, the burden on manufacturers is high, and there is a need to address low-voltage power supply for components in the future. (Daikin, No. 416 at p. 4) Similarly, PHCC commented that standby mode and off mode energy use cannot be considered in comparison to the overall energy consumption of the equipment because those potential savings are de minimis. (PHCC, No. 403 at p. 2) Daikin disagreed with DOE’s statement that current mounting brackets are sufficient to support the slight increase in size and weight of an LL–LTX. The commenter asserted that, according to ASTM D4728 (Standard Test Method for Random Vibration Testing of Shipping Containers and Systems), even small increases in mass can cause breaks, cracks, and deformation that mandate strengthening supports and brackets. Finally, Daikin stated that such modifications would lead to significant cost increases. (Daikin, No. 416 at p. 4) As discussed previously in this section, DOE is not finalizing its previous proposal to set new standby mode and off mode power standards for NWGFs and MHGFs in this final rule. However, DOE will continue to monitor the standby mode and off mode power consumption of the subject consumer furnaces and may address such standards in a future rulemaking. The Department may consider these comments further at that time, as appropriate. B. Product Classes and Scope of Coverage When evaluating and establishing energy conservation standards for a type PO 00000 Frm 00026 Fmt 4701 Sfmt 4700 (or class) of covered products, DOE divides covered products into product classes by the type of energy used, or by capacity or other performance-related features which other products within such type (or class) do not have and that justify differing standards. In making a determination whether a performancerelated feature justifies a different standard, DOE must consider such factors as the utility of the feature to the consumer and other factors DOE determines are appropriate. (42 U.S.C. 6295(q)) In this rule, DOE is only analyzing a subset of consumer furnace classes. DOE agreed to the partial vacatur and remand of the June 2011 direct final rule (DFR), specifically as it related to energy conservation standards for NWGFs and MHGFs in the settlement agreement to resolve the litigation in American Public Gas Ass’n v. U.S. Dept. of Energy (No. 11–1485, D.C. Cir. Filed Dec. 23, 2011). 80 FR 13120, 13130–13132 (March 12, 2015). Therefore, in this rule, DOE is only amending the energy conservation standards for NWGFs and for MHGFs. See section IV.A.1 of this document for a more detailed discussion of the product classes analyzed in this final rule. C. Test Procedure EPCA sets forth generally applicable criteria and procedures for DOE’s adoption and amendment of test procedures. (42 U.S.C. 6293) Manufacturers of covered products must use these test procedures to certify to DOE that their product complies with energy conservation standards and to quantify the efficiency of their product. (42 U.S.C. 6295(s)) DOE’s current energy conservation standards for consumer furnaces are expressed in terms of AFUE. (See 10 CFR 430.32(e)(1)) AFUE is an annualized fuel efficiency metric that accounts for fossil fuel consumption in active, standby, and off modes. The existing DOE test procedure for determining the AFUE of consumer furnaces is located at 10 CFR part 430, subpart B, appendix N. The DOE test procedure for consumer furnaces was originally established by a May 12, 1997, final rule, which incorporates by reference the American Society of Heating, Refrigerating and AirConditioning Engineers (ASHRAE)/ American National Standards Institute (ANSI) Standard 103–1993, Method of Testing for Annual Fuel Utilization Efficiency of Residential Central Furnaces and Boilers (1993). 62 FR 26140, 26157. Since the initial adoption of the consumer furnaces test procedure, DOE has undertaken a number of additional E:\FR\FM\18DER2.SGM 18DER2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations rulemakings related to that test procedure, including ones to account for measurement of standby mode and off mode energy use (see 75 FR 64621 (Oct. 20, 2010); 77 FR 76831 (Dec. 31, 2012)) and to supply necessary equations related to optional heat-up and cooldown tests (see 78 FR 41265 (July 10, 2013)). Most recently, DOE published a final rule in the Federal Register on January 15, 2016, that further amended the test procedure (TP) for consumer furnaces (January 2016 TP Final Rule). 81 FR 2628. The revisions included: 1. Clarification of the electrical power term ‘‘PE’’; 2. Adoption of a smoke stick test for determining use of minimum default draft factors; 3. Allowance for the measurement of condensate under steady-state conditions; 4. Reference to manufacturer’s installation and operation manual and clarifications for when that manual does not specify test set-up; 5. Specification of duct-work requirements for units that are installed without a return duct; and 6. Revision of the requirements regarding AFUE reporting precision. 81 FR 2628, 2629–2630. As such, the most current version of the test procedure (published in January 2016) has now been in place for several years. Daikin commented that the test procedure should add clarity for the terms ‘‘electrical auxiliaries’’ and ‘‘single auxiliary.’’ (Daikin, No. 416 at p. 6) In response, DOE notes that amendments to the test procedure, including associated terminology, are not in scope for this analysis of amended energy conservation standards. However, DOE may consider this issue further in its next review of the consumer furnaces test procedure, which would occur in a separate test procedure rulemaking proceeding. khammond on DSKJM1Z7X2PROD with RULES2 D. Technological Feasibility 17:57 Dec 15, 2023 2. Maximum Technologically Feasible Levels When DOE proposes to adopt an amended standard for a type or class of covered product, it must determine the maximum improvement in energy efficiency or maximum reduction in energy use that is technologically feasible for such product. (42 U.S.C. 6295(p)(1)) Accordingly, in the engineering analysis, DOE determined the maximum technologically feasible (‘‘max-tech’’) improvements in energy efficiency for NWGFs and MHGFs, using the design parameters for the most efficient products available on the market or in working prototypes. The max-tech levels that DOE determined for this rulemaking are described in section IV.C of this final rule and in chapter 5 of the final rule TSD. E. Energy Savings 1. General In each energy conservation standards rulemaking, DOE conducts a screening analysis based on information gathered on all current technology options and prototype designs that could improve the efficiency of the products or equipment that are the subject of the rulemaking. As the first step in such an analysis, DOE develops a list of technology options for consideration in consultation with manufacturers, design engineers, and other interested parties. DOE then determines which of those means for improving efficiency are VerDate Sep<11>2014 technologically feasible. DOE considers technologies incorporated in commercially-available products or in working prototypes to be technologically feasible. See 10 CFR part 430, subpart C, appendix A (Process Rule), sections 6(b)(3)(i) and 7(b)(1). After DOE has determined that particular technology options are technologically feasible, it further evaluates each technology option in light of the following additional screening criteria: (1) practicability to manufacture, install, and service; (2) adverse impacts on product utility or availability; (3) adverse impacts on health or safety, and (4) unique-pathway proprietary technologies. Sections 6(b)(3)(ii)–(v) and 7(b)(2)–(5) of the Process Rule. Section IV.B of this document discusses the results of the screening analysis for NWGFs and MHGFs, particularly the designs DOE considered, those it screened out, and those that are the basis for the standards considered in this rulemaking. For further details on the screening analysis for this rulemaking, see chapter 4 of the final rule TSD. Jkt 262001 1. Determination of Savings For each trial standard level (TSL), DOE projected energy savings from application of the TSL to NWGFs and MHGFs purchased in the 30-year period that begins in the expected first year of compliance with the amended standards (2029–2058).42 The savings are measured over the entire lifetime of products purchased in the 30-year analysis period. DOE quantified the 42 DOE also presents a sensitivity analysis that considers impacts for products shipped in a 9-year period. PO 00000 Frm 00027 Fmt 4701 Sfmt 4700 87527 energy savings attributable to each TSL as the difference in energy consumption between each standards case and the nonew-standards case. The no-newstandards case represents a projection of energy consumption that reflects how the market for a product would likely evolve in the absence of amended energy conservation standards. DOE used its national impact analysis (NIA) spreadsheet models to estimate national energy savings (NES) from potential amended standards for NWGFs and MHGFs. The NIA spreadsheet model (described in section IV.H of this document) calculates energy savings in terms of site energy, which is the energy directly consumed by products at the locations where they are used. For electricity, DOE reports national energy savings in terms of primary (source) energy savings, which is the savings in the energy that is used to generate and transmit the site electricity. For natural gas, the primary energy savings are considered to be equal to the site energy savings. To calculate the primary energy impacts, DOE derives annual conversion factors from the model used to prepare the Energy Information Administration’s (EIA) most recent Annual Energy Outlook (AEO) currently AEO2023. DOE also calculates NES in terms of FFC energy savings. The FFC metric includes the energy consumed in extracting, processing, and transporting primary fuels (i.e., coal, natural gas, petroleum), and, thus, presents a more complete picture of the impacts of energy conservation standards.43 DOE’s approach is based on the calculation of an FFC multiplier for each of the energy types used by covered products or equipment. For more information on FFC energy savings, see section IV.H.2 of this document. 2. Significance of Savings To adopt any new or amended standards for a covered product, DOE must determine that such action would result in significant energy savings. (42 U.S.C. 6295(o)(3)(B)) The significance of energy savings offered by a new or amended energy conservation standard cannot be determined without knowledge of the specific circumstances surrounding a given rulemaking. For example, some covered products and equipment have most of their energy consumption occur during periods of peak energy demand. The impacts of these products on the 43 The FFC metric is discussed in DOE’s statement of policy and notice of policy amendment. 76 FR 51282 (August 18, 2011), as amended at 77 FR 49701 (August 17, 2012). E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 87528 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations energy infrastructure can be more pronounced than products with relatively constant demand. Accordingly, DOE evaluates the significance of energy savings on a caseby-case basis, taking into account the significance of cumulative FFC national energy savings, the cumulative FFC emissions reductions, and the need to confront the global climate crisis, among other factors. The standard levels adopted in this final rule are projected to result in national energy savings of 4.77 quad (FFC) over 30 years of shipments, with GHG emissions savings equivalent to the energy use of 42 million homes in one year.44 Based on the amount of FFC savings, the corresponding reduction in emissions, and need to confront the global climate crisis, DOE has determined (based on the methodology described in section IV.E of this document and the analytical results presented in section V.B.3.a of this document) that there is substantial evidence that the energy savings from the standard levels adopted in this final rule are ‘‘significant’’ within the meaning of 42 U.S.C. 6295(o)(3)(B). APGA commented that the purpose of EPCA is to reduce energy consumption. APGA stated that the energy savings for the proposed TSL 8 (of 5.48 quad) was significantly higher than all other TSLs except TSL 9. APGA stated that the analysis is extremely complex, but even with that complexity, the estimated savings represents just 3.5 percent relative to the energy use of these products in the no-new-standards case. APGA also added that DOE’s estimates of energy savings are tainted based on flawed modeling in the LCC analysis. (APGA, No. 387 at p. 28) DOE addresses APGA’s comments with regard to the modeling assumptions in the LCC analysis in section IV.F of this document. With regard to the significance of savings, DOE is not required to consider the percentage of savings when considering significance. In particular, 42 U.S.C. 6295(o)(2)(B)(i)(III) refers to the total projected amount of energy savings, not the percentage savings. While those percentage savings have previously been considered as a test when overall energy savings are small, in this case, overall energy savings are quite large, particularly when aggregated over the 30-year analysis period. Therefore, DOE continues to maintain that the energy savings estimated for this final rule of 4.77 quads are significant. The DCA commented that the unpredictable nature of renewable energy sources, such as solar and wind, demonstrate that these energy sources alone will not meet current and future demand. (DCA, No. 372 at pp. 1–2) The DCA commented that the United States will not be able to achieve its clean energy ambitions without substantial growth of natural gas production and a large expansion of natural gas distribution pipelines. (Id.) The DCA commented that natural gas enables the use of renewable energy sources. (Id. at p. 2) With respect to DCA’s comment regarding the mix of fuels needed to meet future energy demand, DOE notes that the EIA’s AEO2023 projects natural gas to account for 35 percent of all domestic energy production in 2050.45 AEO’s projections of future energy systems in the U.S. are based on a robust and comprehensive macroeconomic model, taking into account a wealth of factors and data, and those projections are the best available to DOE. 44 Equivalencies based on: www.epa.gov/energy/ greenhouse-gas-equivalencies-calculator (last accessed Sept. 15, 2023). 45 Energy Information Administration, Annual Energy Outlook 2023, Table 1 (available at: www.eia.gov/outlooks/aeo/tables_ref.php). VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 F. Economic Justification 1. Specific Criteria As noted previously, EPCA provides seven factors to be evaluated in determining whether a potential energy conservation standard is economically justified. (42 U.S.C. 6295(o)(2)(B)(i)(I)(VII)) The following sections discuss how DOE has addressed each of those seven factors in this rulemaking. a. Economic Impact on Manufacturers and Consumers In determining the impacts of potential amended standards on manufacturers, DOE conducts a manufacturer impact analysis (‘‘MIA’’), as discussed in section IV.J of this document. DOE first uses an annual cash-flow approach to determine the quantitative impacts. This step includes both a short-term assessment—based on the cost and capital requirements during the period between when a regulation is issued and when entities must comply with the regulation—and a long-term assessment over a 30-year period. The industry-wide impacts analyzed include: (1) INPV, which values the industry on the basis of expected future cash flows; (2) cash flows by year; (3) changes in revenue and income; and (4) other measures of impact, as appropriate. Second, DOE analyzes and reports the impacts on different types of manufacturers, including impacts on PO 00000 Frm 00028 Fmt 4701 Sfmt 4700 small manufacturers. Third, DOE considers the impact of standards on domestic manufacturer employment and manufacturing capacity, as well as the potential for standards to result in plant closures and loss of capital investment. Finally, DOE takes into account cumulative impacts of various DOE regulations and other regulatory requirements on manufacturers. For individual consumers, measures of economic impact include the changes in LCC and PBP associated with new or amended standards. These measures are discussed further in the following section. For consumers in the aggregate, DOE also calculates the national net present value of the consumer costs and benefits expected to result from particular standards. DOE also evaluates the LCC impacts of potential standards on identifiable subgroups of consumers that may be affected disproportionately by a standard. b. Savings in Operating Costs Compared To Increase in Price (LCC and PBP) EPCA requires DOE to consider the savings in operating costs throughout the estimated average life of the covered product in the type (or class) compared to any increase in the price of, or in the initial charges for, or maintenance expenses of, the covered product that are likely to result from a standard. (42 U.S.C. 6295(o)(2)(B)(i)(II)) DOE conducts this comparison in its LCC and PBP analysis. The LCC is the sum of the purchase price of a product (including its installation) and the operating cost (including energy, maintenance, and repair expenditures) discounted over the lifetime of the product. The LCC analysis requires a variety of inputs, such as product prices, product energy consumption, energy prices, maintenance and repair costs, product lifetime, and discount rates appropriate for consumers. To account for uncertainty and variability in specific inputs, such as product lifetime and discount rate, DOE uses a distribution of values, with probabilities attached to each value. The PBP is the estimated amount of time (in years) it takes consumers to recover the increased purchase cost (including installation) of a moreefficient product through lower operating costs. DOE calculates the PBP by dividing the change in purchase cost due to a more-stringent standard by the change in annual operating cost for the year that standards are assumed to take effect. The LCC and PBP analyses focus on consumers who will purchase the covered products in the first year of E:\FR\FM\18DER2.SGM 18DER2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations compliance with new or amended standards. The LCC savings for the considered efficiency levels are calculated relative to the case that reflects projected market trends in the absence of new or amended standards. DOE’s LCC and PBP analysis is discussed in further detail in section IV.F of this document. c. Energy Savings Although significant conservation of energy is a separate statutory requirement for adopting an energy conservation standard, EPCA requires DOE, in determining the economic justification of a standard, to consider the total projected energy savings that are expected to result directly from the standard. (42 U.S.C. 6295(o)(2)(B)(i)(III)) As discussed in section IV.H of this document, DOE uses the NIA spreadsheet models to project national energy savings. khammond on DSKJM1Z7X2PROD with RULES2 d. Lessening of Utility or Performance of Products In establishing product classes, and in evaluating design options and the impact of potential standard levels, DOE evaluates potential standards that would not lessen the utility or performance of the considered products. (42 U.S.C. 6295(o)(2)(B)(i)(IV)) Based on data available to DOE, the standards adopted in this document would not reduce the utility or performance of the products under consideration in this rulemaking. e. Impact of Any Lessening of Competition EPCA directs DOE to consider the impact of any lessening of competition, as determined in writing by the Attorney General, that is likely to result from a standard. (42 U.S.C. 6295(o)(2)(B)(i)(V)) It also directs the Attorney General to determine the impact, if any, of any lessening of competition likely to result from a standard and to transmit such determination to the Secretary within 60 days of the publication of a proposed rule, together with an analysis of the nature and extent of the impact. (42 U.S.C. 6295(o)(2)(B)(ii)) To assist the Department of Justice (DOJ) in making such a determination, DOE transmitted copies of its proposed rule and the NOPR TSD to the Attorney General for review, with a request that the DOJ provide its determination on this issue. In its assessment letter responding to DOE, DOJ concluded that the proposed energy conservation standards for NWGFs and MHGFs are unlikely to substantially lessen competition in any particular product or geographic market. DOJ added that in the course of its VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 review, it was told that the MHGF market may be more highly concentrated than DOE’s analysis suggests. DOJ stated that given the necessarily short time-frame for its review, it is not in a position to confirm the level of concentration increase that may be caused by the rule, but it encouraged DOE to closely examine and consider potential competitive issues that commenters may raise with respect to this rulemaking. The Department is publishing the Attorney General’s assessment at the end of this final rule. DOE notes that it has carefully considered the issues mentioned by DOJ in arriving at the standards adopted in this final rule. NGA of Georgia stated that the NOPR analysis indicated that nearly 32 percent of current furnaces in Georgia would be converted to an alternate fuel source under the proposed standard, which would have implications for the competitive balance of natural gas utilities, contractors that specialize in gas piping and appliances, and manufacturers that only make gas equipment or venting. (NGA of Georgia, No. 380 at p. 3) GAS asserted that DOE has ignored anti-competitive effects of its energy conservation standards rulemakings. (GAS, No. 385 at p. 6) APGA commented that the rulemaking record created by DOE does not do a good job of quantifying the impact on competition, and noted that APGA addressed the competition issue in comments to the Department of Justice dated August 19, 2022. (APGA, No. 387 at pp. 64–65) APGA asserted that establishing a 95-percent AFUE standard could have a profound impact on competition, as consumers may shift to alternative methods of home heating equipment due to the higher up-front cost of a 95-percent AFUE furnace (compared to a 90-percent AFUE furnace). (APGA, No. 387 at p. 65) Spencer and Dayaratna asserted that the proposed standard ‘‘would effectively remove a technology from the marketplace and reduce competition.’’ (Spencer and Dayaratna, No. 390 at p. 2) They claim that the proposed standard will remove an entire technology from the market, limiting the incentive for condensing furnace manufacturers to lower prices or to increase efficiency further. (Id. at 3) Mortex submitted written comments specific to competition in the MHGF marketplace, asserting that one MHGF manufacturer is dominant and sells both to mobile home manufacturers and into the replacement market. Additionally, Mortex raised concerns about the availability of 20″ wide and 24″ deep PO 00000 Frm 00029 Fmt 4701 Sfmt 4700 87529 MHGFs if DOE adopts a condensing standard and the financial impacts that lessened competition in the MHGF market could have on low-income consumers. (Mortex, No. 410 at pp. 3– 4) In addition to dimensional differences between MHGFs and NWGFs, JCI stated that there are product configuration differences (i.e., MHGFs typically utilize a downflow configuration and NWGFs typically utilize an upflow configuration). JCI raised concerns about the availability of downflow condensing MHGFs. JCI questioned the feasibility of retrofitting an upflow MHGF into a manufactured home constructed to make use of a downflow furnace. Specifically, JCI asserted that the costs of reconfiguring ductwork, filling voids, and making other necessary structural changes would prevent such a change. (JCI, No. 411 at pp. 2–3) In response to stakeholders’ comments and DOJ’s comment regarding the MHGF industry, DOE reviewed the manufacturer landscape of NWGFs and the manufacturer landscape of MHGFs separately. In the NWGF market, DOE notes that the 10 original equipment manufacturers (OEMs) of non-condensing NWGFs also manufacture condensing NWGFs that meet or exceed the adopted level (95percent AFUE). Additionally, DOE identified three OEMs that only manufacture condensing NWGFs. These three NWGF OEMs also all offer models that meet or exceed the adopted level. Thus, a variety of companies already participate in the condensing NWGF market. Given that the number of competitors is not decreased at the adopted levels, DOE does not anticipate lessening of competition in the NWGF market. Compared to the NWGF market, the MHGF market is smaller (i.e., lower annual shipments) and is served by fewer OEMs. DOE estimates that NWGFs account for approximately 97 percent of shipments covered by this rulemaking (around 3.1 million units in 2029) and that MHGFs account for the remaining 3 percent of shipments (around 0.1 million units in 2029). In the July 2022 NOPR, DOE identified seven OEMs of MHGFs. For this final rule, DOE further researched the furnace market and refreshed its database of model listings to include the most upto-date information on NWGF and MHGF models currently available on the market. Through its review of the updated product database and other public sources, DOE determined that one MHGF OEM no longer offers products covered by this rulemaking. At the time of the July 2022 NOPR, this E:\FR\FM\18DER2.SGM 18DER2 87530 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 OEM offered one condensing MHGF model, which has since been discontinued. Therefore, through its careful review of the MHGF market, DOE has determined that six OEMs manufacture MHGFs for the U.S. market. Of these six OEMs, one OEM only manufactures non-condensing MHGFs, two OEMs only manufacture condensing MHGFs, and the remaining three OEMs manufacture both noncondensing and condensing MHGFs. All five OEMs of condensing MHGFs offer models that meet or exceed the adopted level (95-percent AFUE). Furthermore, all OEMs of condensing MHGFs offer downflow condensing models. Given the existing availability of downflow condensing models, DOE finds that a market shift to condensing furnaces would not eliminate downflow configurations from the market. Similarly, DOE found a range of condensing MHGF models that fit into compact footprints. The availability of such models from Burnham Holdings (Thermo Pride) and Madison Industries (Nortek) suggest there is no technical constraint to offering condensing MHGFs that fit a compact footprint. DOE recognizes that one manufacturer dominates the MHGF space in sales volume, and the remaining competitors have small market shares. As a result, the MHGF market is concentrated. However, DOE does not expect the adopted standard would significantly alter the level of concentration. DOE notes that consumers have access to a range of alternate heating solutions and that those alternatives limit price increases in a market where one manufacturer already dominates the space. As discussed earlier in this section, in a September 6, 2022, letter written in response to the NOPR, DOJ stated that ‘‘[b]ased on our review of the information currently available, we do not believe that the proposed energy conservation standards for consumer furnaces are likely to substantially lessen competition in any particular product or geographic market.’’ f. Need for National Energy Conservation DOE also considers the need for national energy and water conservation in determining whether a new or amended standard is economically justified. (42 U.S.C. 6295(o)(2)(B)(i)(VI)) Spencer and Dayaratna asserted that DOE’s NOPR fails to establish the need for national energy conservation as would justify the proposed standard under 42 U.S.C. 6295(o)(2)(B)(i)(VI). These commenters argued that there is not a current and pressing problem concerning conservation, as the United VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 States is in a time of energy abundance (citing EIA estimates of U.S. oil and gas reserves equating to nearly 100 years of supply, uranium reserves, as well as the potential for new energy discoveries such as oil shale). Spencer and Dayaratna also challenged the proposed standards’ anticipated reductions in toxic air emissions as a weak reason for showing the need for national energy conservation; the commenters argued that air pollutant concentration levels have declined significantly since 1990, so with the air clean and getting cleaner, they asserted that the costs and benefits of the regulation are outweighed by its impacts on consumer choice, family finances, and broad inconvenience. (Spencer and Dayaratna, No. 390 at pp. 4–6) DOE disagrees with this comment from Spencer and Dayaratna. DOE finds this comment to start from the flawed premise that further improvements in energy efficiency and reduced emissions are unnecessary or would not provide substantial benefits to consumers and the Nation. As discussed in section I.C of this final rule, the amended standards for the subject consumer furnaces are expected to save 4.77 quad of energy over 30 years and the cumulative NPV of total consumer benefits of the amended standards for NWGFs and MHGFs ranges from $4.8 billion (at a 7percent discount rate) to $16.3 billion (at a 3-percent discount rate) over the same time period. In DOE’s view, the presence of an abundant energy supply neither precludes DOE’s approach nor justifies the approach suggested by the commenters, which would result in waste of significant amounts of energy when more-efficient options are technologically feasible and economically justified. Likewise, DOE does not agree that the Nation and its citizens (particularly children) would not benefit from the reduction in toxic air emissions associated with the amended energy conservation standards for the subject consumer furnaces. Despite the Nation’s substantial progress in reducing emissions in recent years, DOE does not believe that further efforts in terms of environmental and human health protection are unnecessary. DOE maintains that environmental and public health benefits associated with the more efficient use of energy are important to take into account when considering the need for national energy conservation. The adopted standards are likely to result in environmental benefits in the form of reduced emissions of air pollutants and greenhouse gases (GHGs) associated with energy production and use. DOE PO 00000 Frm 00030 Fmt 4701 Sfmt 4700 conducts an emissions analysis to estimate how potential standards may affect these emissions, as discussed in section IV.K of this document; the estimated emissions impacts are reported in section V.B.6 of this document. DOE also estimates the economic value of emissions reductions resulting from the considered TSLs, as discussed in section IV.L of this document. These positive economic and health benefits are set forth in detail in section V.B.6 of this document. Furthermore, DOE notes that the energy savings from the adopted standards are likely to provide improvements to the security and reliability of the Nation’s energy system. Reductions in the demand for electricity also may result in reduced costs for maintaining the reliability of the Nation’s electricity system. DOE conducts a utility impact analysis to estimate how standards may affect the Nation’s needed power generation capacity, as discussed in section IV.M of this document. g. Other Factors In determining whether an energy conservation standard is economically justified, DOE may consider any other factors that the Secretary deems to be relevant. (42 U.S.C. 6295(o)(2)(B)(i)(VII)) To the extent DOE identifies any relevant information regarding economic justification that does not fit into the other categories described previously, DOE could consider such information under ‘‘other factors.’’ Spencer and Dayaratna stated that one other factor to consider is how the proposed standard meaningfully advances EPCA’s intent, given the abundant energy sources that the United States enjoys today that were not contemplated in 1975. (Spencer and Dayaratna, No. 390 at p. 11) They add that given the change in the value proposition for energy efficiency since 1975, setting efficiency standards no longer has the same impact on energy availability as it did during times of perceived energy scarcity, concluding that the proposed standards do not meaningfully advance the intent of EPCA and do not justify the restrictions that they state the proposed rule will impose on consumer choice. (Id. at p. 11–12) DOE’s response here is similar to that made in the preceding section in response to Spencer and Dayaratna’s argument regarding establishing the need for national energy conservation. Again, DOE disagrees with the commenters’ assertion that an abundant energy supply somehow ends DOE’s statutory mandate to pursue further E:\FR\FM\18DER2.SGM 18DER2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 improvements in energy efficiency and reduced emissions, despite the fact that such actions would provide substantial benefits to consumers and the Nation. Additionally, the consideration of total projected energy savings is only one of the seven factors enumerated in EPCA. (42 U.S.C. 6295(o)(2)(B)(i)). Energy savings have value both in times of scarcity and abundance, and particularly in light of the EPCA amendments in recent years mandating review of existing conservation standards on a six-year cycle,46 it is apparent that Congress intends for DOE to continue to pursue energy efficiency gains that meet the applicable statutory criteria—even in times of energy abundance. As discussed in section I.C of this final rule, the amended standards for the subject consumer furnaces are expected to save 4.77 quad of energy over 30 years and the cumulative NPV of total consumer benefits of the amended standards for NWGFs and MHGFs ranges from $4.8 billion (at a 7percent discount rate) to $16.3 billion (at a 3-percent discount rate) over the same period. DOE has determined that the full measure of anticipated energy and cost savings from amended energy conservation standards for the subject furnaces are unlikely to be realized in the absence of amended standards. Furthermore, as discussed in section III.F.1.f of this document, DOE maintains that environmental and public health benefits associated with the more efficient use of energy are important to take into account. Again, in DOE’s view, the presence of an abundant energy supply neither precludes DOE’s approach nor justifies the approach suggested by the commenters, which would result in waste of significant amounts of energy when more-efficient options are technologically feasible and economically justified. 2. Rebuttable Presumption As set forth in 42 U.S.C. 6295(o)(2)(B)(iii), EPCA creates a rebuttable presumption that an energy conservation standard is economically justified if the additional cost to the consumer of a product that meets the standard is less than three times the value of the first year’s energy savings resulting from the standard, as calculated under the applicable DOE test procedure. DOE’s LCC and PBP analyses generate values used to 46 See amendments to EPCA contained in the Energy Independence and Security Act of 2007 (EISA 2007), Public Law 110–140 (enacted Dec. 19, 2007), and in the American Energy Manufacturing Technical Corrections Act (AEMTCA), Public Law 112–210 (enacted Dec. 18, 2012). VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 calculate the effect potential amended energy conservation standards would have on the payback period for consumers. These analyses include, but are not limited to, the three-year payback period contemplated under the rebuttable-presumption test. In addition, DOE routinely conducts an economic analysis that considers the full range of impacts to consumers, manufacturers, the Nation, and the environment, as required under 42 U.S.C. 6295(o)(2)(B)(i). The results of this analysis serve as the basis for DOE’s evaluation of the economic justification for a potential standard level (thereby supporting or rebutting the results of any preliminary determination of economic justification). The rebuttable presumption payback calculation is discussed in section IV.F of this final rule. G. Compliance Date In the July 2022 NOPR, DOE discussed in some detail the relevant provisions of EPCA related to calculation of the requisite lead time between publication of a final rule and compliance with amended standards, and the Department ultimately proposed a five-year lead time for compliance with any amended energy conservation standards for NWGFs and MHGFs. 87 FR 40590, 40611 (July 7, 2022). Additionally, as explained in the July 2022 NOPR, furnaces and furnace fans are separate products under EPCA, and, therefore, the required six-year period under 42 U.S.C. 6295(m)(4)(B) is not relevant because it applies only in the context of standards directly pertinent to the product in question. As such, the energy conservation standards for furnace fans are not a consideration when applying the six-year spacing period to new or amended standards for furnaces. Id. at 87 FR 40611–40612. DOE did not receive any comments related to the proposed five-year lead time for compliance presented in the July 2022 NOPR and is adopting a fiveyear lead time in this final rule. H. Impact From Other Rulemakings Veiga commented that home appliances have energy-efficiency standards that collectively make homes more expensive. (Veiga, No. 326 at p. 1) Lennox commented that DOE needs to consider the total cumulative regulatory burden for consumer furnaces, as there are multiple concurrent DOE, Environmental Protection Agency (EPA), and other regulatory actions undergoing updates. (Lennox, No. 389 at p. 8) Lennox stated that the NOPR’s cumulative regulatory burden analysis was inadequate and did not include all PO 00000 Frm 00031 Fmt 4701 Sfmt 4700 87531 relevant regulations. The commenter provided the following list of relevant regulations: ‘‘2023 DOE Energy Conservation Standards (‘‘ECS’’) change for central air conditioners; 2023 DOE Energy Conservation Standard change for commercial air conditioners; 2023 DOE ECS change for commercial warm air furnaces (‘‘CWAFs’’); EPA phasedown to lower GWP refrigerants to meet the American Innovation and Manufacturing (‘‘AIM’’) Act objectives; National and Regional Cold Climate Heat Pump Specifications; 2025 DOE ECS change for Three-Phase, Below 65,000 Btu/h; DOE Test procedure for VRF [Variable Refrigerant Flow] Systems; EPA Energy Star 6.0+ for Residential HVAC; EPA Energy Star 4.0 for Light Commercial HVAC, and DOE ECS changes for electric motors, commercial fans and blowers, furnace fans, oil and weatherized gas furnaces, and walk-in coolers and freezers’’. (Id.) Lennox stated that the significant cumulative regulatory burdens are stressing technical and laboratory resources within the industry. (Id. at p. 9) Many of the rules listed by Lennox are not finalized. Regulations that are not yet finalized are not considered in cumulative regulatory burden, as the timing, cost, and impacts of unfinalized rules are speculative. However, to aid stakeholders in identifying potential cumulative regulatory burden, DOE does list rulemakings that have proposed rules, which have tentative compliance dates, compliance levels, and compliance cost estimates. In addition, the commercial fans and blowers, furnace fans, and oil and weatherized gas furnaces, and air-cooled unitary air conditioners rulemakings identified by Lennox have not yet been proposed. The walk-in coolers and freezer (‘‘WICF’’) rulemaking was not proposed at the time of the July 2022 NOPR. A proposed rule for WICFs has since been published, and DOE added the WICF ECS NOPR rulemaking to its list of appliance standards that could contribute to cumulative regulatory burden in section V.B.2.e of this document. 88 FR 60746 (Sept. 5, 2023). The expanded scope electric motors (ESEMs) rulemaking was also still in development at the time of the July 2022 NOPR.47 In the ESEM rulemaking, DOE is considering including expanded scope electric motors including certain permanent split capacitor (PSC) motors that exceed 0.25 horsepower and are single-speed. DOE understands that the 47 See Docket EERE–2020–BT–STD–0007. DOE initially used the term small, non-small electric motors (SNEMs) to designate ESEMs. E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 87532 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations vast majority of furnace fans used in MHGFs use either electrically commutated motors (i.e., ‘‘ECMs’’ which are also referred to as BPM motors in this rulemaking) or are multiple-speed PSC motors, both of which are out of the preliminary scope of the ESEM rulemaking. Thus, furnace fans used in MHGFs are not likely to be impacted by the ESEM rulemaking. In addition, DOE does not expect that any potential efficiency standard for ESEMs would impact NWGFs because the furnace fans used in those products use BPM motors, for which standards were not analyzed in the ESEMs rulemaking. As discussed in section IV.C.2.c. of this document, the MHGF MPCs that were developed for this analysis were normalized to represent the cost of the furnace units with furnace fans that include improved PSC motors 48 at all ELs. Using the same furnace fan motor at all ELs ensures that the incremental costs between ELs are proportional only to the addition of the specific technologies associated with achieving each next-higher EL. Thus, should a baseline technology for SNEMs be finalized that is higher than the assumed improved PSC motors, this new technology would be implemented at each efficiency level. Any changes in furnace fan motor costs would impact the cost of each efficiency level for MHGFs equally. Therefore, while DOE acknowledges the potential for a small increase in MPCs for MHGFs as a result of the SNEMs rulemaking (if finalized), DOE expects that the incremental costs of MHGFs between ELs would not be impacted. Similarly, installed costs for consumers would likely increase slightly due to the increased motor cost, but an equivalent impact would be expected across all efficiency levels. Additionally, an increase in furnace fan motor efficiency would decrease the total electrical energy consumption of each MHGF in the field, but it is not expected to impact the performance of the overall furnace as measured by AFUE, and, therefore, the efficiency levels included in this analysis would not be impacted. Therefore, the conclusion of economic justification for the amended standards adopted in this final rule would be unchanged by a potential new standard for SNEMs. In the analysis of cumulative regulatory burden, DOE considers Federal, product-specific regulations that have compliance dates within three years of one another. The compliance date for this final rule is in 2029. The 48 In this analysis, DOE uses ‘‘improved PSC motors’’ to refer to PSC motors with at least three airflow-control settings. VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 compliance dates for the central air conditioners in 2023, commercial unitary air conditioners standards in 2023, commercial warm air furnace standards in 2023, VRF system test procedures in 2024, and the ‘‘air-cooled, three-phase equipment with cooling capacity less than 65,000 Btu/h’’ in 2025 occur outside the cumulative regulatory burden timeframe and are not explicitly considered in the selection of the adopted standard. The EPA ENERGY STAR programs for residential HVAC and light commercial HVAC, as well as the ENERGY STAR Cold Climate Heat Pump Controls Verification Procedure, are voluntary programs and are not considered in DOE’s analysis of cumulative regulatory burden. See section V.B.2.e of this document or chapter 12 of the final rule TSD for additional information on cumulative regulatory burden. HARDI commented that the proposed standards also do not meet the requirements under the Regulatory Flexibility Act, as DOE only assessed the impact on four small manufacturers, but not on distributors, contractors, or manufacturers of furnace supplies. HARDI stated that there are a number of small businesses that serve as furnace suppliers. (HARDI, No. 384 at pp. 3–4) NGA of Georgia similarly stated that the proposal fails to capture the negative effects on small businesses that manufacture venting and accessories for non-condensing furnaces. (NGA of Georgia, No. 380 at p. 2) In response, DOE conducted an initial regulatory flexibility analysis in support of the July 2022 NOPR. See 87 FR 40590, 40698–40701 (July 7, 2022). However, NGA of Georgia and HARDI have misinterpreted the requirements of the Regulatory Flexibility Act, which requires an agency to perform a regulatory flexibility analysis of small entity impacts when a rule directly regulates the small entities, rather than a broader array of entities which may be indirectly impacted. This final rule regulates manufacturers of consumer furnaces, not the other types of businesses to which NGA of Georgia and HARDI refer. The impacts on small manufacturers of the subject consumer furnaces are presented in the final regulatory flexibility analysis, found in section VI.B of this document. IV. Methodology and Discussion of Related Comments This section addresses the analyses DOE has performed for this rulemaking with regard to NWGFs and MHGFs. Separate subsections address each component of DOE’s analyses. Comments on the methodology and PO 00000 Frm 00032 Fmt 4701 Sfmt 4700 DOE’s responses are presented in each section. DOE used several analytical tools to estimate the impact of the standards considered in this document on consumers and manufacturers. The first tool is a spreadsheet that calculates the LCC savings and PBP of potential amended or new energy conservation standards. The national impacts analysis uses a second spreadsheet set that provides shipments projections and calculates national energy savings and net present value of total consumer costs and savings expected to result from potential energy conservation standards. DOE uses the third spreadsheet tool, the Government Regulatory Impact Model (GRIM), to assess manufacturer impacts of potential standards. These three spreadsheet tools are available on the DOE website for this rulemaking: www1.eere.energy.gov/ buildings/appliance_standards/ standards.aspx?productid=59&action =viewlive. Additionally, DOE used output from the latest version of the EIA’s Annual Energy Outlook for the emissions and utility impact analyses. A. Market and Technology Assessment DOE develops information in the market and technology assessment that provides an overall picture of the market for the products concerned, including the purpose of the products, the industry structure, manufacturers, market characteristics, and technologies used in the products. This activity includes both quantitative and qualitative assessments, based primarily on publicly-available information. The subjects addressed in the market and technology assessment for this rulemaking include: (1) a determination of the scope of the rulemaking and product classes; (2) manufacturers and industry structure; (3) existing efficiency programs; (4) shipments information; (5) market and industry trends, and (6) technologies or design options that could improve the energy efficiency of NWGFs and MHGFs. The key findings of DOE’s market assessment are summarized in the following sections. See chapter 3 of the final rule TSD for further discussion of the market and technology assessment. 1. Scope of Coverage and Product Classes a. General Approach EPCA defines a ‘‘furnace’’ as a product which utilizes only singlephase electric current, or single-phase electric current or DC current in conjunction with natural gas, propane, or home heating oil, and which: E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations (1) Is designed to be the principal heating source for the living space of a residence; (2) Is not contained within the same cabinet with a central air conditioner whose rated cooling capacity is above 65,000 Btu per hour; (3) Is an electric central furnace, electric boiler, forced-air central furnace, gravity central furnace, or low pressure steam or hot water boiler; and (4) Has a heat input rate of less than 300,000 Btu per hour for electric boilers and low pressure steam or hot water boilers and less than 225,000 Btu per hour for forced-air central furnaces, gravity central furnaces, and electric central furnaces. (42 U.S.C. 6291(23)) DOE has incorporated this definition into its regulations in the Code of Federal Regulations (CFR) at 10 CFR 430.2. EPCA’s definition of a ‘‘furnace’’ covers the following types of products: (1) gas furnaces (non-weatherized and weatherized); (2) oil-fired furnaces (nonweatherized and weatherized); (3) mobile home furnaces (gas and oilfired); (4) electric resistance furnaces; (5) hot water boilers (gas and oil-fired); (6) steam boilers (gas and oil-fired), and (7) combination space/water heating appliances (water-heater/fancoil combination units and boiler/tankless coil combination units). As discussed in section II.B.2 of this document, DOE agreed to the partial vacatur and remand of the June 2011 DFR, specifically as it related to energy conservation standards for NWGFs and MHGFs in the settlement agreement to resolve the litigation in American Public Gas Ass’n v. U.S. Dept. of Energy (No. 11–1485, D.C. Cir. Filed Dec. 23, 2011). For a more complete discussion of the history of this litigation and its impacts on this rulemaking, see 80 FR 13120, 13130– 13132 (March 12, 2015). Therefore, in this rulemaking, DOE is only amending the energy conservation standards for these two product classes of residential furnaces (i.e., NWGFs and MHGFs). When evaluating and establishing energy conservation standards, DOE divides covered products into product classes by the type of energy used. DOE will also establish separate product classes if a group of products has a capacity or other performance-related feature that other products within such type do not have and such feature justifies a different standard. (42 U.S.C. 6295(q)) In determining whether a performance-related feature justifies a different standard, DOE considers such factors as the utility to the consumers of VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 the feature and other factors DOE determines are appropriate. At various rulemaking stages, interested parties have raised concerns pertaining to potential impacts of a nation-wide standard corresponding to condensing efficiency levels for NWGFs and MHGFs on certain consumers as a result of either increased installation costs (due to the increased cost of the condensing furnace itself and/or related venting modifications) or switching to electric heat (potentially resulting in higher monthly bills). In response to these concerns, DOE first published the September 2015 NODA, which contained analyses examining the potential impacts of a separate product class for furnaces with a lower input capacity, one of the statutory bases for establishing a separate product class. Such an approach was suggested by stakeholders as a potential way to reduce negative impacts on some furnace consumers while maintaining the overall economic and environmental benefits of amended standards for consumer furnaces. 80 FR 55038, 55038–55039 (Sept. 14, 2015). In response to the September 2015 NODA, DOE received further comments from several stakeholders recommending that DOE establish separate product classes based on furnace capacity in order to preserve the availability of noncondensing NWGFs for buildings with lower heating loads, thereby helping to alleviate the negative impacts of the proposed standards. DOE responded to these comments in the since withdrawn September 2016 SNOPR, in which DOE tentatively concluded that the establishment of a small furnace class would have merit. Accordingly, after considering the energy savings and economic benefits of several potential input capacity thresholds, DOE proposed to establish a separate product class for small NWGFs, defined as those furnaces with a certified input capacity of less than or equal to 55 kBtu/h, and DOE proposed to retain a minimum standard of 80-percent AFUE for this class. 81 FR 65720, 65752 and 65837 (Sept. 23, 2016). For the July 2022 NOPR analysis, DOE again considered whether a ‘‘small furnace’’ product class would be justified for NWGFs and MHGFs and evaluated several input capacity thresholds, including the 55 kBtu/h threshold that was proposed in the withdrawn September 2016 SNOPR, along with several others. However, DOE did not propose to divide furnace product classes by capacity. 87 FR 40590, 40665 and 40706 (July 7, 2022). NCP commented that 95-percent AFUE standards for large NWGFs and PO 00000 Frm 00033 Fmt 4701 Sfmt 4700 87533 80-percent AFUE for small NWGFs will lead to significant energy savings while reducing the number of consumers that would experience net costs. NCP pointed to the withdrawn September 2016 SNOPR as rationale for splitting NWGFs into these two groups, where large NWGFs with input capacities greater than 55 kBtu/h have a 95-percent AFUE standard and small NWGFs with input capacities less than 55 kBtu/h have a standard of 80 percent. (NCP, No. 370 at pp. 2–3) PHCC commented that after the litigation against these regional standards, several stakeholders came to the consensus that there should be a category of small capacity noncondensing furnaces, as well as a category of larger-capacity condensing furnaces. PHCC commented that the industry submitted a proposal regarding this issue, but that the NOPR does not place much value on this proposal. (Id.) For the current final rule analysis, DOE again considered whether a ‘‘small furnace’’ product class is justified for NWGFs and MHGFs and evaluated several input capacity thresholds, including at 55 kBtu/h. DOE analyzed a range of potential input capacity cut-offs and considered the benefits and burdens of each. As discussed in section V.C.1 of this document, after considering the benefits and burdens of the various approaches, DOE is finalizing its proposal to adopt a single standard level for NWGFs and a single standard level MHGFs that cover all capacities within the scope of each class. b. Through-the-Wall Units In response to the July 2022 NOPR, NCP commented that if DOE concludes that the separate levels for large and small NWGFs are not justified, there should be a separate class for spaceconstrained through-the-wall units to accommodate unique conditions for multi-family buildings. (NCP, No. 370 at p. 3) NCP noted that space-constrained through-the-wall systems are often 55 kBtu/h or less, and are installed in unique, often more expensive ways. NCP asserted that multi-family buildings with space-constrained through-the-wall HVAC systems have their condensate stacks plumbed to grade for drainage of the air conditioning portion of the unit in cooling mode and are not set up for condensate removal during heating in cold ambient conditions. NCP commented that the modifications necessary for condensing furnaces would not be feasible in new or existing multi-family constructions. (Id. at pp. 2– 3) Additionally, NCP stated that while it makes space-constrained through-thewall HVAC systems at 95-percent E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 87534 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations AFUE, such systems are relatively early in their commercialization phase and cannot be used in all applications. Also, NCP commented that these systems are a relatively new technology that originated in 2015–2016. Since 2016, NCP noted that it has encountered several challenges with this technology, including freezing in low temperatures and high wind conditions. (Id. at p. 3) Napoleon commented that DOE should align its standards for new installations with NRCAN’s standards and create a separate category for ‘‘through the wall’’ furnaces. Napoleon suggested that DOE should require a minimum efficiency of 90-percent AFUE for these products because of their cabinet size limitations. (Napoleon, No. 374 at p. 2) Napoleon stated that it is not reasonable to require the same efficiency from ‘‘through the wall furnaces with integrated cooling module’’ products as other products that have larger cabinets because these products would likely not have the ability to produce the higher airflows that are necessary for higher efficiencies. (Id.) In response, DOE notes that throughthe-wall furnaces are currently included within the broader consumer furnace product classes to the extent that they meet the definitions for consumer furnaces discussed in section IV.A.1.a of this document. As discussed in section III.B of this document, when evaluating and establishing energy conservation standards, DOE may establish separate standards for a group of covered products (i.e., establish a separate product class) if DOE determines that separate standards are justified based on the type of energy used, or if DOE determines that a product has a capacity or other performance-related feature that other products within such type (or class) do not have and such feature justifies a different standard. In making a determination of whether a performance-related feature justifies a different standard, DOE must consider factors such as the utility to the consumer of the feature and other factors DOE determines are appropriate. (42 U.S.C. 6295(q)(1)) Historically, DOE has viewed utility as an aspect of the product that is accessible to the layperson and is based on user operation and interaction with the product. DOE has identified through-the-wall furnaces rated above 96 percent AFUE that have the same dimensions as comparable non-condensing (i.e., 80 percent AFUE) through-the-wall furnaces and that are marketed for the VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 same applications.49 Therefore, DOE concludes that 80-percent AFUE units could be readily replaced with 95percent AFUE units (i.e., the minimum efficiency level adopted in this final rule) because substitutes are available on the market having the same cabinet size. Regarding NCP’s concerns about the technical challenges associated with condensate drainage and freezing, DOE notes that while certain multi-family applications may be difficult, there are installation methods to avoid freezing such as using heat tape. As discussed in section IV.F.2.b of this document, DOE accounted for additional costs for condensate drainage in these difficult installations. Consequently, DOE is not creating a separate product class for through-the-wall furnaces. c. Condensing and Non-Condensing Furnaces In response to the July 2022 NOPR, APGA, AGA, and NPGA all stated that DOE’s failure to establish a separate product class for non-condensing residential natural gas furnaces is a violation of EPCA. (APGA, No. 387 at pp. 42–45; AGA, No. 405 at pp. 46–49; NPGA, No. 395 at p. 19) APGA expressed that it disagreed with the NOPR’s conclusion to set standards at condensing levels because the legal interpretation upon which the NOPR relies to avoid EPCA’s Unavailability Provisions is unreasonable and contrary to law. APGA instead argued that, if standards specific to condensing products are justified, DOE should recognize that the compatibility of a NWGF with existing atmospheric venting systems is a ‘‘performancerelated feature’’ that requires separate standards for condensing and non-condensing furnaces. (APGA, No. 387 at pp. 42–45) APGA further cited EPCA provisions requiring that the standards not deprive purchasers of ‘‘product choices and characteristics, features, sizes, etc.,’’ and that energy savings are achieved ‘‘without sacrificing the utility or convenience of appliances to consumers.’’ (APGA, No. 387 at p. 42–45) AGA commented that the new proposed rule wrongfully asserts that the differing constraints and functionality between condensing and non-condensing appliances do not constitute performance-related features. AGA further urged DOE to correct its ‘‘flawed interpretation’’ of EPCA to treat condensing and non-condensing products as being in the same class. 49 See app.salsify.com/catalogs/73d44623-0667454c-a453-3b3faaf8d4d1/products/P-S26A-F12A-A and app.salsify.com/catalogs/73d44623-0667-454ca453-3b3faaf8d4d1/products/P-C50A-F18A-A (last accessed May 31, 2023). PO 00000 Frm 00034 Fmt 4701 Sfmt 4700 (AGA, No. 405 at pp. 32–38) AGA encouraged DOE to follow its past practices by continuing to recognize non-condensing furnaces that function in homes constrained by existing exhaust and plumbing systems as a separate class from condensing products. (AGA, No. 405 at pp. 46–49) NPGA stated that there have been other instances of DOE creating separate product classes where standards would otherwise deprive purchasers of products that could not be installed without the need to change the space provided for an appliance and cited these as precedent for separate noncondensing and condensing product classes (e.g., ‘‘space-constrained’’ central air conditioners, package terminal air conditioners (PTACs), and ventless clothes dryers). (NPGA, No. 395 at pp. 21–22) NPGA stated that the NOPR sets a de facto standard for building design by requiring the alteration of building venting systems, which is beyond the scope of DOE’s statutory authority. (NPGA, No. 395 at p. 22) NPGA suggested that the proposed standard will make furnaces incompatible with millions of homes without substantial renovations. (NPGA, No. 395 at pp. 9–10) Spire commented that DOE should recognize that the compatibility of a product with existing atmospheric venting systems is a ‘‘performancerelated feature,’’ which would require separate standards for condensing and non-condensing products if standards specific to condensing products are justified. (Spire, No. 413 at p. 21) Spire and AGA formally requested that any final rule in this proceeding include a written finding that interested persons have established that the proposed standards are likely to result in the unavailability in the United States of residential furnaces with ‘‘performance characteristics (including reliability, features, sizes, capacities, and volumes) that are substantially the same as those generally available in the United States.’’ (Spire, No. 413 at p. 20; AGA, No. 405 at pp. 49–50) HARDI commented that the proposed standards will have an adverse impact on consumers in terms of utility. (HARDI, No. 384 at p. 4) HARDI stated its opposition to DOE’s decision to revert to its prior interpretation related to non-condensing technology (and associated venting), as expressed in the December 2021 Final Interpretive Rule. (Id.) HARDI commented that, for many existing homes and some new construction applications, condensing furnaces provide negative utility for consumers because the venting system will need to be changed, which, in turn, E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations changes the living spaces; HARDI stated that this could negatively impact consumers. HARDI also commented that non-condensing furnaces prevent the consumer from needing heat tape and other freeze-mitigation equipment, and added that the need to constantly heat the venting system would be impractical for consumers who only use heating equipment part-time. (HARDI, No. 384 at pp. 4–5) The Joint Market and Consumer Organizations also commented that they oppose the elimination of noncondensing products and stated that EPCA prohibits any new or amended standard if the Secretary finds, by a preponderance of evidence, that it is ‘‘likely to result in the unavailability in the United States. . . of performance characteristics (including reliability), features, sizes, capacities, and volumes that are substantially the same as those generally available in the United States at the time of the Secretary Finding.’’ 50 (Joint Market and Consumer Organizations, No. 373 at p. 3) The Joint Market and Consumer Organizations stated that this provision can be interpreted to disallow natural gas furnace standards so stringent that they effectively force non-condensing versions off the market in favor of condensing furnaces with very different characteristics that make them incompatible with some homes. (Id. at p. 3) AGA, Spire, and the Marley Companies also stated a belief that EPCA 42 U.S.C. 6295(o)(4) prohibits the elimination of non-condensing fuelfired appliances. (AGA No. 405 at pp. 49–50; Spire, No. 413 at pp. 2–5; The Marley Companies, No. 386 at p. 5) Spire commented that the proposed standards would ultimately require efficiencies that only condensing furnaces can achieve and claimed that the proposed rulemaking would also violate EPCA 42 U.S.C. 6295(o)(2). (Spire, No. 413 at pp. 2–5) Spire also noted that the Unavailability Provision of EPCA cannot be avoided by simply adjusting installation costs within the economic analysis. (Spire, No. 413 at pp. 20–21) The Marley Companies commented that non-condensing products utilizing natural draft venting provide advantages and must remain available for several reasons related to product continuity, utility, and availability. (The Marley Companies, No. 386 at p. 5) With respect to product availability, the Marley Companies commented that many residential applications cannot support upgrading the existing venting 50 The commenter included a citation to 42 U.S.C. 6295(o)(4) for the referenced provision. VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 system as would be required for nonnatural draft venting or higherefficiency products. (The Marley Companies, No. 386 at p. 5) PHCC commented that it opposes the elimination of non-condensing products due to venting issues, difficult installations, and some questions PHCC has regarding the accuracy of DOE’s analysis. (PHCC, No. 403 at p. 6) The Coalition commented that the need to use condensing furnaces will require physical design changes of some housing types that can become more problematic in multifamily and entrylevel homes. (The Coalition, No. 378 at p. 4) The Coalition added that condensing furnaces typically require larger cabinets, different and larger venting/combustion air intake systems, and condensate drain systems. (Id.) APGA and Spire commented they have demonstrated that condensing products are incompatible with many existing buildings in which non-condensing natural gas furnaces are installed. (APGA, No. 387 at p. 43–45; Spire, No. 413 at p. 3) In response, when evaluating and establishing energy conservation standards, DOE is required to establish product classes based on: (1) the type of energy used; and (2) capacity or other performance-related feature which other products within such type (or class) do not have and that DOE determines justify a different standard. In making a determination of whether a performance-related feature justifies a different standard, the Department must consider factors such as the utility to the consumer of the feature and other factors DOE determines are appropriate. (42 U.S.C. 6295(q)) With respect to commenters’ statements that category I venting itself is a performance-related feature that justifies a separate product class, DOE first notes that venting, like a gas burner or heat exchanger, is one of the basic components found in every gas-fired furnace (condensing or noncondensing). As such, assuming venting is a performance-related feature, it’s a feature that all gas-fired furnaces possess. As a result, it cannot be the basis for a product class. See 42 U.S.C. 6295(q)(1)(B). Thus, in order to meet the product class requirements in 42 U.S.C. 6295(q)(1)(B), APGA and other commenters are requesting DOE determine that a specific type of venting is a performance-related feature. In response, DOE first notes that almost every component of a covered product could be broken down further by any of a number of factors. For example, heat exchangers, which are used in a variety of covered products, PO 00000 Frm 00035 Fmt 4701 Sfmt 4700 87535 could be divided further by geometry or material; refrigerator compressors could be further divided by single-speed or variable-speed, and air-conditioning refrigerants could be further divided by global warming potential. As a general matter, energy conservation standards save energy by removing the leastefficient technologies and designs from the market. For example, DOE set energy conservation standards for furnace fans at a level that effectively eliminated permanent split capacitor (PSC) motors from several product classes, but which could be met by brushless permanent magnet (BPM) motors, which are more efficient. 79 FR 38130 (July 3, 2014). As another example, DOE set energy conservation standards for microwave oven standby mode and off mode at a level that effectively eliminated the use of linear power supplies, but which could be met by switch-mode power supplies, which exhibit significantly lower standby mode and off mode power consumption. 78 FR 36316 (June 17, 2013). The energy-saving purposes of EPCA would be completely frustrated if DOE were required to set standards that maintain less-efficient covered products and equipment in the market based simply on the fact that they use a specific type of (less efficient) heat exchanger, motor, power supply, etc. As discussed in the December 2021 final interpretive rule, DOE believes that a consumer would be aware of performance-related features of a covered product or equipment and would recognize such features as providing additional benefits during operation of the covered product or equipment. 86 FR 73955. Using the previous example of furnace fan motors, if an interested person had wanted to preserve furnace fans with PSC motors in the market, they would have had to show that furnace fans with PSC motors offered some additional benefit during operation as compared to furnace fans with BPM motors. Refrigerator-freezers, on the other hand, are an example of where DOE determined that a specific type of performance-related feature offered additional benefit during operation. Some refrigerator-freezers have automatic icemakers. Additionally, some automatic icemakers offer through-the-door ice service, which provides consumers with an additional benefit during operation. As such, DOE further divided refrigerator-freezers into product classes based on the specific type of automatic icemaker (i.e., whether the automatic icemaker offers through-the-door ice service). See 10 CFR 430.32(a). E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 87536 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations Commenters have not pointed to any additional benefits during operation offered by furnaces that use category I venting as compared to furnaces that use other types of venting. Instead, these commenters generally cite compatibility with existing venting and other economic considerations as reasons why category I venting should be considered a performance-related feature for the purposes of EPCA’s product class provision. unavailability provision. As stated previously, DOE’s performance-related feature analysis is not based on considerations (including design parameters) that do not provide the consumer additional benefit during operation. Nor does it account for costs that anyone, including the consumer, manufacturer, installer, or utility companies, may bear. DOE has reasoned that this approach is consistent with EPCA’s requirement for a separate and extensive analysis of economic justification for the adoption of any new or amended energy conservation standard (see 42 U.S.C. 6295(o)(2)(A)– (B) and (3)). Specifically with regard to venting, DOE has determined that differences in cost or complexity of installation between different methods of venting (e.g., a condensing furnace versus a non-condensing furnace) do not make specific methods of venting a performance-related feature under 42 U.S.C. 6295(o)(4), as would justify separating the products/equipment into different product/equipment classes under 42 U.S.C. 6295(q)(1). 86 FR 73947, 73951 (Dec. 29, 2021). Accordingly, because DOE views the issues related to condensing vs. noncondensing technology (and associated methods of venting) to be matters of cost, the Department finds it appropriate under the statute to address these issues through the rulemaking’s economic analysis. 86 FR 73947, 73951 (Dec. 29, 2021). This interpretation is consistent with EPCA’s requirement for a separate and extensive analysis of economic justification for the adoption of any new or amended energy conservation standard (see 42 U.S.C. 6295(o)(2)–(3); 42 U.S.C. 6313(a)(6)(A)– (C); 42 U.S.C. 6316(a)). Comments on the July 2022 Furnaces NOPR have provided no new arguments or other information that were not already considered as part of the December 2021 Final Interpretive Rule. As such, DOE continues to find that there is no basis for altering the Department’s approach regarding the establishment of product classes for this rulemaking. DOE has found in its analysis of installation costs (as discussed in further detail in section IV.F.2 of this document) that thanks to various VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 technological solutions, virtually all homes can accommodate a condensing furnace, although some small percentage may face significant installation costs. DOE accounts for these costs in its economic analysis. In all cases, consumers have a variety of choices to meet their space-heating needs, and the standards promulgated in this final rule do not eliminate any ‘‘performance-related features.’’ Thus, for the reasons previously explained, DOE declines the requests of AGA and Spire that in this final rule the agency include a written finding that interested persons have established by a preponderance of the evidence that the proposed standards are likely to result in the unavailability in the U.S. of residential furnaces with performance characteristics (including reliability), features, sizes, capacities, and volumes that are substantially the same as those generally available in the United States on the date any such rule issues, because that burden of proof has not been met in the present case. See 42 U.S.C. 6295(o)(4). For similar reasons, DOE declines Spire’s request that DOE recognize that the compatibility of a product with existing atmospheric venting systems is a ‘‘performancerelated feature’’ that would require separate standards for condensing and non-condensing products. Because DOE has determined that non-condensing technology (and associated venting) does not constitute a performancerelated feature for consumer furnaces, such actions would not be appropriate pursuant to EPCA. As DOE has stated previously, EPCA directs DOE to regulate the energy efficiency of a multitude of disparate covered products and equipment that are not always directly comparable. Consequently, consideration of classsetting and performance-related features tends to be product-specific. NPGA’s assertion that DOE’s proposed furnace standards would amount to a de facto building design standard is incorrect and a mischaracterization of DOE’s rulemaking, as is its contention that furnace installation costs are different in nature from those of other appliances. Installation costs are always unique to location, and DOE has a well-developed methodology for estimation of installation costs that has been used for many years (see chapter 8 and appendix 8D of the final rule TSD). DOE has concluded that in most cases, a condensing furnace may be installed with reasonable installation costs, and there would almost always be a technological solution to accomplish that (e.g., such as through use of DuraVent FasNSeal or a draft inducer PO 00000 Frm 00036 Fmt 4701 Sfmt 4700 paired with a chimney liner). In cases where the consumer perceives such costs to be too high, the consumer may opt to convert to another type of spaceheating appliance (e.g., a heat pump or electric resistance heating). As mentioned, NPGA has pointed to other DOE rulemakings involving spaceconstrained products and equipment (e.g., central air conditioners, package terminal air conditioners (PTACs), and ventless clothes dryers) as analogous to consumer furnaces. AGA similarly mentioned DOE’s prior furnace fans rulemaking as analogous. However, the present case of non-condensing gas-fired residential furnaces is distinguishable from these other products cited by these commenters for the reasons that follow. Regarding ventless clothes dryers, DOE established separate product classes because some clothes dryers had a performance-related feature (ventless operation) that other clothes dryers (vented) did not, and such feature justified a different standard. As stated previously, condensing and noncondensing gas furnaces both require venting. As such, establishing separate product classes for vented and ventless clothes dryers is simply not analogous to establishing separate product classes for gas furnaces based on specific types of venting. With regard to compact clothes dryers, the ‘‘compact’’ delineation relates directly to the size and capacity of the product—two attributes explicitly listed in the ‘‘features’’ provision. (See 42 U.S.C. 6295(o)(4)) This difference in size and capacity is recognized by the consumer in operation of the product (i.e., by limiting the amount of wet clothes which can be processed per cycle). Moreover, DOE determined that compact-size clothes dryers have inherently different energy consumption than standard-size clothes dryers. 76 FR 22454, 22485 (April 21, 2011). Consistent with the specific recognition that size and capacity are relevant features, DOE has routinely set product classes based on size or capacity, including standards for consumer water heaters, 10 CFR 430.32(d), which separate standards by storage volume and input capacity; standards for room air conditioners, 10 CFR 430.32(b), which distinguish several product classes by cooling capacity; and standards for dishwashers and clothes washers, 10 CFR 430.32(f) and (g), respectively, which both distinguish between standard and compact products. In establishing a separate product class for space-constrained central air conditioners, DOE recognized the space constraints faced by these products and E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations that the efficiency of such products is limited by physical dimensions that are rigidly constrained by the intended application. 76 FR 37408, 37446 (June 27, 2011). Space-constrained central air conditioners have an indoor or outdoor unit that is limited in size due to the location in which the unit operates. As a result, space-constrained central air conditioners lack the flexibility of other central air conditioners to increase the physical size of the unit, thereby limiting the ability of space-constrained units to achieve improved efficiency through use of a larger coil. Id. In establishing standards for spaceconstrained central air conditioners, DOE discussed the expense of modifying an exterior opening to accommodate a larger unit, but such discussion did not abrogate DOE’s determination that space-constrained central air conditioners provide centralized air conditioning in locations with space constraints that would preclude the use of other types of central air conditioners. Id. In contrast, the subject non-condensing residential furnaces are not significantly different in overall footprint, size, or heating capacity from their condensing counterparts 51 (although the composition of the venting used may be different), and the energy efficiency differences are a result of the technology used, a design parameter that is dictated by considerations other than size. With regard to the equipment classes for PTACs, in its prior rulemaking, DOE found that the size of the heat exchanger directly affects the energy efficiency of the equipment. 73 FR 58772, 58782 (Oct. 7, 2008). Like space-constrained central air conditioners, the location of operation of a PTAC directly influences the size of the equipment, which impacts the size of the heat exchanger and has a corresponding direct effect on the energy efficiency of the equipment. Id. DOE acknowledged the potentially high costs that would be associated with installing a non-standard sized PTAC in an existing building due to the need to increase the wall opening (i.e., the wall sleeve) in which a replacement PTAC is installed. Id. As explained in a subsequent rulemaking for PTACs, DOE further clarified that it accounts for installation costs in the life-cycle cost (LCC) and payback period (PBP) analyses used to evaluate increased standard levels, which is a separate and distinct consideration from whether separate product classes are justified. 80 FR 43162, 43167 (July 21, 2015). 51 DOE surveyed the dimensions of consumer furnaces and found the height and diameter dimensions comparable. See chapter 5 of the TSD. VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 Consideration of installation costs in the LCC and PBP analysis used for evaluating an increased energy conservation standard level is consistent with the application of 42 U.S.C. 6295(o)(4) and 6295(q)(1) adopted in the December 2021 Final Interpretive Rule. The furnace fan product classes also are not analogous to residential furnaces that rely on non-condensing technology. Furnace fans are electrically powered devices used in consumer products for the purpose of circulating air through ductwork. 10 CFR 430.2. A furnace fan operates to allow the furnace in which it is installed to function. The references to condensing and non-condensing in the furnace fan product classes do not reflect a difference in utility between condensing and non-condensing furnaces, but rather reflect the differences between the operation of a furnace fan installed in a condensing furnace as compared to a furnace fan installed in a non-condensing furnace. In establishing the energy conservation standards for furnace fans, DOE differentiated between furnace fan product classes based on internal structure and application-specific design differences that impact furnace fan energy consumption. 79 FR 38130, 38142 (July 3, 2014). The internal structures differ for a furnace fan installed in a condensing furnace, as compared to a furnace fan installed in a non-condensing furnace. The presence of an evaporator coil or secondary heat exchanger, as in a condensing furnace, significantly impacts the internal structure of an HVAC product, and in turn, the energy performance of the furnace fan integrated in that HVAC product. Id. These differences result in different energy use profiles for furnace fans suitable for installation in condensing furnaces, as compared to furnace fans suitable for installation in non-condensing furnace, which justifies the separate product classes. Overall, the examples of ventless dryers, space-constrained air conditioners, PTACs, and furnace fans involved subsets of the product or equipment type in question that had different physical and energyconsumption characteristics and that were designed to address specific applications. DOE determined that these situations met the applicable statutory requirements and, accordingly, warranted separate product/equipment classes. In contrast, the consumer furnaces rulemaking involves products of essentially the same size that could operate in any space-heating application. Maintaining a separate product class for non-condensing furnaces would allow the less-efficient PO 00000 Frm 00037 Fmt 4701 Sfmt 4700 87537 furnaces to remain available not only to consumers facing difficult installation situations, but to all consumers. Establishment of a separate product class for non-condensing furnaces would run counter to EPCA’s purposes to ‘‘conserve energy supplies’’ and for ‘‘improved energy efficiency of . . . major appliances.’’ (42 U.S.C. 6201(4) and (5)) NPGA, PHCC, the Coalition, Marley Companies, Spire, HARDI, and AGA have not provided estimates as to the number of installation situations they would consider to be problematic, instead choosing to focus on the qualitative impact of what DOE assesses to be a relatively small number of cases. DOE disagrees with AGA’s assertion that the Department has not properly accounted for the necessary changes related to venting of consumer furnaces or common venting of multiples appliances, including consumer water heaters. Further details regarding DOE’s estimates of total installation costs are provided in section IV.F.2 of this document and in chapter 8 and appendix 8D of the final rule TSD. d. Mobile Home Gas Furnaces In response to the July 2022 NOPR, AHRI commented that several design differences between MHGFs and NWGFs make it possible for DOE to establish different AFUE standards for MHGFs and NWGFs without meaningful risk that MHGFs would be used outside of mobile homes or create a ‘‘loophole’’ for NWGFs. (AHRI, No. 414–2 at pp. 2–3) AHRI stated that MHGFs are specialized products meant to be operated only in mobile home applications under the U.S. Department of Housing and Urban Development (‘‘HUD’’) code, adding that no interior air is used for the combustion process and that non-condensing MHGFs are mostly all downflow. (AHRI, No. 414– 2 at p. 2) Nortek encouraged DOE to withdraw the NOPR and consult with HUD, MHI, and the Manufactured Housing Consensus Committee (MHCC) in setting standards for MHGFs. (Nortek, No. 406 at p. 6) Nortek commented that it does not find a problem with different standard levels for manufactured housing and NWGFs because physical size differences prevent MHGFs from being installed in NWGF applications. Additionally, Nortek mentioned that the new M1 52 labeling requirements state that equipment designed for 52 The commenter was referring to DOE’s test method for measuring the energy consumption of central air conditioners and heat pumps, located at 10 CFR part 430, subpart B, appendix M1. E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 87538 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations manufactured housings must be labelled ‘‘for installation only in HUD manufactured home[s]. . . .’’ Nortek also stated that there are application differences between MHGFs and NWGFs (e.g., downflow versus upflow); therefore, Nortek is not concerned that manufactured home gas furnaces will be utilized in other residential applications if the minimum efficiency levels differ. (Nortek, No. 406 at pp. 4–5) JCI similarly commented that there are dimensional and configuration differences between MHGFs and NWGFs (upflow airflow versus downflow airflow). JCI provided an example, where the MHGF is 23 inches (in.) deep by 76 in. high by 19.5 in. wide and has a downflow configuration, but the NWGF is 29 in. deep by 33 in. high and between 14.5 in. and 24.5 in. wide for various configurations. JCI asserted that NWGFs could not reasonably be applied in mobile home applications without overcoming significant structural barriers and voiding the warranty. (JCI, No. 411 at pp. 2–3) Mortex added that the typical downflow furnace footprint for MHGFs is 24 in. deep by 20 in. wide, which is very different from standard residential furnaces that tend to be 29 in. deep by 17, 21, or 24 in. wide. (Mortex, No. 410 at p. 2) The CA IOUs commented that a review of manufacturer literature on MHGFs suggests that the proposed standard level will not increase product size or adversely affect the range of available input capacities. (The CA IOUs, No. 400 at p. 2) Additionally, Sierra Club et al. commented that nothing in EPCA obligates DOE to seek input or approval from the Department of Housing and Urban Development or the Manufactured Housing Consensus Committee. Sierra Club et al. commented that any assertions to the contrary ignore DOE’s obligation under EPCA to review and update its existing standards for mobile home gas furnaces. (Sierra Club et al., No. 401 at p. 3) DOE is aware of the different applications served by MHGFs and NWGFs and agrees with stakeholders that there are specific requirements that must be met for classification as an MHGF and that some MHGFs have a different footprint than is typical of NWGFs.53 Because NWGFs and MHGFs are separate product classes, they have been analyzed separately for this final rule. However, as discussed in section V.A DOE groups products into TSLs 53 However, DOE has also identified MHGFs that are essentially identical to a corresponding NWGF model and require only a conversion kit to be installed as an MHGF. VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 because use of TSLs allows DOE to identify and consider manufacturer cost interactions between the product classes, to the extent that there are such interactions, and national-level market cross-elasticity from consumer purchasing decisions that may change when different standard levels are set. In the present case, DOE evaluated similar levels in each TSL for NWGFs and MHGFs and considered the TSL as a whole, but also weighed the merits of the adopted 95-percent AFUE levels for each class separately. Therefore, while DOE is cognizant of interactions between the classes, the primary motivation for adopting 95-percent AFUE for MHGFs was not to avoid a ‘‘loophole’’ whereby NWGF consumers would choose to install MHGFs if they were available at lower efficiencies and costs. Rather, it was because the 95percent AFUE level is technologically feasible and economically justified for both NWGFs and MHGFs. See section V of this document for further discussion on the selection of the final standard levels for this final rule. In response to comments regarding consultation with HUD, MHI, and MHCC, DOE notes that all stakeholders, including trade associations, have the opportunity to provide DOE with comments, data, and other input through both the public webinars and written comment periods throughout the duration of the rulemaking. DOE takes all input received into consideration in the analysis for amending standards, and therefore does not consult with individual groups in its rulemaking process. 2. Technology Options In the market analysis and technology assessment for the July 2022 NOPR, DOE identified 12 technology options that would be expected to improve the AFUE efficiency of NWGFs and MHGFs, as measured by the DOE test procedure: (1) using a condensing secondary heat exchanger; (2) increasing the heat exchanger surface area; (3) heat exchanger baffles; (4) heat exchanger surface feature improvements; (5) twostage combustion; (6) step-modulating combustion; (7) pulse combustion; (8) premix burners; (9) burner de-rating; (10) insulation improvements; (11) offcycle dampers; and (12) direct venting. (In the July 2022 NOPR, DOE also considered three technology options that could potentially reduce the standby mode and off mode energy consumption of NWGFs and MHGFs. However, for the reasons explained in section III.A.8 of this document, DOE has determined that it cannot establish standby mode and off mode standards PO 00000 Frm 00038 Fmt 4701 Sfmt 4700 that meet the criteria of EPCA at this time, so such technologies and standards are not considered further in this final rule.) 87 FR 40590, 40615 (July 7, 2022). DOE did not identify any additional technology options between the publication of the July 2022 NOPR and this final rule. A detailed discussion of each technology option identified is contained in chapter 3 of the final rule TSD. DOE considered each technology further in the screening analysis (see section IV.B of this document or chapter 4 of the final rule TSD) to determine which could be considered further in the analysis and which should be eliminated. B. Screening Analysis DOE uses the following five screening criteria to determine which technology options are suitable for further consideration in an energy conservation standards rulemaking: (1) Technological feasibility. Technologies that are not incorporated in commercial products or in commercially viable, existing prototypes will not be considered further. (2) Practicability to manufacture, install, and service. If it is determined that mass production of a technology in commercial products and reliable installation and servicing of the technology could not be achieved on the scale necessary to serve the relevant market at the time of the projected compliance date of the standard, then that technology will not be considered further. (3) Impacts on product utility. If a technology is determined to have a significant adverse impact on the utility of the product to subgroups of consumers, or result in the unavailability of any covered product type with performance characteristics (including reliability), features, sizes, capacities, and volumes that are substantially the same as products generally available in the United States at the time, it will not be considered further. (4) Safety of technologies. If it is determined that a technology would have significant adverse impacts on health or safety, it will not be considered further. (5) Unique-pathway proprietary technologies. If a technology has proprietary protection and represents a unique pathway to achieving a given efficiency level, it will not be considered further, due to the potential for monopolistic concerns. 10 CFR part 430, subpart C, appendix A, sections 6(b)(3) and 7(b). E:\FR\FM\18DER2.SGM 18DER2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 In sum, if DOE determines that a technology, or a combination of technologies, fails to meet one or more of the listed five criteria, it will be excluded from further consideration in the engineering analysis. The reasons for eliminating any technology are discussed in the following sections. The subsequent sections include DOE’s evaluation of each technology option against the screening analysis criteria, and whether DOE determined that a technology option should be excluded (‘‘screened out’’) based on the screening criteria. DOE did not receive any comments pertaining to the screening analysis in response to the July 2022 NOPR. 1. Screened-Out Technologies For this analysis of amended AFUE standards, DOE has screened out the following technologies: pulse combustion and burner de-rating. Each of these will be discussed in turn. Pulse combustion furnaces use selfsustaining pressure waves to draw a fresh fuel-air mixture into the combustion chamber, heat it by way of compression, and then ignite it using a spark. This technology option was screened out due to past reliability and safety issues, which have resulted in manufacturers generally not considering pulse combustion as a viable option to improve efficiency. In addition, furnace manufacturers can achieve similar or greater efficiencies through the use of other technologies that do not operate with positive pressure in the heat exchanger, such as those relying on induced draft. DOE also screened out burner derating. Burner de-rating reduces the burner firing rate while maintaining the same heat exchanger geometry/surface area and fuel-air ratio, which increases the ratio of heat transfer surface area to energy input, which increases efficiency. This technology option was screened out because it reduces the burner firing rate while maintaining the same heat exchanger geometry/surface area and fuel-air ratio, resulting in less heat being provided to the user than is provided using conventional burner firing rates. It is noted that in earlier rulemaking analyses (e.g., for the since withdrawn September 2016 SNOPR), DOE had screened out premix burners from further analysis because premix burners had not yet been successfully incorporated into a consumer furnace design, raising concerns about the technological feasibility of premix burners in furnaces. Incorporating this technology into furnaces on a large scale at that time would have required further VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 research and development due to the technical constraints imposed by current furnace burner and heat exchanger design. However, in conducting the market and technology assessment and screening analysis for the July 2022 NOPR, DOE identified NWGF furnaces with premix burners on the market and, therefore, did not screen this technology option out of its analysis, because the technological feasibility and practicability to manufacture such designs has been demonstrated. However, DOE notes that the premix burner designs observed on the market were implemented in ultra low NOX 54 models, indicating that the development of premix burner designs has been primarily driven by NOX requirements. The efficiencies of these models are the same as those achieved by more conventional non-premix burner designs used in furnaces. Therefore, while the use of premix burners was not screened out, it was not considered a primary driver for improving efficiency. The technology options assumed to be implemented to achieve each efficiency level are discussed further in section IV.C.1 of this finale rule. Chapter 4 of the TSD includes additional information on the screening analysis. 2. Remaining Technologies Through a review of each technology, DOE concludes that all of the other identified technologies listed in section IV.A.2 met all five screening criteria to be examined further as design options in DOE’s final rule analysis. In summary, DOE did not screen out the following technology options to improve AFUE: (1) condensing secondary heat exchanger; (2) increased heat exchanger face area; (3) heat exchanger baffles; (4) heat exchanger surface feature improvements; (5) twostage combustion; (6) step-modulating combustion; (7) insulation improvements; (8) off-cycle dampers; (9) direct venting; and (10) premix burners. DOE has determined that these technology options are technologically feasible because they are being used or have previously been used in commercially-available products or working prototypes. DOE also finds that all of the remaining technology options meet the other screening criteria (i.e., practicable to manufacture, install, and service and do not result in adverse impacts on consumer utility, product availability, health, or safety, and do not involve a proprietary technology that is a unique pathway to meeting a given 54 ‘‘Ultra low NO ’’ furnaces produce no more X than 14 nanograms of NOX per Joule. PO 00000 Frm 00039 Fmt 4701 Sfmt 4700 87539 efficiency level). For additional details, see chapter 4 of the final rule TSD. C. Engineering Analysis The purpose of the engineering analysis is to establish the relationship between the efficiency and cost of NWGFs and MHGFs. There are two elements to consider in the engineering analysis: (1) the selection of efficiency levels to analyze (i.e., the ‘‘efficiency analysis’’) and (2) the determination of product cost at each efficiency level (i.e., the ‘‘cost analysis’’). In determining the performance of higher-efficiency products, DOE considers technologies and design option combinations not eliminated by the screening analysis. For each product class, DOE estimates the baseline cost,55 as well as the incremental cost for the product at efficiency levels above the baseline efficiency. The output of the engineering analysis is a set of costefficiency ‘‘curves’’ that are used in downstream analyses (i.e., the LCC and PBP analyses and the NIA). The methodology for the efficiency analysis and the cost analysis is described in detail in the sections that immediately follow (sections IV.C.1 and IV.C.2, respectively, of this document). DOE uses its methodology, which consists of the engineering analysis and mark-ups analysis (see section IV.D of this document), to determine the final price of the furnace to the consumer for several reasons. The sales prices of furnaces currently seen in the marketplace, which include both an MPC and various mark-ups applied through the distribution chain, are not necessarily indicative of what the sales prices of those furnaces would be following the implementation of a morestringent energy conservation standard. At a given efficiency level, MPC depends in part on the production volume. In general, for efficiency levels above the current baseline efficiency, the price to the consumer at that level may be high relative to what it would be under a more-stringent standard, due to the increase in production volume (and, thus, improved economies of scale and purchasing power for furnace components), which would occur at that level if a Federal standard made it the new baseline efficiency. DOE notes that the engineering analysis incorporated both condensing furnaces without ‘‘premium’’ features 55 The baseline cost reflects the expenses associated with a baseline model. DOE defines a ‘‘baseline model’’ as a model in each product class that represents the characteristics of products typical of that class (e.g., capacity, physical size) and that has an efficiency equal to the current Federal energy conservation standard. E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 87540 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations and condensing furnaces are more likely to be equipped with ‘‘premium’’ features in today’s market. One would expect increased designs (and/or sales) with minimal ‘‘premium’’ features to cater to cost-sensitive consumers, as compared to the current market, and perhaps redesigns where possible, to minimize costs. In its analysis of AFUE levels, DOE sought to minimize or normalize the presence of additional designs or features that do not affect AFUE, as additional designs or features can increase costs while not affecting the measured AFUE efficiency. In other words, DOE’s analysis of the costefficiency relationship is for a product that provides only the basic utility (i.e., heat) without other special features that consumers may find beneficial (e.g., sound reduction or humidity control). Although it may be possible to identify prices for products without premium features, simply aggregating a collection of current furnace sales price information could lead to a higher consumer price than would be expected under an amended-standards scenario, as many condensing products available on the market today are bundled with ‘‘premium’’ features, but under an amended-standards scenario, condensing products without as many ‘‘premium’’ features may become more common so to provide consumers with a lowest-cost option with only essential functionality. This approach aligns with feedback received during manufacturer interviews that manufacturers would continue to differentiate between premium and value units to best serve all segments of the market, and would invest in optimizing the cost of certain product offerings for consumers that are highly sensitive to the upfront cost. Therefore, DOE concluded that increasing AFUE energy conservation standards would not necessarily increase the presence of ‘‘premium’’ features on furnaces in the market. DOE’s analysis and decision are based, in part, on the aggregated data generated during the engineering analysis. The process by which the aggregated data have been generated is discussed in this document and is the result of the engineering analyses described in chapter 5 of the final rule TSD. The primary inputs to the engineering analysis are data from the market and technology assessment, input from manufacturers, furnace specifications, and production cost estimates developed based on teardown analysis and consultation with manufacturers. DOE’s treatment of confidential business information is governed by the Freedom of Information VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 Act (FOIA) and 10 CFR 1004.11 (5 U.S.C. 552(b)(4)) Accordingly, bills of materials (BOMs) are generated by a DOE contractor using the manufacturerspecific and product-specific data to estimate the industry-aggregate MPCs. DOE’s contractor conducts interviews with manufacturers under nondisclosure agreements (‘‘NDAs’’) to determine whether the MPCs developed by the analysis reflect the industry average manufacturing costs. In addition, because the cost estimation methodology uses data supplied by manufacturers under the NDAs (such as raw material and purchased part prices), the resulting individual model cost estimates themselves cannot be published and are not released outside the aggregated form to DOE or its National Labs. This approach allows manufacturers to provide candid and detailed feedback under NDA, thereby improving the quality of the analysis. DOE notes that manufacturers that participated in manufacturer interviews had access to the raw material and purchased-part price data underlying the MPC estimates for those models at the time the interviews were conducted. The data resulting from the engineering analysis and which DOE has used as inputs to its modeling were published in the July 2022 NOPR and available to the public for review and comment. 87 FR 40590, 40621 (July 7, 2022). 1. Efficiency Analysis DOE typically uses one of two approaches to develop energy efficiency levels for the engineering analysis: (1) relying on observed efficiency levels in the market (i.e., the efficiency-level approach), or (2) determining the incremental efficiency improvements associated with incorporating specific design options to a baseline model (i.e., the design-option approach). Using the efficiency-level approach, the efficiency levels established for the analysis are determined based on the market distribution of existing products (in other words, based on the range of efficiencies and efficiency level ‘‘clusters’’ that already exist on the market). Using the design option approach, the efficiency levels established for the analysis are determined through detailed engineering calculations and/or computer simulations of the efficiency improvements from implementing specific design options that have been identified in the technology assessment. DOE may also rely on a combination of these two approaches. For example, the efficiency-level approach (based on actual products on the market) may be extended using the design option PO 00000 Frm 00040 Fmt 4701 Sfmt 4700 approach to interpolate to define ‘‘gap fill’’ levels (i.e., to bridge large gaps between other identified efficiency levels) and/or to extrapolate to the ‘‘max-tech’’ level (particularly in cases where the ‘‘max-tech’’ level exceeds the maximum efficiency level currently available on the market). For the AFUE engineering analysis, DOE generally employed an efficiency level approach, which identified the intermediate efficiency levels (i.e., levels between baseline and max-tech) for analysis based on the most common efficiency levels on the market. One exception is that DOE analyzed a 90percent AFUE level for NWGFs and MHGFs despite relatively few models at that level, as it would serve as a minimum condensing level. a. Baseline Efficiency Level and Product Characteristics For each product/equipment class, DOE generally selects a baseline model as a reference point for each class, and measures anticipated changes to the product resulting from potential energy conservation standards against the baseline model. The baseline model in each product/equipment class represents the characteristics of a product/equipment typical of that class (e.g., capacity, physical size). Generally, a baseline model is one that just meets current energy conservation standards, or, if no standards are in place, the baseline is typically the most common or least-efficient unit on the market. DOE selected baseline units for the NWGF and MHGF product classes that include characteristics typical of the least-efficient commercially-available consumer furnaces. The baseline unit in each product class represents the basic characteristics of products in that class. Baseline units serve as reference points, against which DOE measures changes resulting from potential amended energy conservation standards. Additional details on the selection of baseline units are in chapter 5 of the final rule TSD. Table IV.1 presents the baseline AFUE levels identified for each product class of furnaces addressed by this rulemaking. The baseline AFUE levels are the same as the current Federal minimum AFUE standards for the subject furnaces, as established by the November 2007 Final Rule. 10 CFR 430.32(e)(1)(ii); 72 FR 65136, 65169 (Nov. 19, 2007). E:\FR\FM\18DER2.SGM 18DER2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations TABLE IV.1—BASELINE RESIDENTIAL FURNACE AFUE EFFICIENCY LEVELS AFUE (percent) Product class Non-Weatherized Gas Furnaces ................................. Mobile Home Gas Furnaces 80 80 b. Higher Efficiency Levels As part of DOE’s analysis, the maximum available efficiency level is the highest efficiency unit currently available on the market. DOE also defines a ‘‘max-tech’’ efficiency level to represent the maximum possible efficiency for a given product. Tables IV.2 and IV.3 show the efficiency levels DOE selected for analysis of amended AFUE standards for NWGFs and MHGFs, respectively, up to the maximum available efficiency level, along with a description of the typical technological change at each level. Since the July 2022 NOPR, DOE has identified new models of NWGFs certified in DOE’s Compliance Certification Database (CCD) 56 with efficiencies up to 99-percent AFUE and of MHGFs certified with efficiencies up to 97-percent AFUE. However, there is only one model of NWGF at 99-percent AFUE, at only one input size. Several other models from the same model family do not achieve 99-percent AFUE. Therefore, at the time of this final rule analysis, it is unclear whether 99 percent would be an appropriate maxtech level for all NWGFs that is achievable across a range of input capacities, and, as a result, DOE maintained the same maximum efficiency level for NWGFs as in the July 87541 2022 NOPR (i.e., 98-percent AFUE). Similarly, there are only two input capacities of MHGFs that would exceed a 97-percent efficiency level, and these models are from the same model line, but several other models at other input capacities within that same model line do not achieve 97-percent AFUE. Therefore, it is at present uncertain as to whether 97-percent AFUE would be an appropriate max-tech level for all MHGFs, so DOE maintained the same maximum efficiency level for MHGFs as in the July 2022 NOPR (i.e., 96-percent AFUE). Therefore, the maximum efficiency level analyzed for both NWGFs and MHGFs has been maintained at a level representing the highest-efficiency models available on the market when DOE began this analysis as outlined in chapter 3 of the final rule TSD. TABLE IV.2—AFUE EFFICIENCY LEVELS FOR NON-WEATHERIZED GAS FURNACES Efficiency level (EL) 0—Baseline ......... 1 ........................... 2 ........................... 3 ........................... 4—Max-Tech ....... AFUE (%) 80 90 92 95 98 Technology options Baseline. EL 0 + Secondary condensing heat exchanger. EL 1 + Increased heat exchanger area. EL 2 + Increased heat exchanger area. EL 3 + Increased heat exchanger area + Step-modulating combustion + Constant-airflow BPM blower motor. TABLE IV.3—AFUE EFFICIENCY LEVELS FOR MOBILE HOME GAS FURNACES Efficiency level (EL) 0—Baseline ......... 1 ........................... 2 ........................... 3 ........................... 4—Max-Tech ....... AFUE (%) 80 90 92 95 96 Technology options Baseline. EL 0 + Secondary condensing heat exchanger. EL 1 + Increased heat exchanger area. EL 2 + Increased heat exchanger area. EL 3 + Increased heat exchanger area. The cost analysis portion of the engineering analysis is conducted using one or a combination of cost approaches. The selection of cost approach depends on a suite of factors, including the availability and reliability of public information, characteristics of the regulated product, and the availability and timeliness of purchasing the product on the market. The cost approaches are summarized as follows: • Physical teardowns: Under this approach, DOE physically dismantles a commercially available product, component-by-component, to develop a detailed bill of materials for the product. • Catalog teardowns: In lieu of physically deconstructing a product, DOE identifies each component using parts diagrams (available from manufacturer websites or appliance repair websites, for example) to develop the bill of materials for the product. • Price surveys: If neither a physical nor catalog teardown is feasible (e.g., for tightly integrated products such as fluorescent lamps, which are infeasible to disassemble and for which parts diagrams are unavailable), costprohibitive, or otherwise impractical (e.g., large commercial boilers), DOE conducts price surveys using publiclyavailable pricing data published on major online retailer websites and/or by soliciting prices from distributors and other commercial channels. In the present case, DOE conducted its cost analysis using a combination of physical and catalog teardowns to assess 56 U.S. Department of Energy Compliance Certification Management System (‘‘CCMS’’) (available at www.regulations.doe.gov/certificationdata/) (last accessed March 22, 2023). khammond on DSKJM1Z7X2PROD with RULES2 2. Cost Analysis VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 PO 00000 Frm 00041 Fmt 4701 Sfmt 4700 how manufacturing costs change with increased product efficiency. Products were selected for physical teardown analysis that have characteristics of typical products on the market at a representative input capacity of 80,000 Btu/h (determined based on market data and discussions with manufacturers). Selections spanned the range of efficiency levels analyzed and included most manufacturers. The teardown analysis allowed the creation of detailed BOMs for each product torn down, which included all components and processes used to manufacture the products. DOE used the BOMs from the teardowns as inputs to calculate the MPCs for products at various efficiency levels spanning the full range of E:\FR\FM\18DER2.SGM 18DER2 87542 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 efficiencies from the baseline to the maximum technology achievable level. During the development of the sincewithdrawn March 2015 NOPR, interviews were held with NWGF and MHGF manufacturers to gain insight into the residential furnace industry, and to request feedback on the engineering analysis. In advance of the July 2022 NOPR, a second round of interviews was held in 2021, in part to gain additional insight for updating the cost analysis to reflect current conditions. DOE used the information gathered from these interviews, along with the information obtained through the teardown analysis, to develop its updated MPC estimates. For this final rule, DOE updated its analysis to incorporate the most recent input data (e.g., raw materials, purchased components, labor) in its BOMs (and, correspondingly, in the MPC estimates derived from those BOMs). DOE performed an additional 23 physical teardowns for the July 2022 NOPR. DOE also incorporated additional physical teardowns from previous analyses into the analysis for this rulemaking when the designs and components of those units reflect those observed in products currently available on the market. For additional detail about the models used for teardowns, see chapter 5 of the final rule TSD. To account for manufacturers’ nonproduction costs and profit margin, DOE applies a non-production cost multiplier (the manufacturer mark-up) to the MPC. The resulting manufacturer selling price (‘‘MSP’’) is the price at which the manufacturer distributes a unit into commerce. DOE initially developed an average manufacturer mark-up by examining the annual Securities and Exchange Commission (‘‘SEC’’) 10–K 57 reports filed by publicly-traded manufacturers primarily engaged in consumer furnace manufacturing and whose product range includes NWGFs and MHGFs. DOE refined its understanding of manufacturer markups by using information obtained during manufacturer interviews. The manufacturer mark-ups were used to convert the MPCs into MSPs. Further information on this analytical methodology is presented in the following subsections. a. Teardown Analysis To assemble BOMs and to calculate manufacturing costs for the different components in residential furnaces, 57 U.S. Securities and Exchange Commission’s Electronic Data Gathering, Analysis, and Retrieval system (EDGAR) database. (Available at: www.sec.gov/edgar/search/) (Last accessed Feb. 4, 2022). VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 multiple units were disassembled into their base components, and DOE estimated the materials, processes, and labor required to manufacture each individual component, a process referred to as a ‘‘physical teardown.’’ Using the data gathered from the physical teardowns, each component was characterized according to its weight, dimensions, material, quantity, and the manufacturing processes used to fabricate and assemble it. For supplementary catalog teardowns, product data were gathered, such as dimensions, weight, and design features from publicly-available information, such as manufacturer catalogs. Such ‘‘virtual teardowns’’ allowed DOE to estimate the major physical differences between a product that was physically disassembled and a similar product that was not. For this final rule, data from physical and virtual teardowns of residential furnaces were used to calculate industry MPCs in the engineering analysis. The teardown analysis allowed DOE to identify the technologies that manufacturers typically incorporate into their products, along with the efficiency levels associated with each technology or combination of technologies. The end result of each teardown is a structured BOM that incorporates all materials, components, and fasteners (classified as either raw materials or purchased parts and assemblies), and characterizes the materials and components by weight, manufacturing processes used, dimensions, material, and quantity. The BOMs from the teardown analysis were then used as inputs to calculate the MPC for each product that was torn down. The MPCs resulting from the teardowns were then used to develop an industry average MPC for each efficiency level of each product class analyzed. As discussed in section IV.C.2.c of this document, DOE also performed several physical and catalog teardowns of units at input capacities other than the representative input capacity (i.e., 40, 60, 100, and 120 kBtu/h in addition to 80 kBtu/h). These teardowns allowed DOE to develop cost-efficiency curves for NWGFs and MHGFs at different input capacities. For more detailed information on the teardown analysis, see chapter 5 of the final rule TSD. b. Cost Estimation Method The costs of individual models are estimated using the content of the BOMs (i.e., relating to materials, fabrication, labor, and all other aspects that make up a production facility) to generate MPCs. The resulting MPCs include costs such as overhead and depreciation, in PO 00000 Frm 00042 Fmt 4701 Sfmt 4700 addition to materials and labor costs. DOE collected information on labor rates, tooling costs, raw material prices, and other factors to use as inputs into the cost estimates. For purchased parts, DOE estimates the purchase price based on volume-variable price quotations and detailed discussions with manufacturers and component suppliers. For parts fabricated in-house, the prices of the underlying ‘‘raw’’ metals (e.g., tube, sheet metal) are estimated on the basis of five-year averages to smooth out spikes in demand. Other raw materials, such as plastic resins and insulation materials, are estimated on a current-market basis. The costs of raw materials are determined based on manufacturer interviews, quotes from suppliers, and secondary research. Past results are updated periodically and/or inflated to present-day prices using indices from resources such as MEPS Intl.,58 PolymerUpdate,59 the U.S. geologic survey (‘‘USGS’’),60 and the Bureau of Labor Statistics (‘‘BLS’’).61 The cost of transforming the intermediate materials into finished parts is estimated based on current industry pricing. c. Manufacturing Production Costs DOE estimated the MPC at each efficiency level considered for each product class, from the baseline through the max-tech, and then calculated the fractions of the MPC (in percentages) attributable to each cost component (i.e., materials, labor, depreciation, and overhead). These percentages were used to validate analytical inputs by comparing them to manufacturers’ actual financial data published in annual reports, along with feedback obtained from manufacturers during interviews. DOE uses these production cost percentages in the MIA (see section IV.J of this document). Tables IV.4 and IV.5 present DOE’s estimates of the MPCs by AFUE efficiency level at the representative input capacity (80 kBtu/h) for both NWGFs and MHGFs. The MPCs at each efficiency level incorporate the design characteristics of NWGFs and MHGFs shown in Tables IV.2 and IV.3. DOE 58 For more information on MEPS Intl, please visit www.mepsinternational.com/gb/en (last accessed March 21, 2023). 59 For more information on PolymerUpdate, please visit www.polymerupdate.com (last accessed March 21, 2023). 60 For more information on USGS metal price statistics, please visit www.usgs.gov/centers/ national-minerals-information-center/commoditystatistics-and-information (last accessed March 21, 2023). 61 For more information on the BLS producer price indices, please visit www.bls.gov/ppi/ (last accessed March 21, 2023). E:\FR\FM\18DER2.SGM 18DER2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations observed in its market analysis that products are available on the market with a mix of blower motor technologies, including constant torque brushless permanent magnet (‘‘BPM’’) motors, constant airflow BPM motors, and (for MHGFs), PSC motors. To account for the variety of blower motors available on the market, DOE developed cost adjustment factors (‘‘adders’’) for each type of blower motor and at each input capacity analyzed (i.e., 40, 60, 80, 100, and 120 kBtu/h) to normalize the blower costs between the individual units torn down and across efficiency levels and allow for estimation of the cost differences between models with different blower technologies. DOE normalized the costs of the blower assemblies in its teardown models, and then used these adders in its LCC analysis to account for the distribution of blower motor technologies expected to be sold on the market (see section IV.F of this document). For NWGFs, DOE used constant-torque BPM motors as the baseline design option for all efficiency levels except the max-tech level, which was always assumed to use a constant airflow BPM motor. All MHGFs were modeled with improved PSC motors as the normalized design option. These adders are discussed in more detail in chapter 5 of the TSD accompanying this rule. Similarly, in its market analysis and teardown analysis, DOE observed models with single-stage, two-stage, and modulating operation. Therefore, DOE normalized its engineering analysis costs to reflect single-stage designs (with the exception of max-tech NWGFs, which were all assumed to use modulating designs) but also developed a cost adder for two-stage and modulating combustion systems (as compared to single-stage models) that was used in the LCC analysis to account for the distribution of models with twostage and modulating combustion. The cost to change from a single-stage to a two-stage combustion system includes the cost of a two-stage gas valve, a twospeed inducer assembly, upgraded pressure switch/tubing assembly, and additional controls and wiring. Similarly, the cost to change from a single-stage to a modulating combustion system includes the cost of a modulating gas valve, an upgraded inducer assembly, upgraded pressure switch/tubing assembly, and additional controls and wiring. These cost adders are discussed in more detail in chapter 5 of the TSD. DOE similarly normalized the costs, when necessary, to account for the presence any premium controls or features that would increase cost but are not needed for improving efficiency. For MHGFs, DOE performed physical teardowns of several MHGF models and 87543 compared them to NWGF teardowns from a common manufacturer and similar design, in order to determine the typical design differences between the two product classes. (A detailed description of the typical differences between MHGF and NWGF is provided in chapter 5 of the final rule TSD.) Using this information, DOE then developed cost adders to reflect the cost difference between NWGF and MHGF models, and applied this cost adder to the NWGF MPCs in order to estimate the MPCs of MHGFs at each of the MHGF efficiency levels. Table IV.4 presents the MPCs for NWGFs with a constant-torque BPM and single-stage combustion (except for the max-tech level which, as previously noted, includes a constant airflow BPM and modulating combustion). Table IV.5 presents the MPCs for MHGFs with an improved PSC and single-stage combustion. DOE has determined that these designs are likely the most representative of furnaces on the current market, although DOE recognizes there are some exceptions. As discussed in this section, DOE has observed that a variety of blower motor technologies and burner system stages exist on the market, so DOE developed adders to translate MPCs across various technologies. TABLE IV.4—MANUFACTURER PRODUCTION COST FOR NON-WEATHERIZED GAS FURNACES AT THE REPRESENTATIVE INPUT CAPACITY OF 80 kBtu/h Efficiency level (AFUE) (%) Efficiency level Baseline ....................................................................................................................................... EL1 ............................................................................................................................................... EL2 ............................................................................................................................................... EL3 ............................................................................................................................................... EL4 ............................................................................................................................................... 80 90 92 95 98 MPC (2022$) 335 420 428 444 572 Incremental cost above baseline (2022$) ........................ 85 93 109 216 TABLE IV.5—MANUFACTURER PRODUCTION COST FOR MOBILE HOME GAS FURNACES AT THE REPRESENTATIVE INPUT CAPACITY OF 80 kBtu/h Efficiency level (AFUE) (%) khammond on DSKJM1Z7X2PROD with RULES2 Efficiency level Baseline ....................................................................................................................................... EL1 ............................................................................................................................................... EL2 ............................................................................................................................................... EL3 ............................................................................................................................................... EL4 ............................................................................................................................................... JCI commented that DOE should work with MHI and HUD to get cost and buyer data for MHGF replacements and reevaluate whether a 95-percent AFUE VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 standard is appropriate based on those findings. (JCI, No. 411 at p. 2) In response, DOE notes that it conducted the engineering analysis for PO 00000 Frm 00043 Fmt 4701 Sfmt 4700 80 90 92 95 96 MPC (2022$) 360 441 450 466 471 Incremental cost above baseline (2022$) ........................ 81 90 106 111 this final rule using a combination of physical and catalog teardowns. As discussed in section IV.C.2 of this document, DOE only relies on price E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 87544 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations surveys as the basis for the engineering analysis if neither physical nor catalog teardowns are feasible, or if these options are cost-prohibitive and otherwise impractical. The resulting MPCs do not include manufacturer mark-ups and will not reflect prices seen by consumers. DOE estimates and applies additional markups to its MPCs, as discussed in sections IV.C.2.e and IV.D of this document. Additionally, as described in section IV.D of this document, under a more-stringent standard, the mark-ups incorporated into the sales price may also change relative to current mark-ups. Therefore, DOE has concluded that using prices of furnaces as currently seen in the marketplace, as JCI suggested, would not be an accurate method of estimating future furnace prices following an amended standard and, in turn, validating DOE’s approach of conducting an engineering analysis and mark-ups analysis for this final rule. Daikin commented that there is a higher burden on manufacturers than DOE estimated because DOE does not consider that NWGFs with higher AFUE take more time to assemble due to: (1) more components, (2) higher complexity, (3) tighter assembly requirements, and (4) more end-of-line testing. (Daikin, No. 416 at p. 3) JCI commented that the DOE fan energy rating (FER) rule and recent supply chain issues have increased MHGF MPCs by more than 42 percent between 2018 and 2021, and by 36 percent for NWGFs. (JCI, No. 411 at p. 2) Lennox commented that it found that DOE’s MPCs generally reflect the correct costs in 2020, except for the difference between EL 2 at 92-percent AFUE and EL 3 at 95-percent AFUE, which it believes to be too low. (Lennox, No. 389 at p. 7) Lennox stated that this cost difference should be increased by 50 to 70 percent. (Id.) Lennox further commented that inflation has increased these costs more than 15 percent since 2020. (Id.) In response to Daikin, DOE notes that its estimates for labor costs associated with higher-efficiency NWGFs are based on available industry data, as well as manufacturer feedback received during confidential interviews. Increased assembly and fabrication time, different components and processes, and all other change associated with higher efficiency levels for NWGFs are accounted for and reflected in the cost estimates for labor and, in turn, the overall MPC estimates. In addition, DOE agrees with JCI and Lennox that furnace MPCs have increased in recent years, and notes that the MPCs developed for this NOPR are VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 higher than those in the NOPR, primarily due to changes in component and raw material prices. In the July 2022 NOPR, DOE requested comment on the designs of the secondary heat exchanger (including any recent design changes), as well as the cost of AL29–4C stainless steel. 87 FR 40590, 40705 (July 7, 2022). In response, Lennox stated that it regards AL29–4C stainless steel, which is used in Lennox condensing furnaces, as the standard for secondary heat exchangers due to its corrosive-resistant properties. (Lennox, No. 389 at p. 7) As discussed in chapter 5 of the TSD accompanying this final rule, DOE did assume AL29– 4C is used in the construction of secondary heat exchangers for condensing furnaces. Because no additional comments were received, DOE did not make any changes to its cost models for condensing furnace heat exchangers compared to what was used for the July 2022 NOPR analysis, other than updating prices to reflect the most recent five-year average materials prices available. Chapter 5 of the final rule TSD presents more information regarding the development of DOE’s estimates of the MPCs. d. Cost-Efficiency Relationship DOE created cost-efficiency curves representing the cost-efficiency relationships for the product classes that it examined (i.e., NWGFs and MHGFs). To develop the cost-efficiency relationships for NWGFs at the representative capacity (80 kBtu/h), DOE calculated a market-share weighted average MPC for each efficiency level analyzed, based on the units torn down at that efficiency level. As discussed in section IV.C.2.a of this document, DOE performed several physical and catalog teardowns across a range of input capacities in order to develop costefficiency curves for NWGFs and MHGFs that are representative of the various input capacities available on the market. These cost-efficiency curves were then used in the downstream analyses. The cost-efficiency curves developed for input capacities other than the representative input capacity are presented in chapter 5 of the final rule TSD. As discussed in section IV.C.2.c of this document, DOE used information from teardowns of MHGF and NWGF to developed cost adders for MHGF as compared to NWGF, which were applied to the NWGF MPCs to estimate the MPCs of MHGFs at each of the MHGF efficiency levels. Additional details on how DOE developed the costefficiency relationships and related PO 00000 Frm 00044 Fmt 4701 Sfmt 4700 results are available in chapter 5 of the final rule TSD. As displayed in Tables IV.4 and IV.5 of this document, the results show that the cost-efficiency relationships for NWGFs and MHGFs are nonlinear. For both product classes, the cost increase between the non-condensing (80percent AFUE) and condensing (90percent AFUE) efficiency levels is due to the addition of a secondary heat exchanger, so there is a large step in both AFUE and MPC. For NWGFs, a significant cost increase also occurs between the 95-percent and 98-percent AFUE levels due to the addition of modulating combustion components paired with a constant airflow BPM indoor blower motor at 98-percent AFUE. e. Manufacturer Markup DOE calculates the manufacturer selling price (MSP) by multiplying the MPC and the manufacturer markup. The MSP is the price the manufacturer charges its direct customer (e.g., a wholesaler). The MPC is the cost for the manufacturer to produce a single unit of product, accounting for material, labor, depreciation and overhead costs associated with the manufacturing facility. The manufacturer markup is a multiplier that accounts for manufacturers’ production costs and revenue attributable to the product. DOE initially developed an average manufacturer mark-up by examining the annual Securities and Exchange Commission (‘‘SEC’’) 10–K reports filed by publicly-traded manufacturers primarily engaged in consumer furnace manufacturing and whose product range includes NWGFs and MHGFs. DOE refined its understanding of manufacturer mark-ups by using information obtained during manufacturer interviews. For additional detail on DOE’s methodology to determine the no-new-standards case manufacturer markup, see chapter 5 and chapter 12 of the final rule TSD. f. Manufacturer Interviews Throughout the rulemaking process, DOE sought feedback and insight from interested parties that would improve the information used in its analyses. DOE first interviewed NWGF and MHGF manufacturers as a part of the manufacturer impact analysis for the since-withdrawn March 2015 NOPR. During these interviews, DOE sought feedback on all aspects of its analyses for residential furnaces. DOE discussed the analytical assumptions and estimates, cost estimation method, and cost-efficiency curves with consumer furnace manufacturers. Subsequently, in E:\FR\FM\18DER2.SGM 18DER2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations 2021, DOE conducted a second series of interviews to obtain feedback on the updates to the cost analyses from the additional teardowns performed for the July 2022 NOPR. DOE considered all the information manufacturers provided while refining its cost estimates (and underlying data) and analytical assumptions. In order to avoid disclosing sensitive information about individual manufacturers’ products or manufacturing processes, DOE incorporated equipment and manufacturing process figures into the analyses as averages. Additional information on manufacturer interviews can be found in chapter 12 of the final rule TSD. g. Electric Furnaces In addition to NWGFs and MHGFs, DOE also estimated the MPCs of electric furnaces. This analysis was performed to develop accurate electric furnace cost data as an input to the product switching analysis (see section IV.F.10 of this document for additional information). To estimate the MPCs of electric furnaces, DOE used information obtained from the teardowns of three modular blower units, as well as a teardown of an electric heat kit assembly, which were all originally used as inputs to the engineering analysis performed for the 2014 furnace fans rulemaking.62 The MPCs of electric furnaces were developed by calculating a market share-weighted MPC of the three modular blower units that were torn down, and then adding the MPC of the electric heat kit to the market shareweighted modular blower MPC. The MPC of the electric heat kit was scaled appropriately in order to approximate the MPCs of different input capacity electric furnaces. Similar to the engineering analysis performed for NWGFs, DOE estimated the MPCs of electric furnaces at input capacities of 40, 60, 80, 100, and 120 kBtu/h. All material prices have been updated since the July 2022 NOPR to reflect recent changes in the market. These MPCs are presented in Table IV.6. khammond on DSKJM1Z7X2PROD with RULES2 TABLE IV.6—ELECTRIC FURNACE MPCS Input capacity (kBtu/h) MPC (2022$) 40 .......................................... 60 .......................................... 80 .......................................... 100 ........................................ 62 Modular blower units with electric heat kits are also referred to as ‘‘electric furnaces.’’ VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 survey,66 and Decision Analyst’s 2022 American Home Comfort Study,67 DOE determined that the retail distribution channel (including internet sales) has Input capacity MPC (kBtu/h) (2022$) been growing significantly in the last five years (previously it was negligible). 120 ........................................ 439 Based on these sources, DOE estimated that 15 percent of the replacement Further details regarding the market distribution channel for NWGF methodology used to estimate electric and 20 percent for MHGF (including furnace MPCs are provided in chapter 5 mobile home specialty retailer/dealer) of the final rule TSD. will be going through this market channel as follows (including some D. Markups Analysis consumers that purchase directly and The markups analysis develops then have contractors install it): 68 appropriate markups (e.g., manufacturer Manufacturer → Retailer → Mechanical markups, retailer markups, distributor Contractor → Consumer markups, contractor markups) in the Manufacturer → Mobile Home Specialty distribution chain and sales taxes to Retailer/Dealer → Consumer convert the MPC/MSP estimates derived in the engineering analysis to consumer The NWGF new construction prices, which are then used in the LCC distribution channel is characterized as and PBP analysis. The markups are follows, where DOE assumes that for 50 multiplicative factors applied to MPCs percent of installations, a larger builder and MSPs. At each step in the has an in-house mechanical contractor: distribution channel, companies mark Manufacturer → Wholesaler → up the price of the product to cover Mechanical Contractor → Builder business costs and generate a profit → Consumer margin. Before developing markups, Manufacturer → Wholesaler → Builder DOE defines key market participants → Consumer and identifies distribution channels. The MHGF new construction For consumer furnaces, the main distribution channel is characterized as parties in the distribution chain are: (1) follows: manufacturers; (2) wholesalers or distributors; (3) retailers; (4) mechanical Manufacturer → Mobile Home Manufacturer → Mobile Home contractors; (5) builders; (6) Dealer → Consumer manufactured home manufacturers, and (7) manufactured home dealers/retailers. For replacements, new owners, and See chapter 6 and appendix 6A of the new construction, DOE also considered final rule TSD for a more detailed the national accounts or direct-fromdiscussion about parties in the manufacturer distribution channel, distribution chain. where the manufacturer, through a For the final rule, DOE maintained the wholesaler, sells directly to a consumer.69 same approach as in the NOPR. DOE characterized two distribution channel Manufacturer → Wholesaler (National market segments to describe how NWGF Account) → Consumer and MHGF products pass from the manufacturer to residential and (Available at www.brgbuildingsolutions.com/ reports-insights) (Last accessed August 1, 2023). commercial consumers: 63 (1) 66 Clear Seas Research, 2019 Unitary Trends. replacements and new owners 64 and (2) (Available at clearseasresearch.com/?attachment_ new construction. id=2311) (Last accessed August 1, 2023). The NWGF and MHGF replacement/ 67 Decision Analyst, 2022 American Home new owners market distribution channel Comfort Studies. (Available at www.decisionanalyst.com/syndicated/ is primarily characterized as follows: homecomfort/) (Last accessed August 1, 2023). Manufacturer → Wholesaler → 68 The Do-It-Yourself (DIY) market is very small Mechanical Contractor → Consumer (only represents about 1–2 percent of the whole gas furnace market) and is not analyzed by DOE in this Based on a 2023 BRG report,65 2019 analysis. Clear Seas Research HVAC contractor 69 TABLE IV.6—ELECTRIC FURNACE MPCS—Continued 63 DOE 324 358 391 405 87545 estimates that five percent of NWGFs are installed in commercial buildings. See section IV.G of this document for further discussion. 64 New owners are new furnace installations in buildings that did not previously have a NWGF or MHGF or existing NWGF or MHGF owners that are adding an additional consumer furnace. They primarily consist of households that add or switch to NWGFs or MHGFs during a major remodel. 65 BRG Building Solutions, The North American Heating & Cooling Product Markets (2023 Edition). PO 00000 Frm 00045 Fmt 4701 Sfmt 4700 The national accounts channel where the buyer is the same as the consumer is mostly applicable to NWGFs installed in small to mid-size commercial buildings, where on-site contractors purchase equipment directly from wholesalers at lower prices due to the large volume of equipment purchased, and perform the installation themselves. Overall, DOE’s analysis assumes that approximately 7 percent of NWGFs installed in the residential and commercial sector use national accounts, based on the fraction of small to mid-sized commercial buildings with NWGFs relative to residential buildings with NWGFs in the 2023 BRG report. E:\FR\FM\18DER2.SGM 18DER2 87546 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 At each step in the distribution channel, companies mark up the price of the product to cover costs. DOE developed baseline and incremental mark-ups for each participant in the distribution chain to ultimately determine the consumer purchase cost. Baseline mark-ups are applied to the price of products with baseline efficiency, while incremental mark-ups are applied to the difference in price between baseline and higher-efficiency models (the incremental cost increase). The incremental mark-up is typically less than the baseline mark-up and is designed to maintain similar per-unit operating profit before and after new or amended standards.70 To estimate average baseline and incremental mark-ups, DOE relied on several sources, including: (1) the 2017 Annual Wholesale Trade Survey 71 (for wholesalers and distributors); (2) U.S. Census Bureau 2017 Economic Census data 72 on the residential and commercial building construction industry (for builders, mechanical contractors, and mobile home manufacturers); (3) SEC 10–K reports 73 from Home Depot and Lowe’s and 2017 Annual Retail Trade Survey 74 (for retailers); (4) 2017 Economic Census and other sources (for mobile home dealers and retailers). In addition, DOE used the 2005 Air Conditioning Contractors of America’s (‘‘ACCA’’) Financial Analysis on the Heating, Ventilation, Air-Conditioning, and Refrigeration (‘‘HVACR’’) contracting industry 75 to disaggregate the mechanical contractor mark-ups into replacement and new construction markets and the HARDI 2013 Profit Report 76 to derive regional-to-national 70 Because the projected price of standardscompliant products is typically higher than the price of baseline products, using the same mark-up for the incremental cost and the baseline cost would result in higher per-unit operating profit. While such an outcome is possible, DOE maintains that in markets that are reasonably competitive, it is unlikely that standards would lead to a sustainable increase in profitability in the long run. 71 U.S. Census Bureau, 2017 Annual Wholesale Trade Survey. (Available at www.census.gov/data/ tables/2017/econ/awts/) (Last accessed August 1, 2023). 72 U.S. Census Bureau, 2017 Economic Census Data. (Available at www.census.gov/econ/) (Last accessed August 1, 2023). 73 U.S. Securities and Exchange Commission, SEC 10–K Reports (available at www.sec.gov/) (last accessed August 1, 2023). 74 U.S. Census Bureau, 2017 Annual Retail Trade Survey Data (available at www.census.gov/ programs-surveys/arts.html) (last accessed August 1, 2023). 75 Air Conditioning Contractors of America (ACCA), Financial Analysis for the HVACR Contracting Industry (2005). (Available at www.acca.org/store) (Last accessed August 1, 2023). 76 Heating, Air Conditioning & Refrigeration Distributors International (HARDI), 2013 HARDI VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 wholesaler markup ratio. DOE also used various sources for the derivation of the mobile home dealer mark-ups (see chapter 6 of the final rule TSD). Typically, contractors will mark up equipment and labor differently, with the labor mark-up being greater than the equipment mark-up. For the purposes of the analysis, DOE is treating the furnace installation work, including the equipment and labor components, as one job, and assumes that the mechanical contractors use the same mark-up to account for overhead and profit of the entire job. However, the determination of that overall markup accounts for the different components of the job. After reviewing the available 2017 economic census data,77 DOE adjusted the mechanical contractor mark-up to take into account that a fraction of the fringe costs related to the direct construction labor are part of the labor cost. This better matches the approach used in RS Means 78 and other cost books 79 on how the overall contractor mark-up is determined. Based on this methodology, the average baseline mark-up for mechanical contractors is 1.47 for replacements and 1.39 for new construction, while the incremental mark-up for mechanical contractors is 1.27 for replacements and 1.20 for new construction. The overall baseline mark-up is 2.85 for NWGFs and 2.49 for MHGFs, while the incremental mark-up is 2.09 for NWGFs and 1.91 for MHGFs. See chapter 6 and appendix 6A of the final rule TSD for more details. In addition to the mark-ups, DOE obtained State and local taxes from data provided by the Sales Tax Clearinghouse.80 These data represent weighted average taxes that include county and city rates. DOE derived shipment-weighted average tax values for each region considered in the analysis. DOE acknowledges that there is uncertainty regarding the appropriate mark-ups to use, so the Department conducted a sensitivity analysis in Profit Report. (Available at www.hardinet.org/) (Last accessed August 1, 2023). 77 U.S. Census Bureau, 2017 Economic Census Data. (Available at www.census.gov/econ/) (Last accessed August 1, 2023). 78 RS Means Company Inc., 2023 RS Means Mechanical Cost Data. Kingston, MA (2023). (Available at www.rsmeans.com/products/books/) (Last accessed August 1, 2022). 79 Craftsman Book Company, 2023 National Construction Estimator, CA (2023). (Available at craftsman-book.com/books-and-software/shop-bytype/shop-estimating-books) (Last accessed August 1, 2023). 80 Sales Tax Clearinghouse Inc., State Sales Tax Rates Along with Combined Average City and County Rates (June 14, 2023). (Available at www.thestc.com/STrates.stm) (Last accessed August 1, 2023). PO 00000 Frm 00046 Fmt 4701 Sfmt 4700 which the same average mark-up is applied to baseline and higherefficiency products. Appendix 8N of the final rule TSD describes this analysis and how the associated LCC results differ from the results using the incremental mark-up approach. The relative comparison of the different efficiency levels remains similar, however, and the proposed energy conservation standard level remains economically justified regardless of which mark-up scenario is utilized. Lennox commented that the assumption that the incremental markup would be lower for condensing than for non-condensing furnace standard levels is incorrect, as the installed cost difference between EL 2 and EL 3 is less than the difference between the MPC and MSP for these two levels. (Lennox, No. 389 at p. 2) Lennox further asserted that the incremental markup should be consistent for condensing and noncondensing levels. (Id.) DOE clarifies that the incremental mark-up is used for efficiency levels above the baseline, applied to those costs above the baseline cost. In the case of consumer furnaces, all condensing furnaces have an efficiency above the baseline, and, therefore, they all share the same incremental mark-up factor (absolute mark-up will vary based on the incremental cost). Baseline, noncondensing furnaces are characterized with a baseline mark-up only. Chapter 6 of the final rule TSD provides details on DOE’s development of markups for NWGFs and MHGFs. E. Energy Use Analysis The purpose of the energy use analysis is to determine the annual energy consumption of NWGFs and MHGFs at different efficiencies in representative U.S. single-family homes, multi-family residences, mobile homes, and commercial buildings, and to assess the energy savings potential of increased furnace efficiency. The energy use analysis estimates the range of energy use of NWGFs and MHGFs in the field (i.e., as they are actually used by consumers). The energy use analysis provides the basis for other analyses DOE performed, particularly assessments of the energy savings and the savings in consumer operating costs that could result from adoption of amended or new standards. DOE estimated the annual energy consumption of NWGFs and MHGFs at specific energy efficiency levels across a range of climate zones, building characteristics, and heating applications. The annual energy consumption includes the natural gas, E:\FR\FM\18DER2.SGM 18DER2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations liquid petroleum gas (LPG), and electricity used by the furnace. Chapter 7 of the final rule TSD provides details on DOE’s energy use analysis for NWGFs and MHGFs. khammond on DSKJM1Z7X2PROD with RULES2 1. Building Sample To determine the field energy use of NWGFs and MHGFs used in residential housing units and commercial buildings, DOE established a sample of households using EIA’s 2020 Residential Energy Consumption Survey (RECS 2020) 81 and sample of commercial buildings using EIA’s 2018 Commercial Building Energy Consumption Survey (CBECS 2018), which were the most recent such surveys that were available at that time.82 The RECS and CBECS data provide information on the vintage of the home or building, as well as heating energy use in each housing unit or building. DOE used the housing and building samples not only to determine existing furnace’s annual energy consumption, but also as the basis for conducting the LCC and PBP analyses. RECS and CBECS includes weights for each housing unit or commercial building in order to produce housing and commercial building population estimates to represent all housing units and commercial buildings, including those not in the survey sample. DOE used these RECS and CBECS weights along with furnace shipments data and furnace sample criteria to develop the projected furnace sample shipment weights in 2029, the first year of compliance with any amended or new energy conservation standards for NWGFs and MHGFs, used in the analysis. To characterize future new homes and buildings, DOE used a subset of housing units and commercial buildings in RECS and CBECS that were built after 2000. APGA argued that with DOE’s usage of EIA’s RECS 2015, DOE is imputing to over 120 million households characteristics based upon a survey of a few hundred. APGA further argued that RECS surveys are suspect because they rely on respondents knowing precisely the appliance that heats their house and for how long that has been. (APGA, No. 387 at p.11) DOE notes that this characterization is incorrect. RECS 2015 is based on a nationally representative 81 Energy Information Administration (EIA), 2020 Residential Energy Consumption Survey (RECS). (Available at: www.eia.gov/consumption/ residential/) (Last accessed August 1, 2023). 82 U.S. Department of Energy: Energy Information Administration, Commercial Buildings Energy Consumption Survey (2018). (Available at: www.eia.gov/consumption/commercial/) (Last accessed August 1, 2023). VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 sample of 5,686 households, not a few hundred. RECS 2020 had 18,496 respondents complete the survey. Furthermore, EIA employs a number of different data collection modes, including in-person interviews with detailed measurements of the housing unit, as well as collecting fuel billing and delivery data from energy suppliers. There are a number of cross-checks and quality control steps to ensure the robustness of the survey, as detailed in the RECS technical documentation. APGA claimed that DOE relied on stale data from EIA’s RECS 2015 in the NOPR. APGA argued that DOE should incorporate RECS 2020 data and run its analysis again, allowing public comment in a supplemental NOPR. (APGA, No. 387 at p. 61) In response, DOE notes that the energy use analysis relies on the energy consumption and expenditures microdata from RECS, which at the time of the NOPR analysis were not yet published for RECS 2020. Only the preliminary housing characteristics statistics tables from RECS 2020 were available at the time of the NOPR analysis. However, it is common practice for DOE to include updated data in its analyses when they become available. The RECS 2020 final version of the microdata (including energy consumption and expenditures data) have since been published, and DOE has updated its analysis for the final rule to include the latest RECS 2020 data. DOE has also updated its analysis for the final rule to include the latest CBECS 2018 data. See appendix 7A of the final rule TSD for details regarding the sample. JCI commented that manufactured home applications are not specifically addressed in RECS data after 1974. The commenter asserted that manufactured home applications are instead categorized in single-family homes. JCI argued that replacements in manufactured homes are, therefore, not accurately represented in DOE’s analysis, and that manufactured homes would be disproportionately negatively impacted by a 95-percent AFUE standard. (JCI, No. 411 at p. 2) In response, DOE clarifies that RECS does include survey responses from households in manufactured homes. They are labeled as ‘‘mobile homes’’ and are included in DOE’s analysis. These are the households that would be representative of MHGF installations and energy consumption. The CA IOUs cited the U.S. Energy Information Administration’s 2015 Residential Energy Consumption Survey to report that only 26 percent of mobile homes use natural gas and propane PO 00000 Frm 00047 Fmt 4701 Sfmt 4700 87547 MHGFs for space heating, while 55 percent of mobile homes use electricity for space heating. (The CA IOUs, No. 400 at p. 2) In response, DOE notes that in the NOPR, it used 2015 RECS data directly, and, therefore, this breakdown of energy usage was reflected in DOE’s NOPR analysis, and the current breakdown of energy use from 2020 RECS data is reflected in DOE’s final rule analysis. 2. Furnace Sizing DOE assigned an input capacity for the existing NWGF or MHGF of each housing unit or building based on an algorithm that correlates the calculated design heating load served by the furnace with furnace shipments data by input capacity. DOE used ACCA’s Manual J 83 and Manual N 84 calculation methods to more accurately determine the design heating load requirements for each sampled housing unit or building based primarily on RECS 2020 and CBECS 2018 building characteristics (including heated square footage, the outdoor design temperature for heating,85 wall type, insulation type, year built, roof type, number of floors, availability of an attic, basement, or crawlspace, etc.). The ACCA Manual J and Manual N process is the most widely accepted method to calculate heating and cooling requirements for a house by using well-documented values and building codes, based on experimental data and extreme conditions (worst-case assumptions). DOE distributed the input capacities based on shipments data by input capacity bins provided by AHRI from 1995–2014,86 HARDI shipments data by capacity and region from 2013–2022,87 BRG report shipments data by capacity from 2014–2022,88 and manufacturer 83 Air Conditioning Contractors of America Association (ACCA). Manual J—Residential Load Calculation (available at: www.acca.org/standards/ technical-manuals/manual-j) (last accessed August 1, 2023). 84 Air Conditioning Contractors of America Association (ACCA). Manual N—Commercial Load Calculation (available at: www.acca.org/standards/ technical-manuals/manual-n) (last accessed August 1, 2023). 85 This is the dry-bulb design temperature that is expected to be exceeded ninety-nine percent of the time. 86 AHRI, Attachment A: Percentage of Residential Gas Furnace Shipments by Input Ranges, 20 Year Average (1995–2014) (October 14, 2015) (available at: www.regulations.gov/comment/EERE-2014-BTSTD-0031-0181) (last accessed August 1, 2023). 87 Heating, Air-conditioning and Refrigeration Distributors International (HARDI), DRIVE portal (HARDI Visualization Tool managed by D+R International until 2022), proprietary Gas Furnace Shipments Data from 2013–2022 provided to Lawrence Berkeley National Laboratory (LBNL). 88 BRG Building Solutions, The North American Heating & Cooling Product Markets (2023 Edition) E:\FR\FM\18DER2.SGM Continued 18DER2 87548 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 input from manufacturer interviews. The shipments data by input capacity were further disaggregated into 5-kBtu/ h bins based on a set of non-repetitive or unique models from DOE’s 2023 Compliance Certification Management System database for furnaces 89 and from AHRI’s 2023 residential furnace certification directory.90 The households’ calculated design heating load values are then rank ordered to match actual shipments distributions to determine the assigned furnace input capacity. DOE assumed that for the new furnace installation, the output capacity would remain similar to the output capacity for the existing furnace. This sizing methodology takes into account the actual field conditions where some households have a greater oversizing factor than recommended by ACCA, which could occur due to old furnaces being replaced by a much more efficient furnace and/or improvements to the building shell since the last furnace installation. For example, this methodology, applied to both NWGFs and MHGFs, allows for older, lessinsulated homes to be assigned larger furnaces compared to similar newlybuilt homes. This methodology also accounts for regional differences in building shells, which show that, on average, southern homes are not as well insulated as northern homes. Regional differences in design heating load are also captured in the sizing methodology by using the outdoor design temperature that best matches the household location and climate characteristics. DOE also accounted for the air conditioning sizing when determining the input capacity size of the furnace. DOE acknowledges that currently, there are few low-input-capacity furnace models with large furnace fans. For some installations, particularly in the South, a large furnace fan is required to meet the cooling requirements. DOE accounted for the fact that some furnace installations in the South have a larger input capacity than determined by the design heating load calculations by calculating the size of the furnace fan required to meet the cooling requirements of the household by using the AHRI shipments data by input (available at: www.brgbuildingsolutions.com/ reports-insights) (last accessed August 3, 2023). 89 U.S. Department of Energy, Compliance Certification Management System (available at: www.regulations.doe.gov/certification-data/) (last accessed August 1, 2023). 90 AHRI, Directory of Certified Product Performance: Residential Furnaces (available at: www.ahridirectory.org/Search/ QuickSearch?category=8& searchTypeId=3&producttype=32) (last accessed August 1, 2023). VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 capacity 91 and the HARDI furnace shipments by input capacity and region.92 DOE notes that this will primarily affect furnaces located in warmer areas of the country (with higher cooling loads), which potentially leads to a higher amount of oversizing than is assumed in the analysis for these households. DOE notes that the Federal furnace fan standards that took effect in July 2019 require fan motor designs that can more efficiently adjust the amount of air depending on both heating and cooling requirements. Thus, the size of the furnace fan (and the furnace capacity) will be able to better match both the heating and cooling requirements of the house. DOE acknowledges that, in the future, there might be greater availability of small furnaces with larger furnace fans, but for this final rule, DOE made a conservative assumption that larger furnace input capacities will be necessary to satisfy these cooling requirements because smaller capacity furnaces with larger fans are not commonly available in the market. If smaller capacity furnaces with larger fans become more common, the costs to replace these furnaces would be lower, increasing the net consumer benefits. See chapter 7 and appendix 7B of the final rule TSD for further detail. 3. Furnace Active Mode Energy Use To estimate the annual energy consumption in active mode of furnaces meeting the considered efficiency levels, DOE first calculated the annual housing unit or building heating load using the RECS 2020 and CBECS 2018 estimates of housing unit or building furnace annual energy consumption,93 the existing furnace’s estimated capacity and efficiency (AFUE), and the heat generated from the electrical components. The analysis assumes that some homes have two or more furnaces, with the heating load split evenly between them. DOE also took into account any secondary heating that might be present, utilizing the same fuel 91 AHRI, Attachment A: Percentage of Residential Gas Furnace Shipments by Input Ranges, 20 Year Average (1995–2014) (Oct. 14, 2015) (available at: www.regulations.gov/comment/EERE-2014-BT-STD0031-0181) (last accessed August 1, 2023). 92 Heating, Air-conditioning and Refrigeration Distributors International (HARDI), DRIVE portal (HARDI Visualization Tool managed by D+R International until 2022), proprietary Gas Furnace Shipments Data from 2013–2022 provided to Lawrence Berkeley National Laboratory (LBNL). 93 EIA estimated the equipment’s annual energy consumption from the household’s or buildings utility bills using conditional demand analysis. To learn more, see www.eia.gov/consumption/ residential/data/2020/pdf/ 2020%20RECS%20CE%20Methodology_Final.pdf. (Last accessed August 1, 2023). PO 00000 Frm 00048 Fmt 4701 Sfmt 4700 as the NWGF or MHGF, by reducing the heating load covered by the NWGF or MHGF. The estimation of furnace capacity is discussed in the previous section. The AFUE of the existing furnaces was estimated using the furnace vintage (the year of installation) provided by RECS or CBECS and historical data on the market share of furnaces by AFUE by region (see appendix 7B of the final rule TSD). DOE then used the housing unit or building heating load to calculate the burner operating hours at each considered efficiency level, which were then used to calculate the fuel and electricity consumption based on the DOE consumer furnace test procedure. a. Adjustments to Energy Use Estimates DOE adjusted the energy use estimates in RECS 2020 (for the year 2020) and in CBECS 2018 (for the year 2018) to ‘‘normal’’ weather using longterm heating degree-day (HDD) data for each geographical region.94 For this final rule, DOE then applied an HDD correction factor from AEO2023 95 that accounts for projected population migrations across the Nation and continues any realized historical changes in HDD at the State level. DOE also accounted for changes in building shell efficiency between 2020 (for RECS 2020) or 2018 (for CBECS 2018) and the compliance year by applying the shell integrity indexes associated with AEO2023. The indexes consider projected improvements in building shell efficiency due to improvements in home insulation and other thermal efficiency practices. EIA provides separate indexes for new buildings and existing buildings for a given year, for both residential homes and commercial buildings. For the year 2029, the factor applied for homes is 0.91 for residential replacements and 0.77 for residential new construction relative to the 2022 building shell efficiency. The factor applied for commercial building replacements depend on building type and Census Division, ranging from 0.82 to 0.97 relative to the 2018 building shell efficiency. For new construction commercial buildings, the factor used ranged from 0.31 to 0.86, depending on building type and Census Division relative to the 2020 building shell 94 National Oceanic and Atmospheric Administration (NOAA), NNDC Climate Data Online (available at: www.ncdc.noaa.gov/cdo-web/ search) (last accessed August 1, 2023). 95 U.S. Department of Energy, Energy Information Administration, Annual Energy Outlook 2023 (available at: www.eia.gov/outlooks/aeo/) (last accessed August 1, 2023). E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations efficiency. See chapter 7 of the final rule TSD for more details. Building codes and building practices vary widely across the U.S. For example, as of August 2023, more than half of the States were still under the 2009 International Energy Conservation Code (‘‘IECC’’) or older codes instead of the 2015 IECC, 2018 IECC, or 2021 IECC.96 EIA’s building shell index for new construction takes into account regional differences in building codes and building practices by including both homes that meet IECC requirements and homes that are built with the most efficient shell components, as well as non-compliant homes that fail to meet IECC requirements. The building shell index also accounts for the impact of incentive programs in improving building shell efficiency. It is uncertain how these building codes and building practices will change over time, so EIA uses technical and economic factors to project change in the building shell integrity indexes. For new home construction, EIA determined the building shell efficiency by using the relative costs and energy bill savings in conjunction with the building shell attributes. For commercial buildings, the shell efficiency factors vary by building type and region, and they take into account significant improvements to the commercial building shell, particularly in new commercial buildings. AHRI stated that DOE did not consider changes to Manufactured Housing Efficiency Standards in its analysis of proposed efficiency standards for MHGFs, adding that the new standards were promulgated by DOE in May 2022 and will take effect on May 31, 2023. AHRI commented that the new requirements will enhance the thermal efficiency of the building envelope of new manufactured homes, which will in turn reduce the heating demand for furnaces. AHRI added that the reduced heating demand for furnaces will then reduce the cost justification (in particular, LCC savings) for the proposed standards. Additionally, AHRI stated that DOE cannot double-count energy savings produced by a more-efficient building envelope and from improved furnace efficiency. (AHRI, No. 414–2 at pp. 1– 3) Along these same lines, MHI commented that it does not think DOE considered the increased energy efficiency caused by the May 2022 ECS 96 DOE Building Energy Codes Program, Status of State Energy Code Adoption (available at: www.energycodes.gov/status) (last accessed August 1, 2023). VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 Final Rule for manufactured housing in its technical models. (MHI, No. 365 at p. 3) Mortex similarly commented that the standards for manufactured homes will lead to less usage and average input of furnaces, which weakens the cost justification for amending the furnaces standard. The commenter stated that these standards will reduce heating season gas demand and energy usage by approximately 15 percent, which means that there will be fewer energy savings to offset the increased up-front costs if a 95-percent AFUE furnace. (Mortex, No. 410 at p. 3) Mortex further commented that this rulemaking double-counts energy savings between this rulemaking and the manufactured housing rulemaking. The company also pointed to the manufactured housing rulemaking and the tiered approach such that requirements for single-section manufactured homes imposed less of a cost than requirements for multi-section manufactured homes in consideration of affordability of housing for mobile home residents. Mortex commented that such considerations should also be taken into account by DOE in the rulemaking for MHGFs. (Mortex, No. 410 at p. 3) In response, DOE notes that the NOPR analysis was performed using AEO2022, which was developed before promulgation of the May 2022 final rule for manufactured housing (87 FR 32728). AEO projections only include the impacts of finalized regulations and, thus, do not include DOE’s May 2022 manufactured housing rule. However, it is common practice for DOE to include updated data in its analyses when they become available. For the final rule, DOE used the latest AEO2023 building shell efficiency projections, which take into account all finalized rules in 2022, including the May 2022 final rule for manufactured housing, as well as other incentives to improve building shell efficiency. These projections result in a decrease in the estimated space heating energy use in the final rule. The updated analysis eliminates any potential double-counting. DOE’s conclusion of economic justification for MHGFs from the NOPR remains unchanged. With respect to affordability, DOE notes that smallercapacity furnaces, which would be used in smaller mobile homes, have lower incremental costs. Sierra Club et al. mentioned that the rule for energy efficiency standards for new manufactured homes was based in part on the requirements of the 2021 IECC, though DOE declined to consider IECC requirements in setting minimum efficiency levels for heating appliances PO 00000 Frm 00049 Fmt 4701 Sfmt 4700 87549 installed in such homes due to the coverage of these products under EPCA’s appliance efficiency standards program. 87 FR 32728, 32774 (May 31, 2022). Sierra Club et al. stated that another stakeholder’s comments on the NOPR—claiming that DOE is extending the IECC’s requirements to mobile home gas furnaces—have an unclear basis. (Sierra Club et al., No. 401 at pp. 2–3) In response, DOE acknowledges that coverage under EPCA for MHGFs is under consumer furnaces provisions of EPCA and not under the manufactured housing rulemaking. DOE agrees with Sierra Club et al. that it is not extending IECC requirements. Instead, DOE is independently evaluating the technological feasibility and economic justification of amended energy conservation standards for MHGFs by conducting its own analysis. 4. Furnace Electricity Use DOE’s analysis of furnace electricity consumption takes into account the electricity used by the furnace’s electrical components (e.g., blower, draft inducer, and ignitor). DOE determined furnace fan electricity consumption using field data on static pressures of duct systems and furnace fan performance data from manufacturer literature. As noted in section IV.C of this document, the furnace designs used in DOE’s analysis incorporate furnace fans that meet the energy conservation standards for those covered products that took effect in 2019.97 DOE accounted for furnace fan energy use during heating mode, as well as for the difference in furnace fan electricity use between a baseline furnace (80-percent AFUE) and a more-efficient furnace during cooling and continuous fan circulation. DOE also accounted for increased furnace fan energy use in condensing furnaces to produce the equivalent airflow output compared to a similar non-condensing furnace, since condensing furnaces tend to have a more restricted airflow path than noncondensing furnaces due to the presence of a secondary heat exchanger. To calculate electricity consumption for the inducer fan, ignition device, gas valve, and controls, DOE used the calculation described in DOE’s furnaces test procedure,98 as well as in DOE’s 2023 unique furnace model dataset and manufacturer product literature. The electricity consumption of condensing furnaces also reflects the use of condensate pumps and heat tape. 97 See 10 CFR 430.32(y). in 10 CFR part 430, subpart B, appendix N, section 10. 98 Found E:\FR\FM\18DER2.SGM 18DER2 87550 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations DOE accounts for the increased electricity use of condensing furnaces in heating, cooling, and continuous fan circulation due to larger internal static pressure (a more restricted airflow path due to the presence of a secondary heat exchanger). DOE notes that the furnace fan energy conservation standards that took effect in 2019 (for both noncondensing and condensing NWGFs 99) can be met using constant-torque BPM motors, which do not require increasing the size of an undersized duct since the speed of the motor is kept constant with increased static pressure. DOE also accounts for higher energy use for a fraction of installations that include a constant airflow BPM (variable speed motor) that can increase the speed of the motor to compensate for high static pressures. See appendix 7C of the final rule TSD for more details. As stated previously, a condensing furnace uses more electricity than an equivalent non-condensing furnace but uses significantly less natural gas or LPG. DOE accounted for the additional heat released by the furnace fan motor, which must be compensated by the central air conditioner during the cooling season, based on analysis in the October 2022 Preliminary Analysis for consumer furnace fans.100 DOE also accounted for additional electricity use by the furnace fan during continuous fan operation. khammond on DSKJM1Z7X2PROD with RULES2 F. Life-Cycle Cost and Payback Period Analysis DOE conducted LCC and PBP analyses to evaluate the economic impacts on individual consumers of potential energy conservation standards for NWGFs and MHGFs. The effect of new or amended energy conservation standards on individual consumers usually involves a reduction in operating cost and an increase in purchase cost. DOE used the following two metrics to measure consumer impacts: • Life-Cycle Cost (LCC) is the total consumer expense of an appliance or product over the life of that product, consisting of total installed cost (manufacturer selling price, distribution chain markups, sales tax, and installation costs) plus operating costs 99 The furnace fan energy conservation standards relevant to condensing and non-condensing MHGFs can be met using improved PSC motors and, therefore, these considerations do not apply. 100 U.S. Department of Energy—Office of Energy Efficiency and Renewable Energy, Energy Conservation Program for Consumer Products: Technical Support Document: Energy Efficiency Standards for Consumer Products: Consumer Furnace Fans (October 2022) (available at: www.regulations.gov/document/EERE-2021-BTSTD-0029-0014) (last accessed August 1, 2023). VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 (expenses for energy use, maintenance, and repair). To compute the operating costs, DOE discounts future operating costs to the time of purchase and sums them over the lifetime of the product. • Payback Period (PBP) is the estimated amount of time (in years) it takes consumers to recover the increased purchase cost (including installation) of a more-efficient product through lower operating costs. DOE calculates the PBP by dividing the change in purchase cost at higher efficiency levels by the change in annual operating cost for the year that amended or new standards are assumed to take effect. For any given efficiency level, DOE measures the change in LCC relative to the LCC in the no-new-standards case, which reflects the estimated efficiency distribution of NWGFs and MHGFs in the absence of new or amended energy conservation standards. In contrast, the PBP for a given efficiency level is measured relative to the baseline product. For each considered efficiency level in each product class, DOE calculated the LCC and PBP for a nationally representative set of housing units and, for NWGFs, also commercial buildings. As stated previously, DOE developed household samples from 2020 RECS and CBECS 2018. For each sample household, DOE determined the energy consumption of the furnace and the appropriate natural gas, LPG, and electricity price. By developing a representative sample of households, the analysis captured the variability in energy consumption and energy prices associated with the use of NWGFs and MHGFs. Inputs to the LCC calculation include the installed cost to the consumer, operating expenses, the lifetime of the product, and a discount rate. Inputs to the calculation of total installed cost include the cost of the product—which includes MPCs, manufacturer markups, product price projections, wholesaler and contractor markups, and sales taxes (where appropriate)—and installation costs. Inputs to the calculation of operating expenses include annual energy consumption, energy prices and price projections, repair and maintenance costs, product lifetimes, and discount rates. Inputs to the payback period calculation include the installed cost to the consumer and first year operating expenses. DOE created distributions of values for installation cost, repair and maintenance, product lifetime, and discount rates with probabilities attached to each value, to account for their uncertainty and variability. In addition, DOE established PO 00000 Frm 00050 Fmt 4701 Sfmt 4700 the efficiency in the no-new-standards case using a distribution of furnace efficiencies. In regard to DOE’s cost calculations, GAS commented that DOE is defying its own intent to use ‘‘transparent and robust analytical methods.’’ Instead, GAS commented, DOE games its analytical methods through undue complexity to declare some level of (usually minimal) positive LCC savings necessary to clear the low hurdle rate established by EPCA. GAS commented that DOE ‘‘grossly inflates’’ its LCC savings estimates by opaque methodologies that defy independent validation. (GAS, No. 385 at pp. 4–5) Trampe commented that a long-term study is needed where total costs (initial and maintenance) of furnaces with different efficiencies are compared. The commenter added that this study should cover different States and temperatures. Trampe stated that HVAC installers, repairers, distributors, and manufacturers can provide their input on what these total costs would be. (Trampe, No. 361 at p. 1) In response, DOE conducts all appliance standards rulemakings through the public notice-and-comment process, in which all members of the public are given the opportunity to comment on the rulemaking, and all documents are made publicly available at www.regulations.gov. Additionally, all benefits and burdens of the rulemaking are carefully considered by DOE. Section IV.F of this document explains DOE’s rationale regarding cost impacts and LCC models. As part of this rulemaking, DOE also hosted a number of public meetings, including one focused on its analytical models, in order to increase the transparency of its process. DOE currently works with manufacturers to determine appropriate costs, as Trampe suggested. Although predicted future and long-term costs are calculated and considered, a long-term study regarding total costs of furnaces at various efficiencies will not be conducted as part of this rulemaking because DOE has determined that its current methodology captures the elements which the commenter suggests. However, because DOE consistently strives to improve its analytical processes, the Department may consider Trampe’s comment as a topic for possible continued future research. The computer model DOE uses to calculate the LCC relies on a Monte Carlo simulation to incorporate uncertainty and variability into the analysis. The Monte Carlo simulations randomly sample input values from the probability distributions and NGWF and E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations MHGF user samples. For this rulemaking, the Monte Carlo approach is implemented in MS Excel together with the Crystal BallTM add-on.101 Details regarding the various inputs to the model are discussed in the subsections below. The model calculated the LCC and PBP for products at each efficiency level for 10,000 furnace installations per simulation run. The analytical results include a distribution of 10,000 data points showing the range of LCC savings for a given efficiency level relative to the no-new-standards case efficiency distribution. In performing an iteration of the Monte Carlo simulation for a given consumer, product efficiency is chosen based on its probability. If the chosen product efficiency is greater than or equal to the efficiency of the standard level under consideration, the LCC calculation reveals that a consumer is not impacted by the standard level. By accounting for consumers who are projected to purchase more-efficient furnaces than the baseline furnace in the no-new-standards case, DOE avoids overstating the potential benefits from increasing product efficiency. DOE calculated the LCC and PBP for consumers of NWGFs and MHGFs as if each were to purchase a new product in the first year of required compliance with new or amended standards. Any amended standards apply to NWGFs and MHGFs manufactured five years after the date on which any new or amended standard is published in the Federal Register. (42 U.S.C. 6295(f)(4)(C)) Therefore, DOE used 2029 as the first year of compliance with any amended standards for NWGFs and MHGFs. DOE recognizes the uncertainties associated with some of the parameters used in the analysis. To assess these uncertainties, DOE has performed sensitivity analyses for key parameters such as energy prices, condensing furnace market penetration, consumer discount rates, lifetime, installation costs, downsizing criteria, and product switching criteria. DOE notes that the analysis is based on a Monte Carlo simulation approach, which uses the Crystal BallTM add-on as a tool to more easily apply probability distributions to various parameters in the analysis. See appendix 8B of the final rule TSD and relevant analytical sections of this document for further details about 101 Crystal BallTM is a commercially-available software tool to facilitate the creation of these types of models by generating probability distributions and summarizing results within Excel (available at: https://www.oracle.com/middleware/technologies/ crystalball.html) (last accessed Aug. 3, 2023). VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 uncertainty, variability, and sensitivity analyses in the LCC analysis. DOE’s LCC analysis results at a given efficiency level account for the households that will not install condensing NWGFs unless the standard is changed, based on the no-newstandards case efficiency distribution described in section IV.F.8 of this document. This approach reflects the fact that some consumers may purchase products with efficiencies greater than the baseline levels. DOE’s analysis models the expected product lifetime, not the expected period of homeownership. DOE recognizes that the lifetime of a gas furnace and the residence time of the purchaser may not always overlap. However, EPCA requires DOE to consider the savings in operating costs throughout the estimated average life of the covered product compared to any increase in the price of, or in the initial charges for, or maintenance expenses of, the covered product that are likely to result from a standard. (42 U.S.C. 6295(o)(2)(B)(i)(II)) In the context of this requirement, the expected product lifetime, not the expected period of homeownership, is the appropriate modeling period for the LCC, as energy cost savings will continue to accrue to the new owner/occupant of a home after its sale. If some of the price premium for a more-efficient furnace is passed on in the price of the home, there would be a reasonable matching of costs and benefits between the original purchaser and the home buyer. To the extent this does not occur, the home buyer would gain at the expense of the original purchaser. As discussed in section IV.F.10 of this document, in its LCC analysis, DOE considered the possibility that some consumers may switch to alternative heating systems under a standard that requires condensing technology in its LCC analysis. The LCC analysis showed that some consumers who switch end up with a reduction in the LCC relative to their projected purchase in the nonew-standards case. As part of the determination of whether a potential standard is economically justified, EPCA directs DOE to consider, to the greatest extent practicable, the savings in operating costs throughout the estimated average life of the covered product in the type (or class) compared to any increase in the price of, or in the initial charges for, or maintenance expenses of, the covered products which are likely to result from imposition of the standard. (42 U.S.C. 6295(o)(2)(B)(i)(II)) EPCA does not expressly limit consideration of the covered product or covered products PO 00000 Frm 00051 Fmt 4701 Sfmt 4700 87551 likely to result under an amended standard to the covered product type (or class) (i.e., no prohibition on consideration of the potential for product switching due to new or amended standards). EPCA indicates that the timeframe of the LCC analysis is based on the estimated average life of the covered product subject to the standard under consideration for amendment. (Id.) However, the use of ‘‘covered products’’ in the plural for what is to be considered as resulting from an amended standard suggests that DOE could consider covered products other than that subject to the standard. In the present case, DOE has found it unnecessary to decide whether EPCA allows DOE to consider the benefits from this standard rule on consumers of other covered products (e.g., electric heat pumps). However, in this analysis, DOE has accounted for the expected effect that these standards will have on consumers’ decisions to switch from home heating via a gas-fired furnace to home heating via electric alternatives. As explained in detail below, were DOE not to consider the potential for consumers switching products in response to an amended standard, the analysis would not capture what could be expected to occur in actual practice. Given that understanding, DOE performed a sensitivity analysis with and without product switching for the LCC analysis (presented in section V.B.1.a of this document and in appendix 8J of the final rule TSD) and for the NIA as well (presented in sections V.B.3.a and V.B.3.b of this document and in appendix 10E of the final rule TSD). The economic justifications for the considered energy conservation standards for NWGFs and MHGFs are similar with either no product switching or with product switching, and the relative comparison between the TSLs remains similar. EPCA also establishes, as noted in section III.F.2 of this document, a rebuttable presumption that a standard is economically justified if the Secretary finds that the additional cost to the consumer of purchasing a product complying with an energy conservation standard level will be less than three times the value of the energy (and, as applicable, water) savings during the first year that the consumer will receive as a result of the standard. (42 U.S.C. 6295(o)(2)(B)(iii)) As with the LCC analysis, accounting for the potential for switching in the PBP analysis provides a payback that is representative across consumers. Table IV.7 summarizes the approach and data DOE used to derive inputs to the LCC and PBP calculations. The E:\FR\FM\18DER2.SGM 18DER2 87552 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations subsections that follow provide further discussion. Details of the spreadsheet model, and of all the inputs to the LCC and PBP analyses, are contained in chapter 8 of the final rule TSD and its appendices. TABLE IV.7—SUMMARY OF INPUTS AND METHODS FOR THE LCC AND PBP ANALYSIS * Inputs Source/method Product Cost ........................ Derived by multiplying MPCs by manufacturer, wholesaler, and contractor mark-ups and sales tax, as appropriate. Used historical data to derive a price scaling index to forecast product costs. Baseline installation cost determined with data from 2022 RS Means. Assumed variation in cost with efficiency level. Total annual energy use based on the annual heating load, derived from the building samples. Electricity consumption based on field energy use data. Variability: Based on the RECS 2020 and CBECS 2018. Natural Gas: Based on EIA’s Natural Gas Navigator data for 2022 and RECS 2020 and CBECS 2018 billing data. Propane: Based on EIA’s State Energy Data System (‘‘SEDS’’) for 2021. Electricity: Based on EIA’s Form 861 data for 2022 and RECS 2020 and CBECS 2018 billing data. Variability: State energy prices determined for residential and commercial applications. Marginal prices used for natural gas, propane, and electricity prices. Based on AEO2023 price projections. Based on 2023 RS Means data and other sources. Assumed variation in cost by efficiency. Installation Costs .................. Annual Energy Use .............. Energy Prices ....................... Energy Price Trends ............ Repair and Maintenance Costs. Product Lifetime ................... Discount Rates ..................... Compliance Date .................. Based on shipments data, multi-year RECS, American Housing Survey, American Home Comfort Survey data. Mean lifetime of 21.5 years. Residential: approach involves identifying all possible debt or asset classes that might be used to purchase the considered appliances, or might be affected indirectly. Primary data source was the Federal Reserve Board’s Survey of Consumer Finances. Commercial: Calculated as the weighted average cost of capital for businesses purchasing NWGFs. Primary data source was Damodaran Online. 2029. khammond on DSKJM1Z7X2PROD with RULES2 * Note: References for the data sources mentioned in this table are provided in the sections following the table or in chapter 8 of the final rule TSD. A number of commenters expressed opposition to the proposed rule based on the LCC and PBP results. AGA et al. stated that under DOE’s proposal in the July 2022 NOPR, approximately 40 percent of NWGFs would be eliminated from the market, and consumers would have to either upgrade existing venting systems or switch to an electric furnace, which the commenters say will have higher operating costs and require upgrades to home or business electrical systems. (AGA et al., No. 391 at p. 1) AGA et al. also stated that consumers, where it is economically appropriate for new homes or renovations, are already installing condensing furnaces and other high-efficiency units throughout the United States, and these commenters suggested that this high level of voluntary adoption demonstrates that DOE’s proposal is ‘‘redundant.’’ (AGA et al., No. 391 at p. 2) LANGD and Georgia Gas Authority commented that in its current form, the proposed standard will negatively impact nearly 1 in 6 customers of nonweatherized gas furnaces, including 1 in 5 senior-only households, 1 in 7 lowincome households, and 1 in 5 small business consumers. (LANGD, No. 355 at p. 1; Georgia Gas Authority, No. 367 at p. 2) LANGD further stated that there are other ways to achieve lower emissions, improved energy efficiency, and reduced bills than those proposed VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 in the NOPR. (LANGD, No. 355 at pp. 1–2) The Coalition commented that the added costs associated with a 95percent AFUE unit would be more than three times the value of their first-year energy savings, adding that some homeowners may never recoup the added upfront costs. The Coalition further commented that these calculations can be even more complicated in the rental housing environment where there can be a disconnect between who pays the upfront equipment cost and who pays the expenses for utilities. (The Coalition, No. 378 at pp. 5–6) Atmos Energy commented that DOE should improve the accuracy of its analysis by tailoring its consideration of consumer behavior, life-cycle evaluations, and costs. Atmos Energy further commented that the proposed rule uses unsupported and broad assumptions that are not reflective of actual consumer behavior and information. (Atmos Energy, No. 415 at p. 5) Atmos Energy also commented that the consequences of this proposed rule would hit especially hard in their service territory. The commenter stated that in Louisiana, Mississippi, and Texas alone, more than 1.5 million households live below 150 percent of the Federal poverty line. In addition, Atmos Energy stated that Texas households that fall between 100 and PO 00000 Frm 00052 Fmt 4701 Sfmt 4700 150 percent of the Federal poverty level experience an average energy burden (i.e., cost of energy as a percentage of income) of 8 percent, while Texans living below the Federal poverty level experience an average energy burden of 16 percent. In Louisiana and Mississippi, Atmos Energy stated that it serves 361,000 households that fall below the Federal poverty line, commenting that these households spend approximately $350 more on energy each year than the national average with an estimated average energy burden of 22 percent. (Atmos Energy, No. 415 at p. 4) Black Hills Energy stated that approximately 40 percent of nonweatherized natural gas furnaces shipped to customers annually are noncondensing furnaces. The commenter stated that the proposed rule would eliminate non-condensing furnaces and that neither updates to venting for a condensing furnaces nor updates to electrical systems for an electric furnaces are pro-consumer. Additionally, Black Hills Energy stated, that electric furnaces may have a higher operating cost. (Black Hills Energy, No. 397 at pp. 1–2) Black Hills Energy stated that the proposed rule is unnecessary because those for whom a condensing furnace is beneficial are choosing those furnaces, but the option for a noncondensing furnace should not be taken away from those for whom a conversion E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations is difficult due to issues of affordability. (Black Hills Energy, No. 397 at p. 2) Plastics Pipe Institute similarly commented that consumers are already installing higher-efficiency condensing furnaces throughout the country, and, therefore, the proposed rule is unnecessary. (Plastics Pipe Institute, No. 404 at p. 2) A. Kessler opposed the proposed rule, arguing that a condensing furnace is not economically justified for some households, such as a townhome with a commonly vented water heater or a two-story home with a poured concrete foundation with brick exterior walls. (A. Kessler, No. 331 at pp. 2–4) In response, DOE acknowledges that for certain installations, there are significant costs. This is accounted for in the full distribution of LCC results, including consumers that experience net costs, and is part of the evaluation of economic justification as discussed in section V.C of this document. DOE also considered the impacts to low-income consumers, as described in sections IV.I.1 and V.B.1.b of this document. Additionally, DOE acknowledges that some consumers are already purchasing higher-efficiency condensing furnaces, and this market share is accounted for in the analysis, resulting in a percentage of consumers who are not impacted by the amended standard. The development of the distribution of efficiency in the no-new-standards case is discussed in further detail in section IV.F.8 of this document. AGA stated that DOE should revise its analysis to ensure that impacts are not inappropriately affected by the inclusion of buildings that are designed for condensing equipment and for which consumers already have condensing furnaces. (AGA, No. 405, pp. 86–87) In response, DOE clarifies that consumers who are not impacted by a standard in the LCC analysis, because they are already purchasing a higherefficiency furnace, do not factor into the average LCC savings. The average LCC savings only reflect impacted consumers. The percentage of consumers not impacted by a standard is shown separately from the percentages of consumers negatively impacted and positively impacted under the new-standards case in the LCC spreadsheet. AGA stated that even with some sensitivity analysis, establishing averages in terms of furnace costs, installation costs, annual maintenance costs, energy consumption, etc., is not appropriate for this type of DOE consumer covered product. (AGA, No. 405 at p. 88) In response, DOE notes the VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 commenter is mischaracterizing the analysis. DOE uses a distribution of installation costs, equipment capacity, maintenance cost, and energy consumption as part of the LCC analysis and does not really on average values for these inputs. AGA commented that DOE’s modeling approach is fundamentally flawed, being shaped by random numbers producing inconsistent results and, in some cases, profoundly different economic analyses. (AGA, No. 405 at pp. 73–74) In response, DOE notes that it has conducted a number of sensitivity scenario analyses, all of which vary key input parameters, and the results of the analyses do not alter DOE’s conclusion of economic justification. In contrast, other commenters agreed with DOE’s analysis that the proposed standard level for NWGFs and MHGFs is economically justified, based on the LCC and PBP results. NYSERDA offered that based on their analysis of the active models of the six major furnace manufacturers identified in chapter 3 of the NOPR TSD, a wide variety of models would continue to be available across a range of input capacities if the AFUE level were to be set at 96 percent. NYSERDA added that at this AFUE level, a broad range of residential applications would continue to be served, and consumers would not suffer from a deficit of market options. (NYSERDA, No. 379 at p. 2) NYSERDA stated that 30 percent of NWGF models would not be compliant if an AFUE level were to be set at 96 percent instead of 95 percent, but the commenter opined that manufacturers would have enough time over the five years following the initial rule to redesign and preserve many of those models. (Id.) NYSERDA commented that DOE’s update to the standards for the subject consumer furnaces would result in significant consumer benefits. NYSERDA further commented that the current LLC analysis, while robust, may overstate costs and underestimate benefits. (NYSERDA, No. 379 at p. 3) More specifically, NYSERDA commented that the composite effect of low heating energy use, low burner operating hours, and short equipment lifetime could affect LCC savings significantly. (NYSERDA, No. 379 at p. 5) NYSERDA commented that there are real-world mitigating factors that are not factored into LCC analysis but are nonetheless likely to arise. As examples of some of these potential factors, the commenters pointed to limited warranties that do not completely cover an early failure, renters being responsible for equipment operation PO 00000 Frm 00053 Fmt 4701 Sfmt 4700 87553 and building owners being responsible for the upfront purchase, future natural gas costs that may differ from EIA gas forecasts, and consumers opting for an alternative heating source to avoid highcost gas furnaces. (NYSERDA, No. 379 at p. 5) Daikin commented that DOE’s proposed 95-percent AFUE standard has the shortest rebuttable payback period of the ELs considered, regardless of the standard type considered. (Daikin, No. 416 at p. 2) On this point, DOE clarifies that the 95-percent AFUE level has the shortest simple payback period, relative to the baseline model and assuming a national standard, of the condensing ELs considered. NPGA commented that no deliberate attempts appear to have been made by DOE to address consumer choice and tradeoffs as recommended in the NAS report. (NPGA, No. 395 at p. 13) DOE notes that discussion of the recommendations of the NAS report will be addressed as part of a separate notice-and-comment process, and not on an individual rulemaking-byrulemaking basis. NPGA commented that the Monte Carlo analysis as implemented in the LCC and PBP analyses do not meet the requirements of the Office of Management and Budget Circular A–4 for Regulatory Analysis. (NPGA, No. 395 at p. 14) The commenter argued that DOE does not evaluate variables in the simulation for independence and fails to use the functionality of the Crystal Ball Microsoft Excel add-in to quantify relationships among correlated variables. (NPGA, No. 395 at p. 15) NPGA commented that DOE does not implement correlation of any distributional inputs, therefore presuming that all such inputs are independent random variables. NPGA asserted that DOE’s approach is not reasonable to represent actual consumers. NPGA further stated that the TSD does not suggest that DOE conducted a systematic analysis of correlated variables, as would be implied by the Circular A–4 guidance. (NPGA, No. 395 at p. 15) NPGA listed the following input variable pairs as likely correlated distributional input variables affecting LCC savings: furnace maintenance failure year and repair cost, furnace lifetime and EL design complexity, and EL design complexity and repair cost. (NPGA, No. 395 at pp. 15–16) In response, DOE notes that multiple variables are correlated in the analysis. For example, installation costs depend on installation location and other housing characteristics. There is also a relationship between design options, E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 87554 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations lifetime, and maintenance and repair costs. As discussed in chapter 8 and appendix 8F of the final rule TSD, repair costs do vary by failure year, and this is captured in the analysis. Annualized maintenance and repair costs also differ between noncondensing and condensing furnace. For other variables, DOE does not have enough information regarding any correlation. See appendix 8B for a description of the correlated variables. Thus, NPGA’s assertion that DOE does not implement correlation of variables is incorrect. NPGA commented that the NOPR does not provide evidence to suggest the use of the techniques in Circular A–4 for developing expert judgment estimates. (NPGA, No. 395 at p. 16) NPGA commented that DOE frequently mixes the objectives of modeling input diversity and uncertainty within a single distribution. (NPGA, No. 395 at p. 16) In response, DOE notes that this mischaracterizes the analysis. DOE uses probability distributions for a number of input variables that are reasonably expected to exhibit natural variation and diversity in practice (e.g., lifetime, repair cost, installation costs). These probability distributions are modeling diversity. In contrast, DOE addresses input uncertainty primarily with the use of sensitivity scenarios. To determine whether the conclusions of the analysis are robust, DOE performed several sensitivity scenarios with more extreme versions of these input variables (including high/low economic growth and energy price scenarios, alternative price trend scenarios, alternative mean lifetime scenarios, alternative product switching scenarios, an alternative venting technology scenario, and scenarios with different Monte Carlo sampling). The relative comparison of potential standard levels in the analysis remains the same throughout these sensitivity scenarios, confirming that the conclusion of economic justification is robust despite some input uncertainty. NPGA stated that DOE does not employ Oracle guidance in implementing the Crystal Ball software in the analysis. (NPGA, No. 395 at p. 16) According to NPGA, DOE only provides rudimentary flow diagrams of its Crystal Ball LCC savings and payback spreadsheet. (NPGA, No. 395 at p. 17) NPGA stated that DOE also does not provide a record on how it arrived at model design or how alternative model designs were considered. (NPGA, No. 395 at p. 17) In response, DOE clarifies that the use of Crystal Ball is to generate the sequence of random numbers VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 necessary to build the 10,000 samples utilized in the LCC analysis. All other calculations are contained in the LCC spreadsheet, which has been extensively documented and discussed at length with interested parties through various iterations of notice-and-comment, as well as informal workshops. Every calculation dependent on a random value is outlined in the LCC spreadsheet, including all the probability distributions relevant to the calculation. The LCC spreadsheet includes flow diagrams of all worksheets and outlines the dependencies of all calculations. NPGA stated that DOE does not assess validity in terms of reasonableness or validity of ‘‘outlier’’ consumer cases. (NPGA, No. 395 at p. 18) NPGA further commented that DOE does not apply manufacturer and consumer outcome data or implement methods or proxy calculations for validating its LCC and PBP calculations. (NPGA, No. 395 at p. 18) NPGA stated that DOE failed to analyze key options for modeling and data inputs. (NPGA, No. 395 at p. 18) NPGA stated that DOE’s current process for supporting its LCC savings and payback analysis discounts the potential value of subject matter experts participating in the design, implementation, testing, and validation of its LCC savings and payback calculations. (NPGA, No. 395 at p. 18) DOE has requested, repeatedly, data and input from interested parties and has incorporated many such pieces of information and data into its analysis. When such data are provided, they are incorporated into the analysis to the maximum extent possible. DOE does not discount the value of commenters’ expert judgement, but DOE also relies on concrete data whenever possible to inform the analysis. With respect to outlier results, DOE notes that the full distribution of results, including median results, are available in the LCC spreadsheet. NPGA recommended that DOE should test extreme conditions and compare the model to any similar models. (NPGA, No. 395 at pp. 18–19) NPGA added that stakeholders have offered to provide calculations based on simpler approaches. (NPGA, No. 395 at p. 19) In response, DOE’s development of the LCC model is based on many prior comments over the years recommending the inclusion of various effects and other considerations. The increasing complexity of the model is due, in part, to DOE’s responsiveness to these prior comments from previous notices. Additionally, DOE considers the distribution of potential impacts across a range of conditions, which is why PO 00000 Frm 00054 Fmt 4701 Sfmt 4700 many input variables are characterized by probability distributions (whenever possible) and the LCC analyzes a sample of 10,000 households. AGPA asserted that DOE fails to deal with outlier data points in a reasonable manner. According to the commenter, extreme values should be eliminated from an analysis, but DOE has failed to make such an adjustment. (APGA, No. 387 at p. 17) AHRI stated that DOE should utilize median values (as opposed to mean values) for future LCC analyses, stating that this method will remove the impacts of outlier buildings. However, AHRI acknowledged that switching from mean to median leaves DOE’s conclusions for this rulemaking essentially unchanged. (AHRI, No. 414– 2 at pp. 3–4) In response, DOE provides a full range of statistics in the LCC spreadsheet, including median values and results at various percentiles. DOE also provides a distribution of impacts, including consumers with a net benefit, net cost, and not impacted by the rule. DOE further notes that the evaluation of economic justification would be the same using either average or median LCC savings. Therefore, individual LCC results at the ends of the distribution are not distorting DOE’s evaluation. The Marley Companies claimed that DOE recognizes there is uncertainty in the model, but only accounts for uncertainty in some parts of the model, thereby discrediting the variation in the information used to perform calculations. The commenter further claimed that DOE fails to use documented variation in both the RECS and CBECS data sets and uses ‘‘representative capacities’’ in product categories instead of the welldocumented range of input capacities in each product category. (The Marley Companies, No. 386 at p. 2) The Marley Companies further asserted that any life-cycle cost modeling must, at a minimum, include the variation in the CBECS and RECS data sets, consistently relate all references to the specific geographic information of the home or building modeled, and utilize both the variation and average of the energy usage identified in the national energy surveys noted in the 2015 RECS comparison with other studies. The commenter asserted that DOE must provide the impact to the results using different sources of information than RECS and CBECS, as well as provide realistic modeling by accounting for documented uncertainties and variation in the inputs to the analysis. (The Marley Companies, No. 386 at pp. 3–5) E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations APGA claimed that DOE’s analysis does not merely fail to address uncertainty in many cases in which uncertainty is known to exist; there are key cases in which DOE’s model uses a single parameter input (as opposed to a distribution of inputs) and, thus, fails to address both the known variability of that input and any uncertainty as to what the range and distribution of that input should be. (APGA. No. 387 at p. 12) In response, DOE acknowledges that the summary statistics published by RECS and CBECS include documented statistical uncertainties; however, DOE’s analysis uses the individual household microdata directly. These are survey responses from individual households. Accordingly, the standard errors published for RECS and CBECS do not directly apply. The average LCC savings, based on these microdata, include a full distribution of results, as presented in chapter 8 of the final rule TSD and the LCC spreadsheet. These results are based on a similar averaging and sampling weights as in the RECS and CBECS summary statistics. The LCC results at several different percentiles are available. DOE further notes that there will always be natural variation in RECS and CBECS editions because they are snapshots in time, and many aspects of energy consumption change with time. It is normal and expected for RECS and CBECS results to change with each edition, and DOE utilizes the most recent data set whenever possible so as to be as representative as possible. RECS and CBECS remain, by far, the most comprehensive and statistically representative surveys of energy consumption in residential and commercial buildings available for the U.S., and the commenters have failed to provide any alternative data sources that are of comparable quality. RECS and CBECS are the highest quality data sources available to DOE. DOE does correlate a number of inputs to individual building characteristics from RECS and CBECS as part of its energy use analysis, including heating load, building shell indices, installation costs, and no-new-standards case efficiency probability. DOE develops probabilities for as many inputs to the LCC analysis as possible, to reflect the distribution of impacts as comprehensively as possible. For example, DOE develops probabilities for building sampling, installation costs, lifetime, discount rate, and efficiency distribution, among other inputs. If there are insufficient data with respect to a specific input parameter to create a robust probability VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 distribution, DOE will utilize a single input parameter. Such approach is neither arbitrary nor capricious; it is informed by the available data. Finally, DOE developed a number of sensitivity scenarios for the NOPR and this final rule to specifically address the potential uncertainty in some key input parameters, as raised in prior comments. DOE has been responsive to these comments and has provided a wealth of additional sensitivity scenarios to demonstrate that its conclusions of economic justification are robust. NPGA commented that representation in variability and uncertainty is not fully considered by DOE around installation costs of propane furnaces in replacement applications that require venting changes. (NPGA, No. 395 at p. 14) Atmos Energy commented that DOE should more accurately and justifiably consider the variability and uncertainty around installation costs of natural gas furnaces, adding that this is particularly important in furnace replacement applications requiring a shift in venting systems from atmospheric to power venting. The commenter added that the consequences of required venting changes to other appliances should also be more accurately and justifiably considered. Atmos Energy also stated that this suggestion would be consistent with National Academy of Science peer review report’s recommendation. (Atmos Energy, No. 415 at p. 6) In response, DOE notes that its installation cost estimates do include a number of input parameters characterized by probability distributions, including for propane furnaces. DOE further emphasizes that a significant number of factors are considered in replacement applications, as discussed in section IV.F.2 of this document. DOE has been responsive to prior comments and has enhanced the installation cost estimates, including the installation of new venting, a number of times based on these comments. Southwest Gas Corporation commented that for the vast majority of Southwest customers who reside in a hot/dry climate, where the forced air system is used primarily for cooling, the payback period is estimated to range 20 to 23 years, beyond the useful life of the furnace of 18 years. (Southwest, No. 353 at p. 1) MHI commented that consumers in southern climates will be disproportionately impacted by the proposed standards for MHGFs. MHI argued that, in places where heating requirements are minimal, highefficiency furnaces make little economic sense, with longer payback periods. The PO 00000 Frm 00055 Fmt 4701 Sfmt 4700 87555 commenter further asserted that southern consumers would likely move away from the gas furnace market, thereby shrinking the market and creating more challenges for manufactured homeowners who often rely on gas heating. (MHI, No. 365 at p. 4) Georgia Gas Authority argued that consumers in Southern States, like Georgia, Florida, Alabama, and Texas, require much less home heating, making higher efficiency gas furnaces uneconomical. (Georgia Gas Authority, No. 367 at p. 3) NGA argued that DOE’s model understates the number of customers negatively impacted by the standard. (NGA of Georgia, No. 380 at p. 2) NGA stated that with the majority of Georgians receiving negative or neutral payback from this standard, it believes that DOE has violated factor (ii) of 42 U.S.C. 6295(o)(2)(B). (Id.) HARDI commented that the payback period determined by DOE does not hold true for Southern States, such that the standards should not be updated nationwide. However, HARDI also commented that it opposes the development of regional standards for consumer furnaces, as Northern States are already trending towards highefficiency products. (HARDI, No. 384 at p. 3) The Coalition commented that in some areas (particularly the South), it will take years if not decades for owners to recoup the added costs of 95-percent AFUE furnaces through long-term energy savings, adding that furnaces run a maximum of three months a year in many southern climates. (The Coalition, No. 378 at p. 5) ACCA stated that DOE’s analysis overlooked regional burdens, especially in the Southern U.S. (ACCA, No. 398 at p. 3) Daikin commented that DOE’s payback analysis does not specify the impacts on particular regions, specifically the South, which has a lower heating load and longer payback periods. Daikin noted that the analysis still shows a national average benefit, but that southern areas are likely better suited for heat pump applications. (Daikin, No. 416 at p. 3) AGA commented that the NOPR fails to address significant regional differences in costs and benefits that will disproportionately impact millions of Americans. Fuel switching has a disproportionate impact on projected LCC savings for consumers in the South. (AGA, No. 405 at pp. 81–82) In response, DOE notes that the analysis considers all households, including households in the Southern E:\FR\FM\18DER2.SGM 18DER2 87556 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 U.S. This analysis allows DOE to meet its statutory obligation under EPCA when determining the economic justification of a potential standard to assess the savings in operating costs throughout the estimated average life of the covered product in the type (or class) compared to any increase in the price of, or in the initial charges for, or maintenance expenses of, the covered product which are likely to result from a new or amended standard. (42 U.S.C. 6295(o)(2)(B)(i)(II)) DOE acknowledges that the impact of amended energy conservation standards for the subject furnaces on consumers, including the payback period, can vary from household to household and in different regions of the country. Some consumers may experience a net benefit and some may experience a net cost. This distribution of impacts is accounted for in the analysis and is part of the LCC results. DOE further acknowledges that some percentage of consumers will experience a net cost in the newamended-standards case when weighing costs and benefits as part of its evaluation of economic justification, as discussed in further detail in section V.C of this document. The full range of statistics, including simple payback period, is available in the LCC spreadsheet (specifically in the ‘‘Statistics’’ and ‘‘Forecast Cells’’ worksheets). The LCC results are also presented by region in chapter 8 of the final rule TSD. DOE finds without merit NGA’s argument that because some percentage of consumers at either a national or regional level would experience a net LCC cost or an extended payback period, the Department has violated its obligations under 42 U.S.C. 6295(o)(2)(B)(i)(II).102 The statute directs DOE to consider economic justification of a potential standard by determining whether its benefits exceed its burdens, by, to the greatest extent practicable, considering seven enumerated factors (see 42 U.S.C. 6295(o)(2)(B)(i)(I)–(VII)). Consumer impacts are just one of the factors DOE must weigh when 102 DOE notes that NGA’s comment specifically referenced 42 U.S.C. 6295(o)(2)(B)(ii), which pertains to the U.S. Attorney General’s obligation to determine, in writing, whether a proposed energy conservation standard would result in a lessening of competition in the relevant market. Because NGA’s comment focuses on consumer impacts, DOE has concluded that the statutory provision in the comment was cited in error, but instead, DOE presumes that NGA intended to cite 42 U.S.C. 6295(o)(2)(B)(i)(II), the provision related to consumer impacts. DOE has responded to that comment accordingly. DOE further notes that the U.S. Department of Justice did conduct the requisite anti-competitive review for this rulemaking pursuant to 42 U.S.C. 6295(o)(2)(B)(ii), as discussed in section III.F.1.e of this document. VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 considering a potential standard. Furthermore, DOE assesses impacts of potential standards at a national level, so impacts at a State or regional level will not automatically trigger a determination that a potential standard lacks economic justification in the manner NGA suggests. Under EPCA, DOE may consider adopting an additional, regional standard for consumer furnaces that is more stringent than the national standard. (42 U.S.C. 6295(o)(6)(B)(ii)) In order to establish a regional standard, DOE would have to, among other things, determine that a regional standard would save significant additional energy as compared to a single, base national standard and be economically justified. (42 U.S.C. 6295(o)(6)(D)). DOE did consider a regional standard in one of its TSLs (TSL 4), but as explained in section V.C of this document, DOE has found that a national standard for both NWGFs and MHGFs corresponding to 95-percent AFUE (i.e., TSL 8) represents the maximum improvement in energy efficiency that is technologically feasible and economically justified. (42 U.S.C. 6295(o)(2)(A)). DOE did not consider adopting a more stringent, regional standard in addition to the base national standard of 95-percent AFUE. NPGA stated that DOE’s LCC analysis and proposed minimum efficiency rule failed to include a separate breakout of category I non-weatherized residential propane furnaces from the currently grouped analysis of efficiency levels (EL) for categories I, III, and IV. (NPGA, No. 395 at p. 21) NPGA stated that the proposal would deprive consumers of the utility of simple, lower-cost furnace replacements. NPGA added that replacement may not always be easily accomplished due to housing structural design and may compromise consumer safety. (Id.) As discussed in sections II.B.2 and IV.A.1.c of this document, DOE published a final interpretive rule in the Federal Register on December 29, 2021, returning to DOE’s long-standing interpretation (from which the January 2021 Final Interpretive Rule departed). 86 FR 73947. Accordingly, for purposes of the analyses conducted for this final rule, DOE did not analyze separate equipment classes for non-condensing and condensing furnaces nor for separate categories of venting. However, the costs and requirements associated with different venting categories are included in DOE’s analysis, and any changes in venting in the new-amendedstandards case are included in the LCC impacts. PHCC commented that Tables V.5 and V.6 of the NOPR should consider PO 00000 Frm 00056 Fmt 4701 Sfmt 4700 consumers who have existing highefficiency products and replace them with new high-efficiency products. (PHCC, No. 403 at p. 6) In response, DOE clarifies that the average LCC savings and percentage of consumers with a net cost, as presented in Table V.6 of the NOPR, does include consumers who replace an existing high-efficiency product with a new high-efficiency product. Those consumers are not impacted by the standard. Table V.5 presents results for each TSL assuming that all consumers use products at that efficiency level. The approach in Table V.5 is done for the purposes of presenting typical average costs at each efficiency level for an average household, whereas Table V.6 incorporates distributional impacts and the existing market share of consumers already utilizing higher-efficiency equipment. AGA argued that the LCC model’s cost savings relies on unreasonable and unsupported assumptions about what share of the market non-condensing furnaces would hold without the proposed rule’s requirements. (AGA, No. 405 at p. 91) In response, DOE’s estimated market share of condensing and noncondensing furnaces in the LCC is based on historical shipment data provided by industry stakeholders or market research firms. DOE includes an increasing penetration of condensing furnaces in the no-new-standards case, based on recent trends. DOE disagrees with AGA’s assertion that utilizing such industry data in the LCC analysis is unreasonable or unsupported. NPGA stated that DOE’s economic analysis fails to take into account additional costs and circumstances specifically related to propane. (NPGA, No. 395 at p. 2) More specifically, NPGA argued that DOE did not directly calculate the specific costs and benefits to propane consumers from its proposed minimum efficiency standards. (NPGA, No. 395 at p. 23) NPGA commented that by aggregating consumer costs and benefits of all gas furnaces, the analysis is biased by the natural gas consumer market share. NPGA stated that the analysis does not account for the large presence of consumer propane market households in rural areas. (Id.) NPGA added that DOE did not account for the unique costs related to fuel switching from propane to electric space heating. (Id.) NPGA stated that the lack of representation of propane customers in the simulation results is a fundamental problem, noting that eleven States and the District of Columbia had no propane customers in the LCC. (Id. at p. 24) E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations In response, DOE notes that the analysis takes into account the energy price for propane and uses a representative building sample of homes using a NWGF with propane based on RECS 2020 for the residential sample and CBECS 2018 for the commercial sample. RECS and CBECS, while representative, have an upper limit on the number of households and buildings that were surveyed. The eleven States identified by the commenter and DC comprise a very small fraction of the national population, and natural survey sampling can produce the results seen in the LCC. DOE notes that the national fraction of propane customers for NWGFs and MHGFs is appropriately accounted for in the analysis, even if some low-population States are undersampled by RECS and CBECS. This does not invalidate the conclusions of the analysis. For installation costs, DOE used the latest information available in terms of piping and propane tank requirements. For this final rule, updated the energy prices using the latest EIA data and AEO2023 energy price trends. In addition, DOE used the latest RECS 2020 and CBECS 2018 samples. In terms of installation costs, DOE updated its propane-related installation costs as highlighted in chapter 8 and appendices 8D and 8J of the final rule TSD. Lennox commented that they found that DOE has taken the necessary steps to improve the analysis of amended AFUE standards for consumer furnaces under EPCA but recommended that DOE should further assess the economic justification of these standards while minimizing negative consumer impacts. (Lennox, No. 389 at p. 2) In response, DOE has continued to refine its analysis and updated using the latest data, as described in this document and in the final rule TSD. Atmos Energy commented that DOE should account for the savings among the choices of a baseline natural gas furnace against the proposed TSLs or the savings that could accrue from continuing to own a baseline product versus purchasing TSL efficiency products. Atmos Energy added that these savings are crucial for estimating the benefits of appliance replacement programs, adding that such savings analyses will better illuminate potential consumer impacts. (Atmos Energy, No. 415 at p. 6) In response, DOE notes that it does estimate the impacts of purchasing higher-efficiency furnaces against the impacts of replacing existing furnace efficiencies that would have been purchased in the absence of a new energy conservation standard. This is already captured in the LCC analysis, VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 and indeed, some percentage of consumers would accrue economic savings from continuing to own, or from buying as a replacement, a lowerefficiency furnace, as compared to a furnace at the adopted standard level. This is reflected in the percentage of consumers experiencing a net cost, as presented in section V.B of this document, and it is considered as part of DOE’s evaluation of economic justification. Atmos Energy commented that DOE should separately assess natural gas and propane when calculating LCC, adding that the LCC of the proposed rule would be more accurate if natural gas and propane products were evaluated separately. (Atmos Energy, No. 415 at p. 7) Atmos Energy further commented that propane is more costly than natural gas, stating that aggregating these two products introduces an unsupported bias against natural gas into the consumer LCC savings and payback analysis and skews the outcome of the comparative cost of fuel-switching. (Atmos Energy, No. 415 at p. 7) In response, DOE accounts for both propane and natural gas consumers of furnaces in its analysis. However, since a potential standard is established at the product class level, the LCC results are aggregated up to this level. PHCC commented that that the calculations regarding the annual benefit for DOE’s proposed standby mode and off mode standards for NWGFs and MHGFs are unclear, as estimates show a $26 annual benefit (with a two-year payback period) in some places and a $2.60 annual benefit (with a two-year payback period) in others. PHCC claimed that their calculations related to the annual benefit of the proposed standby mode and off mode standards yielded $3.29 (assuming 2.5 kw, 24 hours a day, 365 days a year, and 15 cents per kWh). (PHCC, No. 403 at p. 3) Similarly, Daikin commented that the anticipated energy savings associated with standby mode and off mode are very small, adding that the incremental annual savings between TSL 1 ($1.44/ yr.) and TSL 3 ($2.40/yr.) would equate to only $0.96. Daikin further stated that DOE’s analysis overstates the annual electricity consumption of auxiliary components by using 6680 hours for standby mode operation and 73.48 kWh of energy per year, which does not include weighting for two-stage products with fewer operating hours. (Daikin, No. 416 at p. 5) As discussed previously in section III.A.8 of this document, DOE is not finalizing its previous proposal to set new standby mode and off mode power PO 00000 Frm 00057 Fmt 4701 Sfmt 4700 87557 standards for NWGFs and MHGFs in this final rule. However, DOE will continue to monitor the standby mode and off mode power consumption of consumer furnaces and may address such standards in a future rulemaking. The Department may consider these comments at that time, as appropriate. 1. Product Cost To calculate consumer product costs, DOE multiplied the MPCs developed in the engineering analysis by the markups described previously (along with sales taxes). DOE used different markups for baseline products and higher-efficiency products because DOE applies an incremental markup to the increase in MSP associated with higher-efficiency products. For the default price trend for residential furnaces, DOE derived an experience rate based on an analysis of long-term historical data. As a proxy for manufacturer price, DOE used Producer Price Index (PPI) data for warm-air furnace equipment from the Bureau of Labor Statistics from 1990 through 2022.103 An inflation-adjusted PPI was calculated using the implicit price deflators for gross domestic product (GDP) for the same years. To calculate an experience rate, DOE performed a least-squares power-law fit on the inflation-adjusted PPI versus cumulative shipments of residential furnaces, based on a corresponding series for total shipments of residential furnaces (see section IV.G of this document for discussion of shipments data). Using the most recent data available, DOE fitted a power-law function to the deflated warm air furnace PPI and cumulative furnace shipments time series data between 1990 and 2018. The resulting power-law model has an R-square of 84 percent, indicating that the model explains 84 percent of the variability of the observations around the mean. DOE then derived a price factor index, with the price in 2022 equal to 1, to forecast prices in 2029 for the LCC and PBP analyses, and, for the NIA, for each subsequent year through 2058. The index value in each year is a function of the experience rate and the cumulative production through that year. To derive the latter, DOE combined the historical shipments data with projected shipments in the nonew-standards case determined for the NIA (see section IV.H of this document). DOE’s learning curve methodology was developed by examining the 103 U.S. Department of Labor, Bureau of Labor Statistics, Produce Price Indices Series ID PCU333415333415C (available at: www.bls.gov/ppi/) (last accessed August 1, 2023). E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 87558 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations literature on accounting for technological change and empirical studies of energy technology learning rates.104 DOE utilized the most extensive time series data available specific to residential furnaces. Furnace prices can be affected by a variety of factors, and the cost of commodity materials is one of them. The nominal commodity PPI data for copper wire and cable, iron and steel, and aluminum wire and cable indicate that the nominal indices rose substantially between the early 2000s and 2011, which is primarily attributed to an increasing demand for such commodities from rapid industrialization in China, India, and other emerging economies. During the same period, the nominal warm air furnace PPI increased by 16 percent. However, these commodity indices have trended downward from 2011–2020, and the nominal warm air furnace PPI has steadily trended upward during this period. Based on these observations, DOE contends that even though the warm air furnace PPI, to a certain extent, is influenced by commodity indices, other factors impact furnace prices. In addition, due to the long-term nature of DOE’s analysis, it would be inappropriate to make assumptions based on recent, short-term trends only. The learning curve methodology implemented in this rule is based on sound economic theory, empirical evidence, and historical data. Based on the historical PPI data, the cost of commodity materials can only partially explain the furnace price trend, particularly when considering the recent trend observed in commodity and furnace price indices. The experience curve model that DOE developed, using the most recent data available, shows strong explanatory power and high statistical significance. DOE acknowledges that the prices of non-condensing and condensing furnaces may not change at the same rate and that using a trend for all NWGFs and MHGFs to represent the price trend of condensing furnaces may underestimate the future changes in the cost of condensing furnaces. DOE also acknowledges that an increase in production and innovation due to a condensing standard could result in a decline in the cost of condensing furnaces. However, DOE could not find detailed data that would allow for a 104 Taylor, M. and K.S. Fujita, Accounting for Technological Change in Regulatory Impact Analyses: The Learning Curve Technique, Lawrence Berkeley National Laboratory, Report No. LBNL– 6195E (2013). (Available at: etapublications.lbl.gov/sites/default/files/lbnl-6195e_ .pdf) (Last accessed August 1, 2023). VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 price trend projection for condensing NWGFs and MHGFs that may differ from non-condensing NWGFs and MHGFs. Thus, for this final rule, DOE used the same price trend projection for condensing and non-condensing NWGFs and MHGFs. NYSERDA recommended that DOE also should consider furnace shipments to Canada when estimating learning rates for condensing furnaces, since the vast majority of condensing furnaces sold in Canada are the same models sold in the U.S. NYSERDA further urged DOE to consider how the recent Canadian furnace standard may impact the North American furnace market so as to result in additional price learning and less costly condensing equipment for consumers in U.S. and Canada. (NYSERDA, No. 379 at p. 9) However, NYSERDA expect that DOE’s 4.3 percent and 7.1 percent price learning rates are more conservative than what would take place in the real world once an amended standard were to take effect. (Id.) NYSERDA also commented that the Heating, Refrigeration and Air Conditioning Institute (HRAI) of Canada reported that over 845,000 residential furnaces were shipped to Canada between 2020 and the first quarter of 2022. The commenter added that nearly 400,000 condensing furnaces are now being shipped into Canada annually, stating that the value is approximately 12 percent of annual U.S. furnace shipments. NYSERDA further commented that the Canadian condensing furnace market is increasing, with approximately 8.5 million Canadian homes currently relying on furnaces for heating. Furthermore, the commenter stated that it has found that the vast majority of furnaces sold in Canada are the same models sold in the U.S., and, as such, NYSERDA concluded that a higher learning rate factor should be considered in appendix 8C of the TSD. (NYSERDA, No. 379 at pp. 9–10) In response, DOE notes that if DOE included historical furnace shipments to Canada when developing learning rates, it would also need to include projected furnace shipments to Canada during the analysis period to project future prices, resulting in approximately the same price trend as a function of time. Furthermore, DOE analyzes sensitivity scenarios using alternative price trends, including a higher learning rate and a constant price trend, in appendix 8C of the final rule TSD. Consequently, in light of these considerations, DOE has decided to retain the same evaluation of economic justification for all sensitivity PO 00000 Frm 00058 Fmt 4701 Sfmt 4700 scenarios, as was done in the July 2022 NOPR. Joint Efficiency Commenters stated that DOE may be overestimating the future cost of condensing furnaces by not applying a learning rate associated with condensing technology. These commenters further stated that price trends associated with condensing technology will likely be different than the overall furnace price trends. (Joint Efficiency Commenters, No. 381 at p. 4) In contrast, Lennox commented that price trends are indeed similar for both condensing and non-condensing consumer furnaces, as Lennox offers both technologies with premium features. Lennox commented that the trends increase the most for premium products, and the trends are similar for base and mid-level products. (Lennox, No. 389 at p. 6) As noted previously, DOE was not able to disaggregate non-condensing and condensing furnaces in developing future price trends based on the available data. DOE acknowledges the input from Lennox supporting the use of the same trend for all furnaces. Lennox further stated that costs and prices for all furnaces have increased significantly as a result of the pandemic, supply chain issues, and inflationary pressures. (Lennox, No. 389 at p. 6) Similarly, HARDI commented that supply chain and workforce issues since the beginning of the pandemic have dramatically changed the pricing of products, as would change the results of DOE’s analysis, which the commenter faulted as based on pre-pandemic data. (HARDI, No. 384 at p. 3) PHCC commented that DOE’s estimated equipment costs for gas furnaces are too low due to material cost and supply chain issues. (PHCC, No. 403 at p. 5) In response, DOE notes that its analysis adjusts costs and prices using updated price indices to reflect the changing dollar value, including the broader impact of inflation. DOE assumes that current supply chain issues will not persist out to 2029 and beyond, given that such issues are already in the process of resolving and current supply chains are not as constrained as they were during the pandemic. JCI pointed to several regulatory and market-related cost increases that impact mobile homes and mobile home HVAC products. As examples, the commenter noted the July 2014 furnace fan ECS rulemaking that eliminated PSC motors, recent inflation as a result of the COVID–19 pandemic that disproportionately impacted the MHGF industry, the January 2017 ECS rulemaking for CACs and heat pumps, and the IECC Construction Code E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations mandate for manufactured homes. (JCI, No. 411 at pp. 1–2) JCI commented that the 2021 IECC Construction Code and the CAC/HP ECS rulemaking mandate will contribute additional cost increases, which JCI asserted will have the further effect of reducing mobile home ownership. (JCI, No. 411 at p. 2) MHI also commented that, in May 2022, DOE finalized an energy rule that required manufactured homes to comply with the 2021 IECC but not the product standards within the 2021 IECC. (MHI, Public Meeting Webinar Transcript, No. 363 at pp. 25–26) MHI commented that DOE’s proposed furnace standards align with the 2021 IECC, which the commenter argued did not consider homes that are built in a factory and transported to the site. (Id.) MHI stated that enforcing the IECC would require manufacturers to have to redesign current manufactured housing floor plans. (Id.) In response, DOE notes that the purported mobile home cost increases, unrelated to the furnaces rulemaking, will not impact the LCC results. Because these costs are already present in the nonew-standards case, there is no incremental cost to include in the amended standards case. The impact of cost increases for rules on manufactured homes or other equipment are captured as part of the analyses for those separate rulemakings. DOE further notes that the July 2014 final rule for furnace fans did not eliminate PSC motors for furnace fans in MHGFs. Finally, DOE reiterates that it adjusts costs and prices using price indices to reflect the changing dollar value, including the broader impact of inflation. DOE has also evaluated the cost of installing furnaces in new manufactured housing construction as part of the LCC analysis, which in many cases is less expensive (as summarized in section IV.F.2.e of this document) due to the materials required. Given this context, DOE’s expectation is that redesign costs are likely to be minimal. Lennox commented that condensing furnace products are mature products that constitute the majority of the current market. Therefore, Lennox recommended that DOE should reassess the ‘‘learning curve’’ for these products, as the commenter opined that the Department is overstating the degree to which a ‘‘learning curve’’ could lead to significant reduction in MPCs. (Lennox, No. 389 at p. 3) NYSERDA commented that it expects that the final furnaces standard will provide market certainty to streamline the manufacturing process to only condensing equipment and added that this is expected to decrease the marginal production costs in the VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 medium- to long-run due to economies of scale and technological improvements. (NYSERDA, No. 379 at p. 11) Regarding the points involving learning curve-related prices declines raised by Lennox and NYSERDA, DOE notes that it has evaluated several price trend scenarios, including a constant price scenario, as part of its analysis (see appendix 8C of the final rule TSD for further details). The conclusions of the analysis remain the same regardless of the price trend scenario. A detailed discussion of DOE’s derivation of the experience rate is provided in appendix 8C of the final rule TSD. 2. Installation Cost The installation cost is the cost to the consumer of installing the furnace, in addition to the cost of the furnace itself. Installation cost includes all labor, overhead, and any materials costs associated with the replacement of an existing furnace or the installation of a furnace in a new home, as well as delivery of the new furnace, removal of the existing furnace, and any applicable permit fees. Higher-efficiency furnaces may require a consumer to incur additional installation costs. DOE’s analysis of installation costs estimated specific installation costs for each sample household based on building characteristics given in RECS 2020 (updated from RECS 2015 in the NOPR). For this final rule, DOE used 2023 RS Means data for the installation cost estimates, including labor costs.105 106 107 108 DOE’s analysis of installation costs accounted for regional differences in labor costs by aggregating city-level labor rates from RS Means into the 50 distinct States plus Washington, DC to match RECS 2020 and CBECS 2018 data. DOE conducted a detailed analysis of installation costs for all potential installation cases, including when a non-condensing gas furnace is replaced with a non-condensing gas furnace, and 105 RS Means Company Inc., RS Means Mechanical Cost Data. Kingston, MA (2023) (available at: www.rsmeans.com/products/books/ 2023-cost-data-books) (last accessed August 1, 2023). 106 RS Means Company Inc., RS Means Residential Repair & Remodeling Cost Data. Kingston, MA (2023) (available at: www.rsmeans.com/products/books/2023-cost-databooks) (last accessed August 1, 2023). 107 RS Means Company Inc., RS Means Plumbing Cost Data. Kingston, MA (2023) (available at: www.rsmeans.com/products/books/2023-cost-databooks) (last accessed August 1, 2023). 108 RS Means Company Inc., RS Means Electrical Cost Data. Kingston, MA (2023) (available at: www.rsmeans.com/products/books/2023-cost-databooks) (last accessed August 1, 2023). PO 00000 Frm 00059 Fmt 4701 Sfmt 4700 87559 when a non-condensing gas furnace is replaced with a condensing gas furnace. For the latter, particular attention was paid to venting issues in replacement applications, including adding a new flue venting (PVC), combustion air venting (PVC), concealing vent pipes, addressing an orphaned water heater (by updating flue vent connectors, vent resizing, or chimney relining), as well as condensate removal. DOE also included additional installation costs (‘‘adders’’) for new construction installations. These are described below. HARDI commented that increased installation costs should be considered in this analysis despite DOE’s statement that installation and retrofit requirements are not to be used in determining product utility for a class. (HARDI, No. 384 at p. 5) In response, DOE notes that a variety of installation factors are included in the analysis, as described extensively in the paragraphs that follow, which generally increase the installation cost of higher-efficiency furnaces. Even though installation costs do not form a basis for the development of product classes, DOE does include all relevant installation costs to estimate the total economic impacts on consumers. ACCA stated that data from a 2016 survey of over 700 of ACCA’s members showed that installing a condensing furnace costs $569 more than installing a non-condensing furnace, so the commenter concluded that DOE’s cost assumptions inadequately reflect the true cost to consumers. (ACCA, No. 398 at p. 2) DOE clarifies that in the final rule analysis, on average for replacement installations, the incremental installation cost is $490 for condensing NWGFs relative to non-condensing NWGFs, while the total installed costs for ranges between $654 and $914, which is consistent with ACCA’s survey results. APGA commented that DOE understates the cost difference between condensing and non-condensing furnaces because DOE is not reporting real consumer prices. (APGA, No. 387 at pp. 50–53) APGA explained that a website sponsored by a team of industry experts in the HVAC industry report that the installed cost of a condensing NWGF is three times more than a noncondensing NWGF at the current standard: an ‘‘80AFUE, Variable Speed Furnace’’ is $1,320 less than a ‘‘95AFUE 2-Stage, Variable Speed Furnace.’’ (Id.) APGA noted that DOE’s LCC model, however, provides that the difference in the average installed cost of a condensing furnace and a noncondensing furnace is only $417. (Id.) E:\FR\FM\18DER2.SGM 18DER2 87560 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 Thus, APGA stated that DOE’s view of the additional cost of an installed furnace complying with the proposed standard is inconsistent with reality. (Id.) In response, DOE emphasizes that it has conducted an extensive engineering tear-down cost analysis, as well as a manufacturer and distribution channel mark-up analysis, to estimate final consumer prices. These prices reflect an amended-standards scenario in which a given efficiency level is the new minimally compliant, baseline level. These products may not fully correspond to products in the market today sold and marketed as a ‘‘premium’’ product, and therefore the prices are not necessarily comparable. DOE further notes that the vast majority of consumer furnaces are sold through a distribution channel involving a contractor, not via a retail outlet. Therefore prices seen on a website are unlikely to be representative of typical prices ultimately paid for by consumers. NPGA commented that merging product installed costs with changes in building structural elements required for a change in venting systems goes beyond the scope of minimum efficiency standards for a covered product as outlined in EPCA. (NPGA, No.395 at p. 21) In response, DOE notes that the installation cost analysis considers all relevant costs associated with the installation of furnaces, as required by EPCA, in order to estimate representative impacts to consumers. a. Basic Installation Costs DOE’s analysis estimated basic installation costs for replacement, new owner, and new home applications. These costs, which apply to both condensing and non-condensing gas furnaces, include furnace set-up and transportation, gas piping, ductwork, electrical hook-up, permit and removal/ disposal fees, and, where applicable, additional labor hours for an attic installation. DOE’s installation costs account for cases where significant ductwork redesign is required, including when furnaces with variable-speed motors are utilizing undersized ducts. DOE notes that this cost is applicable to variablespeed motors installed in either condensing or non-condensing furnaces. Variable-speed furnace blowers will try to maintain the same air flow at high static pressure (especially if the variable-speed blower is designed with a high cut-off or no cut-off static pressure),109 which could lead to noise 109 Newer variable-speed motors are designed with lower cut-off static pressures to deal with this VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 issues in smaller ducts due to the increased speed of moving the air. However, the Federal furnace fan standard that took effect in 2019 requires constant-torque furnace fans (with X13 motors) for NWGFs, which have similar performance curves as PSC motors.110 DOE notes that asbestos presents a safety hazard that must be properly abated for all retrofit installations where it is present. As explained previously, DOE recognizes that potential ductwork modifications typically occur due to the furnace fan requirements and not necessarily due to the installation of a condensing furnace. DOE included the cost of asbestos abatement for a fraction of both non-condensing and condensing NWGF installations. See appendix 8D of the final rule TSD for more details. b. Additional Installation Costs for NonWeatherized Gas Furnaces For replacement applications, DOE included a number of adders for a fraction of the sample households. For non-condensing gas furnaces, these additional costs included updating flue vent connectors, vent resizing, and chimney relining. For condensing gas furnaces, DOE included adders for flue venting (PVC), combustion air venting (PVC), concealing vent pipes, addressing an orphaned water heater (by updating flue vent connectors, vent resizing, or chimney relining), and condensate removal. Replacement Installations: NonCondensing to Non-Condensing NonWeatherized Gas Furnace For non-condensing non-weatherized gas furnace replacements, DOE added additional costs to a small fraction of installations that involve updating flue vent connectors, vent resizing, and chimney relining. These costs are most commonly applied to older furnace installations, such as natural draft furnace installations, furnaces not installed according to the current codes, and furnace installations that do not meet manufacturers’ installation requirements. In total, these costs for vent resizing or chimney relining are applied to less than eight percent of non-condensing to non-condensing furnace replacement installations in 2029, with an average cost of $990. In addition, DOE estimated that 23 percent issue. In addition, the installer can easily decrease the airflow to address the issue by changing the airflow speed control setting (tap) on the furnace motor. 110 For further details, see the TSD for the July 2014 final rule for furnace fans. (Available at: www.regulations.gov/document/EERE-2010-BTSTD-0011-0111) (Last accessed August 1, 2023). PO 00000 Frm 00060 Fmt 4701 Sfmt 4700 of installations of non-condensing to non-condensing furnace replacement installations in 2029 would require updating flue vent connectors, with an average cost of $328. Replacement Installations: NonCondensing to Condensing NonWeatherized Gas Furnace DOE assumed that condensing furnaces that replace non-condensing furnaces do not utilize the existing venting system, but instead require new, dedicated plastic venting that meets all applicable building codes and manufacturer instructions. In determining these installation costs, DOE takes into account vent length, vent diameter, vent termination, the potential need to create openings in walls or floors for the vent system, additional vent costs for housing units with shared walls, vent resizing in the case of an orphaned water heater, and concealment work cost increases in some installations. Appendix 8D in the TSD for this final rule describes the methodology used to determine the installation costs for all of the issues described in the paragraphs that follow. NGA of Georgia stated that because furnace replacements will have to undergo structural modifications and contractors will have to devise custom installation plans and procure materials after surveying the home, installations will take a few days rather than simply changing out the unit. Furthermore, the commenter stated that the longer installations will force homeowners to endure cold conditions longer, and to risk home damage in the form of freezing pipes, and they may be forced to endure the expense of a hotel room during the installation. NGA of Georgia stated that DOE’s analysis did not adequately consider these additional costs or the environmental impact of attempting to heat homes with electric room heaters during construction. (NGA of Georgia, No. 380 at p. 2) In response, DOE notes that its analysis thoroughly accounts for any potential vent or ductwork redesign. However, for most homes, installation is unlikely to take several days, even in the case of replacing a non-condensing furnace with a condensing furnace. DOE acknowledges that some fraction of replacements are emergency replacements, as described previously, with increased labor costs due to the emergency nature of the work during possibly challenging winter conditions. Accordingly, DOE also accounts for the cost of temporary space heating during the replacement of the furnace. E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations ACCA stated that DOE’s analysis overlooked the increased costs and extent of venting modifications and electrical upgrades necessary for condensing furnaces. (ACCA, No. 398 at p. 3) In response, DOE emphasizes that its analysis includes an extensive list of factors impacting the installation cost of venting, as discussed in this section and in chapter 8 of the final rule TSD. Several of these factors were previously suggested by commenters and incorporated into the analysis. ACCA did not provide any further details on additional venting modifications that should have been considered. With respect to electrical upgrades, those are accounted for in the analysis, including the potential requirement to upgrade the electrical panel. AGA asserted that the imposition of standards that non-condensing products cannot achieve would raise significant practical, economic, and legal issues. Furthermore, AGA claimed that the economic analysis in the NOPR fails to properly account for the necessary engineering relative to venting consumer furnaces or common venting of multiple appliances, including consumer water heaters. According to the commenter, the modifications required to alter existing buildings to accommodate the use of condensing products are far more complicated, extensive, and burdensome than the NOPR assumes. (AGA, No. 405 at p. 39) In response, DOE has already included a variety of factors in its installation cost estimates, including costs related to updating flue venting, accommodating the venting of multiple appliances such as water heaters, and any necessary building modifications to accommodate new venting outlets. The commenter has not provided any additional, specific factors for DOE to consider, other than to assert that DOE’s estimates are incorrect. Furthermore, the experience of replacing non-condensing furnaces with condensing furnaces in several jurisdictions (e.g., Canada) has shown that such installations can be achieved without excessively burdensome or costly modifications. AGA argued that DOE has potentially overestimated the cost of venting for non-condensing furnaces. The commenter claimed that DOE’s method for calculating labor overestimates time spent on tasks because it includes an average unit of type for each individual part instead of acknowledging that tasks can be completed concurrently. (AGA, No. 405 at pp. 88–89) On this topic, DOE clarifies that for non-condensing furnaces, there are several potential scenarios. In a VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 replacement scenario, if the existing venting is in good condition, no additional installation costs are required, and the venting system can be used as-is. Costs for installing venting for non-condensing furnaces are only applicable if the existing venting has reached the end of its lifetime (in older homes), based on the estimated equipment age derived from RECS data and historical shipments, or in new construction. Therefore, DOE’s estimated costs for installing venting for non-condensing furnaces are not necessarily applicable in all situations. Regarding labor cost estimates, these are based on data from industry reference manuals and input from HVAC consultants and apply to both noncondensing and condensing installations. DOE estimates the time spent for typical tasks and multiplies this time by a labor rate. The overall labor time for a given installation will vary based on the specifics of the installation, as described in further detail in chapter 8 and appendix 8D of the final rule TSD. AGA recommended that DOE undertake additional evaluation of installation costs and annual maintenance costs of non-weatherized residential and manufactured home gas furnaces to ensure a complete LCC and payback period analysis. Specifically, AGA recommended a comprehensive analysis of the average installed replacement cost of an 80 kBtu/hour, 80-percent AFUE non-condensing residential non-weatherized natural gas furnace. (AGA, No. 405 at p. 87) In response, DOE notes that it already conducts such an analysis. There are a range of input capacities considered as part of the LCC analysis, including 80 kBtu/hour furnaces. AGA commented that DOE may have overestimated the length of pipe, which makes up half the cost of a new 4’’ vent. AGA stated that for buildings where the furnace was installed in the basement, the DOE calculations appear to fit a typical 2-story home where the average vent length is 26 feet. However, for buildings where the furnace is in the attic, the average length is 10 feet, so DOE’s analysis would result in venting extending up to 15 feet beyond the roof surface. (AGA, No. 405 at p. 89) In response, DOE clarifies that its installation cost methodology does not assume a fixed vent length for each home or building in the LCC. The length of the vent varies and is dependent on the characteristics of that specific building. For example, the vent length depends on the furnace location in the house, the ceiling height, and the number of floors above the furnace, PO 00000 Frm 00061 Fmt 4701 Sfmt 4700 87561 among other factors. The analysis accounts for attic installations and does not assume excessively long vent lengths beyond the roof. In contrast, the Joint Efficiency Commenters stated that DOE may be overestimating the installation costs of condensing NWGFs in certain scenarios. (Joint Efficiency Commenters, No. 381 at p. 4) In response, DOE has included a number of factors that may impact the installation costs of condensing NWGFs, partly based on prior comments. There is no indication that these costs are systematically overestimated, and the commenter has not provided any data with which to update the analysis. Joint Efficiency Commenters stated that they are not aware of any issues regarding the size or installation of condensing MHGFs in new or replacement applications. These commenters further stated that these issues have been thoroughly evaluated and adequately addressed. (Joint Efficiency Commenters, No. 381 at p. 5) Similarly, NCLC stated that installing condensing MHGFs in manufactured homes will not present unique, significant, or insurmountable challenges. (NCLC, No. 383 at p. 7) DOE agrees. Joint Efficiency Commenters stated that DOE extensively evaluated installation scenarios and costs for consumer furnaces in the NOPR analysis and expressed their belief that these thorough evaluations are comprehensive and reasonable for condensing furnace installations. (Joint Efficiency Commenters, No. 381 at pp. 5–6) DOE agrees. OPAE commented that a Clevelandbased heating and weatherization contractor for one of their member agencies who has been working in the low-income weatherization program for over 30 years, stated that he has not found a home where he could not install a condensing furnace. Additionally, OPAE stated that for most cases where venting changes may be difficult, manufacturers are developing solutions to use an existing chimney as a chaseway for the condensing furnace’s intake and exhaust pipes and other category I appliance ventilation. Furthermore, OPAE stated that these methods usually remove any impediment to installing a condensing furnace in situations that currently provide challenges. (OPAE, No. 347 at p. 1) DOE agrees that solutions exist for such situations, as described by the commentator and as evidenced in other jurisdictions (e.g., Canada). Moreover, DOE accounts for increased installation costs in these situations. E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 87562 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations NYSERDA recommended that DOE should investigate the economics of newer venting technologies. The commenter added that newer venting technologies enable reuse of existing vents or masonry chimneys, thereby allowing condensing furnaces and water heaters with atmospheric combustion to share the same vent. NYSERDA further remarked that this technology could reduce total installation costs for consumers and improve LCC savings. (NYSERDA, No. 379 at p. 6) NCLC et al. commented that DOE has not fully considered venting technologies that could bring down the assumed installation costs in settings where installing a condensing furnace may present challenges and added costs. (NCLC et al., No. 383 at p. 7) In response, DOE notes that it did investigate new venting technologies in a sensitivity scenario for the July 2022 NOPR, and does so again for the final rule (see appendix 8L of the final rule TSD). The LCC impacts are very similar to the reference case, and DOE’s evaluation of economic justification remains the same. NGA of Georgia stated that the proposed rule would eliminate the ability to common vent multiple gas appliances. The commenter also stated that this would prevent the use of gas appliances in older homes, multi-family developments, row homes, and townhomes. Furthermore, NGA of Georgia stated that because of this, water heaters may need to be changed out when the furnace is replaced, even if the water heater is still working. (NGA of Georgia, No. 380 at p. 2) APGA claimed that DOE does not account correctly for ‘‘orphaned’’ noncondensing gas water heaters. In those situations, APGA asserted that additional costs should be considered for updating flue vent connectors, vent resizing, or chimney relining. Where costs are relatively higher to address an orphaned water heater, the costs of venting should be higher there as well. APGA argued that DOE understates additional venting installation costs in multi-family buildings, townhomes, and row houses. AGA also argued that other homeowner obstacles are unaccounted for entirely, including: zoning variances required when venting is too close to a property line; building code restrictions; historic building limitations; and concerns about venting near places of congregation such as decks. (APGA, No. 387 at pp. 54–55) In response, DOE acknowledges that common vents may need to be replaced and includes those costs in its analysis where applicable, including updating flue connectors, vent resizing, or VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 chimney relining. However, DOE finds that these obstacles can be overcome, given that these buildings already have an existing furnace exhaust vent. Full details of the installation cost methodology are provided in appendix 8D of the final rule TSD. DOE additionally includes situations in which the water heater is replaced as well, instead of updating the venting to permit continued use of the existing gas appliance. These costs are all included as part of the LCC analysis. ACCA stated that DOE’s analysis overlooked potential building code restrictions for apartments, condominiums, and/or row houses/ townhomes. (ACCA, No. 398 at p. 3) DOE is not aware of any physical limitations or building code issues that would preclude the installation of a condensing NWGF in multi-family buildings, townhomes, and row houses. Condensing NWGFs have been successfully installed in multi-family buildings, townhomes and row houses in jurisdictions requiring condensing furnaces (e.g., Canada, which has very similar building codes as the U.S.) and in regions with active efficiency and weatherization programs. The analysis includes additional costs, where necessary, to capture the increased complexity of such installations. PHCC commented that installation labor costs in DOE’s NOPR are not near today’s contractor rates, and that DOE’s residential and commercial rates are low, which will impact the economic model calculations. (PHCC, No. 403 at p. 5) In response, DOE notes that its analysis uses the latest RSMeans data to estimate labor rates, which are the best data available to the Department. No other sources of contractor rate data were submitted to DOE. Similarly, Daikin commented that there are existing applications (such as placement of furnaces in cold spaces such as attics and crawl spaces) that will incur additional burden as a result of a condensing standard. (Daikin, No. 416 at p. 2) In response, DOE accounts for such applications as described subsequently in this document and in chapter 8 of the final rule TSD. Plastics Pipe Institute commented that if DOE eliminates non-condensing furnaces as a viable option, consumers will have to update their existing venting systems to accommodate a new natural gas furnace. (Plastics Pipe Institute, No. 404 at p. 2) Plastics Pipe Institute added that this conversion will lead to higher operating costs and will require electrical upgrades, inevitably increasing the cost of heating. (Id.) In response, DOE acknowledges that the installation of a condensing furnace PO 00000 Frm 00062 Fmt 4701 Sfmt 4700 may require an update to the venting system and includes these additional costs in the analysis. DOE also accounts for households that may require a new electrical connection. (a) Flue Venting DOE assumed that condensing furnaces do not utilize the existing venting system but instead require new, dedicated plastic venting that meets all applicable building codes and manufacturer instructions. Accordingly, DOE determined whether a condensing furnace is horizontally or vertically vented based on the shortest vent length. DOE’s analysis estimated that 70 percent of condensing furnaces will be installed with a horizontal vent. DOE assumed that vent length varies depending on where a suitable wall is located relative to the furnace. In addition, when applicable, DOE accounts for use of a snorkel termination to meet minimum clearances to sidewalks, average snow accumulation level, overhangs, and air intake sources, including operable doors and windows, building corners, and gas meter vents. In DOE’s analysis, snorkel termination is more frequently needed in situations where the furnace is below the snow line (such as in basements or crawl spaces). DOE assumed that the replacement furnace would remain in the same location as the existing furnace and accounted for the new vent length and other changes, such as wall knockouts, to install new venting. In some installations, it might be easier and cheaper to change the furnace location, but this would require both gas line extensions and ductwork modifications, which were not modeled in DOE’s installation cost analysis. DOE accounted for additional vent length for housing units with shared walls. DOE also accounted for the cost of vent resizing in the case of an orphaned water heater and the cost of concealment work in some installations. The vent pipe length limitations depend on a number of factors, including number of elbows, vent diameter, horizontal vs. vertical length, as well as combustion fan size. A review of several manufacturer installation manuals shows that the maximum vent lengths range from 30 to 130 ft., depending primarily on the vent diameter. For a fraction of installations, DOE increased the vent diameter in order to be able to extend the vent length according to manufacturer specifications. E:\FR\FM\18DER2.SGM 18DER2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 (b) Common Venting Issues (Including Orphaned Water Heaters) Common venting provides a single exhaust flue for multiple gas appliances. In some cases, a non-condensing NWGF is commonly vented with a gas-fired water heater. When the non-condensing NWGF is replaced with a condensing NWGF, the new condensing furnace and the existing water heater can no longer be commonly vented due to different venting requirements,111 and the water heater becomes ‘‘orphaned.’’ The existing vent may need to be modified to safely vent the orphaned water heater, while a new vent is installed for the condensing NWGF. DOE accounted for a fraction of installations that would require chimney relining or vent resizing for the orphaned water heater, including updating flue vent connectors, resizing vents, or relining chimneys when applicable based upon the age of the furnace and the home. DOE accounted for the probability that in some cases, replacing a noncondensing furnace with a condensing furnace may require significant modifications to the existing vent system for the commonly-vented gas water heater. DOE accounted for costs related to updating the vent connector, relining the chimney, and resizing the vent, which would satisfy the installation requirements of the Natural Fuel Gas Code. DOE has determined that a potential option would be to install either a storage or tankless power-vented water heater to avoid the cost of a chimney or metal flue vent modification just for the gas water heater, or to switch to an electric storage water heater. DOE recognizes that the frequency of chimney relining and vent resizing may decrease slightly due to the increase in adoption of high-efficiency gas water heaters. However, DOE did not find any additional information or data 112 to project the market share of high-efficiency water heaters in 2029 or the decrease in the fraction of 111 The ANSI Z223.1/NFPA 54 Natural Fuel Gas Code (NFGC) venting requirements refer to category I, II, III, and IV gas appliances. Category I gas appliances, such as natural draft gas water heaters, exhaust high-temperature flue gases and are vented using negative static pressure vents designed to avoid excessive condensate production in the vent. Category IV gas appliances, such as condensing furnaces, exhaust low temperature flue gases and are vented using positive static pressure corrosionresistant vents. Due to the different venting requirements, the NFGC does not allow common venting of condensing and non-condensing appliances. The 2021 Edition is available at www.nfpa.org/codes-and-standards/all-codes-andstandards/list-of-codes-and-standards/ detail?code=54 (last accessed August 1, 2023). 112 Data from the consumer water heater NOPR were used in this analysis. 88 FR 49058 (July 28, 2023). VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 installations with common vents. Therefore, DOE did not consider the power-vented gas storage or other higher-efficiency water heater options. Instead, DOE either added additional installation costs associated with venting a category I water heater, such that the orphaned water heater could be vented through the chimney, or accounted for the installation of an electric storage water heater as an alternative. For new owners and new construction installations, DOE applied a venting cost differential if the owner/ builder was planning to install a commonly-vented non-condensing furnace and water heater. DOE acknowledges that multi-family buildings may require additional measures to replace non-condensing furnaces with condensing furnaces. Such measures include the vent length, existing common vents, and horizontal venting. For this final rule, DOE assigned additional venting installation costs (on average $241) for a quarter of replacement installations 113 in multifamily buildings to account for modifying the existing vent systems to accommodate a condensing furnace installation. (c) New Venting Technologies To address certain difficult installation situations, new venting technologies are being developed to vent a condensing residential furnace and an atmospheric combustion water heater through the same vent by reusing the existing metal vent or masonry chimney with a new vent cap and appropriate liner(s).114 115 In 2015, the FasNSeal 80/90 venting system was introduced commercially by M&G DuraVent, a new venting system that uses a unique, pipe-within-a-pipe design to vent a condensing furnace and 113 This fraction accounts for buildings without common venting; buildings where all/most furnaces are replaced at the same time (many rentals/ homeowners association (HOA) situations); smaller multi-family units/smaller number of floors; and situations where disconnecting one furnace from the common vent does not impact the common venting for remaining furnaces. This fraction is also based on 2020 RECS data regarding the number of apartments/units and the number of stories per multi-family building. 114 Oak Ridge National Laboratory, Condensing Furnace Venting Part 1: The Issue, Prospective Solutions, and Facility for Experimental Evaluation (October 2014) (available at: web.ornl.gov/sci/ buildings/docs/Condensing-Furnace-Venting-Part1Report.pdf) (last accessed August 1, 2023). 115 Oak Ridge National Laboratory, Condensing Furnace Venting Part 2: Evaluation of SameChimney Vent Systems for Condensing Furnaces and Natural Draft Water Heaters (February 2015) (available at: web.ornl.gov/sci/buildings/docs/ Condensing-Furnace-Venting-Part2-Report.pdf) (last accessed August 1, 2023). PO 00000 Frm 00063 Fmt 4701 Sfmt 4700 87563 a natural draft water heater.116 FasNSeal 80/90 is UL-approved. An additional venting solution known as EntrainVent is available as a pre-commercial prototype by Oak Ridge National Laboratory.117 DOE conducted a sensitivity analysis to estimate the impact of such technologies on the installation cost of a condensing NWGF, but did not include the technologies in the primary analysis. DOE recognizes that there are currently limitations to DuraVent’s new FasNSeal 80/90 venting technology related to venting in masonry chimneys and that currently there are limited field performance data.118 Because of the uncertainty regarding applicability of FasNSeal 80/90 and other new venting technologies, DOE only considered using this option in a sensitivity analysis. DOE conducted two additional sensitivity analyses: (1) the FasNSeal 80/90 option is applied to installations that can currently meet the FasNSeal 80/90 installation requirements (metal vents only); and (2) all new venting technology options are applied to installations that could meet the respective installation requirements (metal vents and masonry chimney installations, including installations with more horizontal sections). (d) Combustion Air Venting DOE’s analysis accounts for the additional cost associated with direct vent installations that use combustion air intake. Direct vent or sealed combustion is not required for condensing installations, but it is recommended for any condensing furnace to utilize ‘‘sealed combustion.’’ All condensing furnaces come with this feature (which requires an opening for the intake combustion air pipe/vent). Condensing furnaces will often be installed as direct vent furnaces since it 116 M&G DuraVent’s FasNSeal 80/90 Combination Cat I and Cat IV gas vent system is UL listed to applicable portions of ULC S636/UL1738, UL1777, and UL441 (available at: www.duravent.com/ fasnseal-80-90/) (last accessed August 1, 2023). 117 Oak Ridge National Laboratory, Condensing Furnace Venting Part 2: Evaluation of SameChimney Vent Systems for Condensing Furnaces and Natural Draft Water Heaters (February 2015) (available at: web.ornl.gov/sci/buildings/docs/ Condensing-Furnace-Venting-Part2-Report.pdf) (last accessed August 1, 2023). 118 Oak Ridge National Laboratory, Furnace and Water Heater Venting Field Demonstration (May, 2019) (available at: www.ornl.gov/publication/ furnace-and-water-heater-venting-fielddemonstration) (last accessed August 1, 2023). E:\FR\FM\18DER2.SGM 18DER2 87564 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations offers significant energy savings 119 and safety 120 advantages.121 122 DOE’s analysis assumes that twothirds of condensing furnaces will be installed with the direct vent feature, based on a consultant report (see appendix 8D of the final rule TSD for further details). Typically, the combustion air intake pipe will go in the same direction of the flue vent or can be in a concentric vent. khammond on DSKJM1Z7X2PROD with RULES2 (e) Condensate Withdrawal DOE accounted for the cost of condensate removal for condensing NWGF installations, including, when applicable, a condensate drain, condensate pump, freeze protection (heat tape),123 drain pan, condensate neutralizer, and an additional electric outlet for the condensate pump. DOE acknowledges that condensate management can be costly for some installations (e.g., multi-family units) and very difficult in rare cases. DOE’s current installation cost approach accounts for these costs. However, DOE added a sensitivity analysis with additional condensate costs. The use of heat tape to prevent condensate pipes from freezing is standard installation practice 124 125 DOE’s analysis accounts for the use of heat tape typical in unconditioned attic installations, which are more likely to face freezing conditions. DOE 119 A non-direct vent furnace increases the air infiltration that the house experiences since for every cubic foot of air that leaves the house, another cubic foot of air comes in. Thus, a direct vent furnace avoids using heated indoor air for combustion. 120 By separating the combustion air from indoor household air, the furnace is not affected by other home appliances in a tight home. A direct vent furnace reduces the danger of any potential backdrafts (pulling exhaust gases down the chimney), as well as reducing the danger of foreign gases in the combustion air. For example, a furnace could be damaged by vapors from laundry products, as these vapors can mix with indoor combustion air to corrode furnace components. 121 DOE, Technology Fact Sheet. Combustion Equipment Safety: Provide Safe Installation for Combustion Appliances (October 2000) (DOE/GO– 102000–0784) (available at: www1.eere.energy.gov/ buildings/publications/pdfs/building_america/ 26464.pdf) (last accessed August 1, 2023). 122 DOE, Furnace and Boilers (available at: www.energy.gov/energysaver/home-heatingsystems/furnaces-and-boilers) (last accessed August 1, 2023). 123 Heat tape is also referred to as heating cable and provides electric heating. 124 ICP, Installation Instructions for Condensate Freeze Protection Kit (2012) (available at: www.icptempstarparts.com/mdocs-posts/ naha00201hh-condensate-freeze-protection-kitinstallation-instructions/) (last accessed August 1, 2023). 125 Bryant, Installation Instructions: Condensate Drain Protection (2008) (available at: www.questargas.com/ForEmployees/ qgcOperationsTraining/Furnaces/Bryant_ 355AAV.pdf) (last accessed August 1, 2023). VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 acknowledges that other unconditioned locations could also face freezing, but it is far less common.126 DOE also included heat tape to installations in additional non-conditioned spaces such as crawl spaces, non-conditioned basements, and garages that are in regions that could be exposed to freezing conditions. DOE accounted for the additional installation cost and energy use of the heat tape. Additionally, because it is recommended practice that heat tape be plugged into a ground fault circuit interrupter (GFCI) circuit, DOE included the cost of adding a GFCI circuit for the fraction of households that do not have one available. DOE also conducted a sensitivity analysis with an additional fraction of installations necessitating the use of heat tape. To address situations where condensate must be treated before disposal (e.g., due to a local regulation), DOE assumed that a fraction of installations require condensate neutralizer for condensate withdrawal. As discussed in appendix 8D of the TSD for this final rule, the fraction of installations that require condensate neutralizer used in the analysis is representative of the current use. DOE includes the cost of using non-corrosive drains for an additional fraction of installations. Additionally, DOE conducted a sensitivity analysis assuming a high fraction of installations use condensate neutralizer or are installed with a non-corrosive drain. Napoleon stated that the proposals in the July 2022 NOPR will have negative economic and safety impacts on consumers in replacement scenarios. The commenter stated that increasing the minimum efficiency will require the furnaces to be condensing, and it is not practical to use the condensate removal system for an air conditioner (typically located in unconditioned space outside the building structure) to remove condensate from a condensing furnace when it could be subject to freezing temperatures. Napoleon also stated that installing a plumbed drain will be a significant cost for the consumer and may not even be feasible, and the commenter further added that installing such plumbing could be cost-prohibitive and force property owners to attempt to perpetually repair their existing products, thereby leading to a safety hazard. Therefore, Napoleon recommended that 80-percent AFUE furnaces must remain available for the 126 Brand, L. and W. Rose, Strategy Guideline: Accurate Heating and Cooling Load Calculations. Partnership for Advanced Residential Retrofits (October 2012) (available at: www.nrel.gov/docs/ fy13osti/55493.pdf) (last accessed August 1, 2023). PO 00000 Frm 00064 Fmt 4701 Sfmt 4700 replacement market because, according to the commenter, they are the only cost-effective and safe option for consumers. (Napoleon, No. 374 at p. 1– 2) In response, DOE notes that the analysis does consider appropriate additional costs to remove condensate for condensing furnaces, as described above, in accordance with all manufacturer instructions and local requirements. The analysis accounts for situations in which additional freeze protection is required, imposing additional costs on the installation. DOE acknowledges that in some cases the costs to address condensate withdrawal may be significant, but these are already captured by the analysis and included in the distribution of impacts. (f) Difficult Installations DOE considered the potential need for additional vent length to reach a suitable location on an outside wall where the vent termination could be located, as well as the potential need for wall penetrations and/or concealing of flue vents in conditioned spaces. DOE used the best available information and data to characterize the likely nature and cost of installations of a condensing furnace as a replacement for a non-condensing furnace in its consumer sample. DOE estimates that 39 percent of replacements in residential applications could be labeled as ‘‘difficult’’ installations,127 with an average incremental installation cost of $867 relative to the baseline 80-percent AFUE NWGF (compared to an incremental cost of $247 for all other replacement installations). DOE sought any information or data regarding potential physical limitations when installing a new condensing furnace. In consumer 128 and contractor 129 surveys, relocation was not mentioned as an issue for furnace installation.130 DOE recognizes that in some cases, homeowners could elect to relocate their furnace when replacing a non-condensing NWGF with a condensing NWGF, especially if the 127 DOE considered an installation to be ‘‘difficult’’ if there is an orphaned water heater, a long PVC vent connection though multiple walls, or in households with condensate issues (e.g., ones requiring heat tape or a condensate pump). 128 Decision Analyst, Homeowner ‘‘Spotlight’’ Report: Equipment Switching, Repair Profile and Energy Efficiency (August 2011) (available at: www.decisionanalyst.com/) (last accessed August 1, 2023). 129 Decision Analyst, Contractor ‘‘Spotlight’’ Report: Energy Efficiency and Installation Profile (August 2011) (available at: www.decisionanalyst.com/) (last accessed August 1, 2023). 130 This finding is supported by an expert consultant (EER Consulting). E:\FR\FM\18DER2.SGM 18DER2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 relocation is part of a planned remodel of the home. In such cases, the cost of relocation is likely to be comparable to the costs that DOE estimated for difficult installations. GAS commented that by not drawing a regulatory distinction between condensing and non-condensing appliances, DOE ignores the welldocumented ‘‘problematic designs’’ faced by consumers forced into replacing non-condensing appliances into structures that were not designed for condensing appliances. (GAS, No. 385 at p. 3) The Coalition also commented as to the construction and configuration challenges that come with converting to a condensing furnace. The Coalition stated that insufficient exterior wall clearance for venting would be an obstacle, and that altering the venting might also necessitate replacement of the gas hot water heater. (The Coalition, No. 378 at p. 5) Also, the Coalition argued that plumbing issues would lead to considerable expense, and the cost impact of changing out flues and adding combustion air ducts would impact firerated floor assemblies. Finally, the Coalition commented that these issues of converting to a condensing furnace would potentially result in the displacement of residents, interruption of resident quality of life, disruption to property operation, and significant costs. (Id.) As DOE has discussed here and in further detail in chapter 8 and appendix 8D of the final rule TSD, the analysis accounts for some situations in which there are high costs associated with the replacement of a non-condensing furnace with a condensing furnace, including interior wall displacement, vent or equipment relocation, and condensate withdrawal management. Those impacts are included in the distribution of LCC results. Furthermore, DOE has concluded that any disruptions associated with installation of a more-efficient furnace are likely to be temporary and of limited duration. Because such disruptions are temporary, they would not have a significant effect on the results of the analyses or DOE’s conclusions. (g) Emergency Replacements DOE acknowledges that installation costs could increase for condensing furnaces in an unplanned emergency situation for the reasons that follow. Decision Analyst’s 2022 American Home Comfort Study (AHCS) 131 131 Decision Analysts, 2022 American Home Comfort Studies (available at: www.decisionanalyst.com/syndicated/ homecomfort/) (last accessed August 1, 2023). VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 reported that unplanned replacements accounted for one-third of gas furnace installations. For this final rule, DOE included labor costs for unplanned replacements to account for additional contractor labor needed to finish the installation, factoring in the difficulty of accessing the roof during periods of snow or ice accumulation. In addition, to address periods without heat during the replacement, DOE considered the costs of the temporary use of small electric resistance space heaters or secondary/back-up heaters. (h) Incremental Installation Cost for Condensing Furnaces DOE estimated that the incremental retrofit installation cost for condensing furnaces was $539. For new construction and new owners, the incremental installation cost was estimated to be, on average, ¥$708.132 Since 26 percent of shipments were estimated to be in the new construction and new owners market, based on the projected growth in new housing units and historical shipments (see chapter 9 of the final rule TSD), the resulting average incremental installation cost was $218. The incremental installation cost estimates reflect labor cost and installation material cost data from 2023 RS Means. In response to the July 2022 NOPR, the DCA commented that DOE does not need to force the installation of condensing furnaces by terminating the types of furnaces that can be easily installed without retrofitting. The DCA further commented that this proposed rulemaking would eliminate the 40 percent of non-weatherized natural gas furnaces that are non-condensing. (DCA, No. 372 at p. 2) Daikin commented that in 2019, the standard in Canada was set to condensing standard of 95-percent AFUE, so presumably, that country must have found ways to overcome these installation challenges. (Daikin, No. 416 at p. 2) Similarly, the Watertown Municipal Utilities stated that close to 75 percent of the homes and businesses in its service area currently use non-condensing furnaces, and the commenter argued that retrofitting existing homes will increase monthly expenses for the average consumer. (WMU, No. 351 at p. 1) 132 DOE calculated that, on average, condensing NWGF installation costs are lower in the new construction market compared to non-condensing NWGFs, since high-efficiency NWGFs can be vented either horizontally or vertically (whichever is most cost-effective), and, therefore, a vertical buildout with roof penetration is not required. See appendix 8D of the TSD for this final rule for more details regarding new construction installation costs. PO 00000 Frm 00065 Fmt 4701 Sfmt 4700 87565 The Coalition commented that replacing non-condensing units with condensing units might require substantial retrofitting and/or property modifications. (The Coalition, No. 378 at p. 4) The Coalition commented that the cost of retrofitting could be prohibitive or even impossible. (Id.) The Coalition added that this would result in some owners switching to lessefficient forms of heating that defeat the purpose of the proposed standards. (Id.) In response, DOE has conducted an extensive analysis of potential retrofit costs as detailed in this section, including replacement situations involving significant additional installation costs. These ‘‘difficult’’ installations are accounted for in the distribution of results (see section IV.F.2.b.f of this document). DOE has further evaluated the potential for some consumers to switch to alternative forms of space-heating as described in more detail in section IV.F.10 of this document. (i) New Construction or New Owner Installations It is common practice in new construction, when possible, to avoid vertical venting in order to limit roof penetrations and reduce potential liability issues (e.g., water leakage through new roof penetrations).133 Condensing furnaces have the flexibility of being vented either horizontally or vertically. When presented with this option in new construction, it is reasonable to conclude that most designers, architects, builders, contractors, and/or homeowners would opt for the most cost-effective installation. Current building practices are likely to evolve as the market changes in response to any amended energy conservation standards for the subject furnaces. For new owner and new construction installations, DOE applied an incremental venting cost if the owner/ builder had been planning to install a commonly-vented non-condensing furnace and water heater. c. Additional Installation Costs for Mobile Home Gas Furnaces DOE included the same basic installation costs for MHGFs as described previously for NWGFs. DOE also included costs for venting and condensate removal. Protection from 133 Lekov A., V. Franco, G. Wong-Parodi, J. McMahon, P. Chan, Economics of residential gas furnaces and water heaters in U.S. new construction market, Energy Efficiency (September 2010) Volume 3, Issue 3, pp. 203–222 (available at: link.springer.com/article/10.1007/s12053-009-9061y) (last accessed August 1, 2023). E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 87566 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations freezing (heat tape), a condensate pipe, condensate neutralizer, and an additional electrical connection are accounted for in the cost of condensate removal, where applicable. DOE notes that MHGFs are usually installed in tight spaces and often require space modifications if the replacement furnace dimensions are different from those of the existing furnace. DOE notes that most of the MHGF models at the adopted standard level of 95-percent AFUE are similar in size to the existing non-condensing MHGFs. However, some condensing furnaces in the manufacturer literature are wider and shorter than existing noncondensing furnaces. Accordingly, DOE increased the installation costs for a fraction of installations to address the impacts related to space constraints or condensate withdrawal that may be encountered when a condensing MHGF replaces an older manufactured-homespecific furnace. DOE also adjusted the installation cost for the dedicated vent system for condensing MHGFs by including an additional cost to remove the old venting system. Manufactured home designs must be approved by an accepted third-party inspection agency, as required by the U.S. Department of Housing and Urban Development, to ensure compliance with the HUD Code (24 CFR 3282.203), which requires sealed combustion system appliances. MHGFs cannot be commonly vented with other gas-fired equipment (such as a gas-fired water heater) (24 CFR 328.709). Further, manufacturers are required to have an inspection agent, and each home must be inspected by the inspection agent in at least one phase of production, and the manufacturer must self-certify each section of the home as in compliance with the HUD code (24 CFR 3282.204 and 3282.205). DOE also adjusted the condensate withdrawal installation costs to account for a fraction of installations that encounter difficulty installing the condensate drain. In regard to space constraints and installation, DOE received several comments in response to the July 2022 NOPR. HARDI commented that EPCA prevents DOE from finalizing a rule that would outlaw equipment with certain size requirements. HARDI commented that size is not limited to the equipment itself, but any encroachment on the consumer’s living space. (HARDI, No. 384 at p. 5) PHCC commented that venting poses a major challenge to installation, which will affect the installation costs. PHCC further stated that potential venting issues include excessive vent lengths, significant building modifications, drainage issues, VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 or nuisance condensing vent plumes. (PHCC, No. 403 at p. 3) CEC commented that although some owners of manufactured homes may be concerned about potential space and cost constraints related to the proposed standards for MHGFs, updating their heating system with an efficient furnaces or electric heat pumps is feasible, both technically and economically. (CEC, No. 382 at p. 2) In response, DOE notes that the LCC includes costs related to additional venting requirements, condensate removal, and any modifications to address any space constraints for replacement installations of MHGFs. There is no technical limitation preventing the installation of a condensing MHGF, and all relevant costs are included in the analysis. Alternatively, consumers could switch to an appliance which utilizes a different technology (e.g., a heat pump). For these reasons, DOE has concluded that the approach adopted in this final rule is consistent with the requirements of EPCA. MHI commented that condensing furnaces require different venting and combustion air intake designs as compared to non-condensing furnaces, as well as the addition of condensate drain systems. (MHI, No. 365 at p. 2) Also, MHI noted that condensing furnaces would require manufactured home designers to change the typical floor plans of their designs, adding costs to this process that will be passed down to the consumer. (Id.) MHI commented that the impacts of changing the typical floor plan of a manufactured home in order to accommodate a condensing furnace are not fully captured in the July 2022 NOPR, and these impacts are particularly harmful for manufactured housing consumers, especially in southern climates. (Id.) MHI commented that the proposed standards for MHGF would increase construction costs for new manufactured homes by approximately $1300. (Id.) Nortek commented that condensing furnaces cost approximately $1300 more than non-condensing furnaces, and that they require significantly different venting/ combustion air in-take/condensate drainage systems. According to the commenter, these changes would lead to additional cost and floorplan design changes for manufactured homes. (Nortek, No. 406 at p. 4) In response, DOE’s analysis includes all costs necessary to install a condensing MHGF in new construction, including venting costs and condensate removal. However, DOE’s analysis, based on the best available evidence, does not indicate PO 00000 Frm 00066 Fmt 4701 Sfmt 4700 that incremental costs for installation of a condensing MHGF are as high as $1300.134 MHI commented that owners of manufactured homes typically have more budgetary restrictions than other consumers, as their median annual household income is well below the national average. MHI argued that manufactured homeowners, who would be unlikely to see cost savings from condensing furnaces for many years, would face significant budgetary burdens. (MHI, No. 365 at p. 3) In response, DOE notes that its analysis captures the discount rate that is applicable to owners of manufactured homes, based on their household income, and which reflects their access to capital and budgetary constraints. MHI estimated that certain floorplans of manufactured housing would incur up to $7000 to comply with the requirements of the May 2022 final rule for manufactured housing. (MHI, No. 365 at p. 3) Similarly, Nortek commented that DOE’s final rule to establish energy conservation standards for manufactured housing will also impose costs on manufactured homeowners, and that DOE’s analytical models do for the furnaces rule not consider these costs.(Nortek, No. 406 at pp. 2–3) In response, DOE notes that the impacts of the May 2022 final rule for manufactured housing were considered as part of that rule and are not relevant in this rulemaking. MHI commented that the proposed standards for MHGFs will negatively impact the manufactured home resale and replacement market. The commenter argued that about one-third of manufactured homes use natural gas for heating, and that the cost to replace a non-condensing gas furnace with a condensing one could be burdensome to the consumer due to increased cost, the need to increase the cabinet size, and changes to venting. (MHI, No. 365 at pp. 3–4) MHI also noted that there are a limited number of furnace manufacturers that manufacture condensing furnaces for use in manufactured homes. (Id. at 3) MHI commented that furnace replacements that would typically cost around $3,000 now would cost $10,000 or more under DOE’s proposal, which the commenters asserted that many manufactured 134 On average, DOE’s analysis indicates that the incremental totaled installed cost of an AFUE 95 percent MHGF, compared to an AFUE 80 percent MHGF, is only $188 (averaged over replacement installations and new construction and including both equipment and installation costs). Further details can be found in chapter 8 and appendix 8D of the final rule TSD. E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations homeowners would not be able to afford. (MHI, Public Meeting Webinar Transcript, No. 363 at p. 28) MHI also stated that these impacts would be disproportionately felt by homeowners in Southern States. (Id.) MHI also asserted that this rulemaking would require redesigns of manufactured homes subject to the National Home Construction and Safety Standards Act, as any changes to a home’s design, manufacture, or installation must be reviewed and approved by HUD. (MHI, No. 365 at p. 2) Mortex commented that DOE’s incremental cost from non-condensing to condensing furnaces is much lower than MHI’s estimate, which is conservative. (Mortex, No. 410 at p. 2) Mortex estimated that the incremental cost to consumers to move from a noncondensing to a condensing MHGF is between $1700 and $2100. (Id.) Mortex further commented that the average savings estimated by DOE would be eliminated if the incremental cost was adjusted, meaning that there would be no payback for manufactured homeowners. Mortex further commented that southern consumers would be even less likely to experience life cycle cost savings. (Mortex, No. 410 at pp. 2–3) AHRI expressed its concern regarding DOE’s results for TSL 8. AHRI stated that MHI has estimated that the incremental cost of a condensing furnace is $1,300, as opposed to the $315 estimated by DOE, adding that the LCC savings from a condensing furnace disappear when any cost approaching MHI’s estimated value is used. (AHRI, No. 414–2 at p. 3) JCI commented that it disagrees with the costs and benefits assumed for MHGFs in DOE’s analysis, arguing in particular that the replacement market is not accurately reflected. (JCI, No. 411 at p. 3) In response to these comments, DOE disagrees with these cost estimates and notes that no persuasive evidence was submitted to substantiate these estimates. DOE has performed a detailed cost analysis and has determined that the potential benefits outweigh the costs, including the costs to replace a non-condensing MHGF with a condensing MHGF (including adjusting cabinet size and venting). DOE disagrees that a more-efficient MHGF will negatively impact the resale value of a manufactured home, as a more efficient MHGF will have lower operating costs, which is more attractive to potential buyers. Furthermore, DOE notes that potential investments made by manufactured housing OEMs are outside the scope of this rulemaking. VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 DOE must follow specific statutory criteria for prescribing new or amended energy conservation standards for covered products, such as the subject consumer furnaces. Pursuant to EPCA, DOE’s analysis considers the economic impact of the standard on consumers and manufacturers of the products subject to the standard (i.e., manufacturers of NWGFs and MHGFs). (42 U.S.C. 6295(o)(2)(B)(i)(I)) The LCC analysis is focused on consumers of MHGFs and the costs to purchase the covered product (see 42 U.S.C. 6295(o)(2)(B)(i)(II)), not the costs to purchase a manufactured home. With respect to manufacturers, since manufactured housing OEMs are not manufacturers of the products subject to the standard, DOE does not explicitly analyze those investments in its MIA. Furthermore, DOE did not include the manufactured housing rulemaking in its cumulative regulatory burden analysis for this rulemaking as none of the MHGF OEMs identified produce manufactured homes subject to the May 2022 final rule for manufactured housing. JCI also commented that manufactured homeowners often have electrical limitations due to remote locations and limited electrical capacity, meaning that it would be more challenging for these consumers to switch to other methods of heating such as electric furnaces and heat pumps. (JCI, No. 411 at p. 2) JCI stated this means that manufactured homeowners would be more likely to incur the higher costs for condensing furnaces. (Id.) JCI stated that this is because electric mobile home furnaces and heat pumps require electric resistance backup heating which have additional power/ kW requirements which can greatly exceed those of a gas furnace especially in colder, northern climates (i.e., approximately 15 amps for the gas furnace vs 90 amps for the electric furnace). (Id.) JCI further noted that electric furnaces require 240 V, while gas furnaces require 120 V, which is more common. (Id.) Finally, JCI stated that southern areas are better suited for heat pump loads, with backup heat required for anomaly events. JCI commented that these requirements add cost for manufactured homeowners, increasing with colder temperatures. (Id.) In response, DOE acknowledges that there may be additional electrical connection costs when replacing a noncondensing furnace with a condensing furnace and has included such costs in the analysis. In contrast, NCLC et al. stated that installing condensing furnaces in PO 00000 Frm 00067 Fmt 4701 Sfmt 4700 87567 manufactured homes will not present unique, significant, or insurmountable challenges, adding that the Low-income Energy Affordability Network has always been able to find condensing furnaces that fit into the available space when upgrading from non-condensing furnaces. (NCLC et al., No. 383 at p. 7) DOE agrees with this comment. The CA IOUs agreed with DOE that the average cost of a condensing MHGF in a new mobile home is comparable to a non-condensing MHGF because the price increase of the product is offset by lower installation costs for a condensing MHGF for most installations. (The CA IOUs, No. 400 at p. 2) Additionally, the CA IOUs noted that the National Consumer Law Center contacted two programs that retrofit mobile homes to improve efficiency (Action for Boston Community Development and Action Inc., Gloucester, Massachusetts) which indicated that the proposal would not be burdensome for MHGF replacements. (Id.) d. Contractor Survey and DOE’s Sources DOE notes that its focus for installation costs is to estimate the incremental cost between different efficiency levels. DOE used the results of a contractor survey previously submitted to DOE in order to validate its estimates of the average total installed cost for condensing furnaces in replacement applications, as well as the average incremental installation cost. DOE examined the ACCA/AHRI/PHCC survey of contractors but was unable to use the data directly in the LCC analysis because only aggregate values were reported. The ACCA/AHRI/PHCC survey results are binned in wide bins of $250, and the sample is heavily weighted towards the North (339 responses in the North and 181 in the South). As noted previously, installation costs vary widely for different contractors and areas of the country. The installation costs in the Northern region will tend to be much higher than those reported in the rest of the country (as defined in the LCC analysis). For this final rule, DOE revised its installation cost methodology to account for various factors affecting both non-condensing and condensing NWGFs, such as: the cost of ductwork upgrades; baseline electrical installation costs; additional labor required for baseline installations; the cost of relining, resizing, and/or other adjustments of metal venting for baseline installations; premium installation costs for emergency replacements; and other premium installation costs for comfort-related features (e.g., advanced thermostats, zoning, hypoallergenic filters, humidity E:\FR\FM\18DER2.SGM 18DER2 87568 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations controls). For this final rule, DOE also compared its average estimates to the AHRI/ACCA/PHCC contractor survey report and other sources such as Home Advisor,135 ImproveNet,136 Angie’s List,137 HomeWyse,138 Cost Helper,139 Fixr,140 CostOwl,141 and Gas Furnace Guide,142 and also consulted with RS Means staff. In addition, DOE was able to obtain installation costs disaggregated for households installing only a furnace versus installing both a furnace and air conditioner from the 2016 AHCS. For this final rule, the average incremental installation cost for a condensing NWGF in a retrofit installation was $539 (in 2022$), which is consistent with the AHRI/ACCA/PHCC contractor survey and data provided by SoCalGas, as well as the other sources previously listed. Therefore, DOE concludes that the industry-supplied data support its installation cost methodology. e. Summary of Installation Costs Table IV.8 shows the fraction of installations impacted and the average cost for each of the installation cost adders in replacement applications (not including new owners). The estimates of the fraction of installations impacted were based on the furnace location (primarily derived from information in RECS 2020) and a number of other sources that are described in chapter 8 of the final rule TSD. TABLE IV.8—ADDITIONAL INSTALLATION COSTS FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES IN REPLACEMENT APPLICATIONS NWGFs Replacement installations impacted (percent) Installation cost adder MHGFs Average cost (2022$) Replacement installations impacted (percent) Average cost (2022$) Non-Condensing Furnaces Updating Vent Connector ................................................................................ Updating Flue Vent * ........................................................................................ 23 8 $328 990 ........................ 100 ........................ $233 100 62 5 7 100 2 ........................ 308 324 603 806 92 241 ........................ 100 100 ........................ ........................ 100 ........................ 25 58 58 ........................ ........................ 163 ........................ 127 Condensing Furnaces New Flue Venting (PVC) ................................................................................. Combustion Air Venting (PVC) ........................................................................ Concealing Vent Pipes .................................................................................... Orphaned Water Heater .................................................................................. Condensate Removal ...................................................................................... Multi-Family Adder ........................................................................................... Mobile Home Adder ......................................................................................... * For a fraction of installations, this cost includes the commonly-vented water heater vent connector, chimney relining, and vent resizing. For mobile home gas furnaces, DOE assumed that flue venting has to be upgraded for all replacement installations. Table IV.9 shows the estimated fraction of new home installations impacted and the average cost for each of the adders. TABLE IV.9—ADDITIONAL INSTALLATION COSTS FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES IN NEW CONSTRUCTION AND NEW OWNER APPLICATIONS NWGFs New installations impacted (percent) Installation cost adder MHGFs Average cost (2022$) New installations impacted (percent) Average cost (2022$) Non-Condensing Furnaces New Flue Vent (Metal) * ................................................................................... 100 $1,835 100 $263 100 66 1 46 190 358 206 1,380 100 100 ........................ ........................ 52 52 ........................ ........................ Condensing Furnaces khammond on DSKJM1Z7X2PROD with RULES2 New Flue Venting (PVC) ................................................................................. Combustion Air Venting (PVC) ........................................................................ Concealing Vent Pipes * .................................................................................. Orphaned Water Heater .................................................................................. 135 Home Advisor, How Much Does a New Gas Furnace Cost? (available at: www.homeadvisor.com/ cost/heating-and-cooling/gas-furnace-prices/) (last accessed August 1, 2023). 136 See www.improvenet.com/ (last accessed August 1, 2023). 137 Angie’s List, How Much Does it Cost to Install a New Furnace (available at: www.angieslist.com/ articles/how-much-does-it-cost-install-newfurnace.htm) (last accessed August 1, 2023). VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 138 HomeWyse, Cost to Install a Furnace (available at: www.homewyse.com/services/cost_to_ install_furnace.html) (last accessed August 1, 2023). 139 Cost Helper, How Much Does a Furnace Cost? (available at: home.costhelper.com/furnace.html) (last accessed August 1, 2023). 140 FIXr, Gas Central Heating Installation Cost (available at: www.fixr.com/costs/gas-centralheating-installation) (last accessed August 1, 2023). PO 00000 Frm 00068 Fmt 4701 Sfmt 4700 141 CostOwl.com, How much Does a New Furnace Cost? (available at: www.costowl.com/homeimprovement/hvac-furnace-replacement-cost.html) (last accessed August 1, 2023). 142 Gas Furnace Guide, Gas Furnace Prices and Installation Cost Comparison (available at: www.gasfurnaceguide.com/compare/) (last accessed August 1, 2023). E:\FR\FM\18DER2.SGM 18DER2 87569 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations TABLE IV.9—ADDITIONAL INSTALLATION COSTS FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES IN NEW CONSTRUCTION AND NEW OWNER APPLICATIONS—Continued NWGFs New installations impacted (percent) Installation cost adder Condensate Removal ...................................................................................... MHGFs Average cost (2022$) 100 56 New installations impacted (percent) 100 Average cost (2022$) 53 * Applied to new owner installations only. khammond on DSKJM1Z7X2PROD with RULES2 3. Annual Energy Consumption For each sampled residential furnace installation, DOE determined the energy consumption for a NWGF or MHGF at different efficiency levels using the approach described previously in section IV.E of this document. Higher-efficiency furnaces reduce the operating costs for a consumer, which can lead to greater use of the furnace. A direct rebound effect occurs when a product that is made more efficient is used more intensively, such that the expected energy savings from the efficiency improvement may not fully materialize. At the same time, consumers benefit from increased utilization of products due to rebound. Overall consumer surplus (taking into account additional costs and benefits) is generally understood to increase from rebound. DOE examined a 2009 review of empirical estimates of the rebound effect for various energy-using products.143 This review concluded that the econometric and quasi-experimental studies suggest a mean value for the direct rebound effect for household heating of around 20 percent. DOE also examined a 2012 ACEEE paper 144 and a 2013 paper by Thomas and Azevedo.145 Both of these publications examined the same studies that were reviewed by Sorrell, as well as Greening et al.,146 and identified methodological 143 Steven Sorrell, et al., Empirical Estimates of the Direct Rebound Effect: A Review, 37 Energy Policy 1356–71 (2009) (available at: www.sciencedirect.com/science/article/pii/ S0301421508007131) (last accessed August 1, 2023). 144 Steven Nadel, ‘‘The Rebound Effect: Large or Small?’’ ACEEE White Paper (August 2012) (available at: www.aceee.org/files/pdf/white-paper/ rebound-large-and-small.pdf) (last accessed August 1, 2023). 145 Brinda Thomas and Ines Azevedo, Estimating Direct and Indirect Rebound Effects for U.S. Households with Input-Output Analysis, Part 1: Theoretical Framework, 86 Ecological Econ. 199– 201 (2013) (available at: www.sciencedirect.com/ science/article/pii/S0921800912004764) (last accessed August 1, 2023). 146 Lorna A. Greening, et al., Energy Efficiency and Consumption—The Rebound Effect—A Survey, 28 Energy Policy 389–401 (2002) (available at: www.sciencedirect.com/science/article/pii/ S0301421500000215) (last accessed August 1, 2023). VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 problems with some of the studies. The studies believed to be most reliable by Thomas and Azevedo show a direct rebound effect for heating products in the 1-percent to 15-percent range, while Nadel concludes that a more likely range is 1 to 12 percent, with rebound effects sometimes higher for low-income households who could not afford to adequately heat their homes prior to weatherization. Based on DOE’s review of these recent assessments, DOE used a 15-percent rebound effect for NWGFs and MHGFs. This rebound is the same as assumed in EIA’s National Energy Modeling System (NEMS) for residential space heating.147 However, for commercial applications DOE applied no rebound effect, consistent with other recent energy conservation standards rulemakings.148 149 150 The LCC analysis considers increases in product and installation costs as well as decreases in operating costs, as directed by EPCA. In this analysis, DOE did not include the rebound effect in the LCC for the reasons that follow. Some households may increase their furnace use in response to increased efficiency, and as a result, not all households will realize the LCC savings represented in section V.B of this document. At the same time, those consumers will also experience a welfare gain from the increased utilization of the equipment, which has economic value. DOE 147 See: www.eia.gov/outlooks/aeo/nems/ documentation/residential/pdf/m067(2020).pdf (last accessed August 1, 2023). 148 DOE. Energy Conservation Program for Certain Industrial Equipment: Energy Conservation Standards for Small, Large, and Very Large AirCooled Commercial Package Air Conditioning and Heating Equipment and Commercial Warm Air Furnaces; Direct final rule. 81 FR 2419 (Jan. 15, 2016) (available at: www.regulations.gov/document/ EERE–2013–BT–STD–0021–0055) (last accessed August 1, 2023). 149 DOE. Energy Conservation Program: Energy Conservation Standards for Residential Boilers; Final rule. 81 FR 2319 (Jan. 15, 2016) (available at: www.regulations.gov/document/EERE–2012–BT– STD–0047–0078) (last accessed August 1, 2023). 150 DOE. Energy Conservation Program: Energy Conservation Standards for Commercial Packaged Boilers; Final Rule. 85 FR 1592 (Jan. 10, 2020) (available at: www.regulations.gov/document/EERE2013-BT-STD-0030-0099) (last accessed August 1, 2023). PO 00000 Frm 00069 Fmt 4701 Sfmt 4700 includes rebound in the NIA for a conservative estimate of national energy savings and the corresponding impact to consumer NPV. See section IV.H of this document for further details. EPCA requires that in its evaluation of proposed energy conservation standards, DOE must consider the savings in operating costs throughout the estimated average life of the covered product in the type (or class) compared to any increase in the price of, or in the initial charges for, or maintenance expenses of, the covered products which are likely to result from the imposition of the standard. (42 U.S.C. 6295(o)(2)(B)(i)(II)) That is, DOE must consider the savings resulting from operating a covered product that the consumer would purchase under the proposed standard and the costs that the consumer would realize from operating such a product, as compared to the costs that the consumer would realize from operating a product under the current standard. This consideration is to inform the determination of whether an amended standard would be economically justified. EPCA directs DOE to consider ‘‘savings in operating costs’’ with no reference as to how DOE is to consider any potential increase in value provided to the consumer under a proposed standard. (See 42 U.S.C. 6295(o)(2)(B)(i)(II)) In evaluating potential changes in the operating costs, DOE has considered the useful output of a furnace provided to the consumer. The rebound effect reflects a benefit directly realized by the consumer in the form of increased comfort. Were DOE to adopt an approach that did not include a value for the additional comfort provided by a more-efficient furnace, the economic benefits from the proposed standard would have been underestimated. DOE’s evaluation of the economic impact of a proposed standard would include the cost of additional fuel consumption resulting from the rebound effect, but would fail to recognize the additional welfare provided directly to the consumer from a NWGF or MHGF that E:\FR\FM\18DER2.SGM 18DER2 87570 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations complies at the proposed efficiency level. In addition to the consideration required by 42 U.S.C. 6295(o)(2)(B)(i)(II), EPCA directs DOE to consider the economic impact of the standard on manufacturers and on the consumers of the products subject to such standard. (42 U.S.C. 6295(o)(2)(B)(i)(I)) The economic impact is not narrowly defined to include only costs related to energy consumption. The occurrence of a rebound effect demonstrates that consumers value the additional output (i.e., heat) as they are paying for the additional heat, and resulting increase in comfort, reflected in their energy bills. To quantify the effects of rebound, DOE estimates the economic and energy savings impact in the NIA. See chapter 10 of the final rule TSD for more details. khammond on DSKJM1Z7X2PROD with RULES2 4. Energy Prices A marginal energy price reflects the cost or benefit of adding or subtracting one additional unit of energy consumption. Because marginal electricity price more accurately captures the incremental savings associated with a change in energy use from higher efficiency, it provides a better representation of incremental change in consumer costs than average electricity prices. Therefore, DOE applied average electricity prices for the energy use of the product purchased in the no-new-standards case, and marginal electricity prices for the incremental change in energy use associated with the other efficiency levels considered. DOE derived average monthly marginal residential and commercial electricity, natural gas, and LPG prices for each State using data from EIA.151 152 153 DOE calculated marginal monthly regional energy prices by: (1) first estimating an average annual price for each region; (2) multiplying by monthly energy price factors, and (3) multiplying by seasonal marginal price factors for electricity, natural gas, and LPG. The analysis used historical data up to 2022 for residential and commercial natural gas and electricity prices and historical data up to 2021 for 151 U.S. Department of Energy-Energy Information Administration, Form EIA–861M (formerly EIA– 826) detailed data (2022) (available at: www.eia.gov/ electricity/data/eia861m/) (last accessed August 1, 2023). 152 U.S. Department of Energy-Energy Information Administration, Natural Gas Navigator (2022) (available at: www.eia.gov/naturalgas/data.php) (last accessed August 1, 2023). 153 U.S. Department of Energy-Energy Information Administration, 2021 State Energy Data System (SEDS) (2021) (available at: www.eia.gov/state/seds/) (last accessed August 1, 2023). VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 LPG prices. Further details may be found in chapter 8 of the final rule TSD. DOE compared marginal price factors developed by DOE from the EIA data to develop seasonal marginal price factors for 23 gas tariffs provided by the Gas Technology Institute for the 2016 residential boilers energy conservation standards rulemaking.154 DOE found that the winter price factors used by DOE are generally comparable to those computed from the tariff data, indicating that DOE’s marginal price estimates are reasonable at average usage levels. The summer price factors are also generally comparable. Of the 23 tariffs analyzed, eight have multiple tiers, and of these eight, six have ascending rates and two have descending rates. The tariff-based marginal factors use an average of the two tiers as the commodity price. A full tariff-based analysis would require information about the household’s total baseline gas usage (to establish which tier the consumer is in), and a weight factor for each tariff that determines how many customers are served by that utility on that tariff. These data are generally not available in the public domain. DOE’s use of EIA State-level data effectively averages overall consumer sales in each State, and so incorporates information from all utilities. DOE’s approach is, therefore, more representative of a large group of consumers with diverse baseline gas usage levels than an approach that uses only tariffs. DOE notes that within a State, there could be significant variation in the marginal price factors, including differences between rural and urban rates. In order to take this into account, DOE developed price factors for each individual household and building using the annual RECS 2020 and CBECS 2018 energy cost and energy use data. These data are then normalized to match the average State price factors, which are equivalent to a consumptionweighted average price across all households in the State. For more details on the comparative analysis and energy price analysis, see appendix 8E of the final rule TSD. To estimate energy prices in future years, DOE multiplied the 2022 energy prices by the projection of annual average price changes for each of the nine Census Divisions from the Reference case in AEO2023, which has 154 Gas Technology Institute (GTI) provided a reference located in the docket of DOE’s 2016 rulemaking to develop energy conservation standards for residential boilers. (Docket No. EERE– 2012–BT–STD–0047–0068) (available at: www.regulations.gov/document/EERE-2012-BTSTD-0047-0068) (last accessed August 1, 2023). PO 00000 Frm 00070 Fmt 4701 Sfmt 4700 an end year of 2050.155 To estimate price trends after 2050, DOE used the average annual rate of change in prices from 2045 through 2050. DOE also conducted sensitivity analyses using lower and higher energy price projections. The impact of these alternative scenarios is shown in appendix 8K of the final rule TSD. NCLC and Joint Efficiency Commenters stated that DOE may be underestimating future costs of natural gas and, therefore, the energy savings from installing a more efficient furnace. (NCLC, No. 383 at pp. 6–7; Joint Efficiency Commenters, No. 381 at p. 3) In contrast, AGA claimed that DOE continues to utilize energy price projections with an upward bias, consistently overestimates future natural gas costs, and should utilize price distributions instead of a mean. (AGA, No. 405 at pp. 90–91) In response, DOE notes that projected energy price trends from AEO are the best available to DOE at the time of the analysis, and DOE does not have any persuasive evidence to suggest these projected energy prices are underestimated. There is no other data set on energy prices of which DOE is aware that is as comprehensive or nationally representative as that from EIA. Furthermore, AEO provides a projection of future energy prices based on comprehensive macroeconomic modeling. Near-term projections of energy prices (as used in the LCC) tend to be similar to today’s prices. The analysis does not use a single mean value, but rather the energy prices vary by State according to the input data. Finally, DOE conducts sensitivity analyses using high/low economic growth scenarios from AEO, which have higher/lower energy price trends. NYSERDA agreed that actual prices deviating from forecasted prices in a given year would not significantly change the analysis, especially over a 30-year time frame, but recommended that DOE develop and publish forecast accuracy estimates for energy price projections. (NYSERDA, No. 379 at p. 10) In response, DOE acknowledges the uncertainty in energy price projections, but calculating formal uncertainty parameters based on historical editions of AEO is not necessarily informative, due to the constantly evolving models and input data sets. Prior forecast accuracy is not necessarily reflective of current models. Instead, DOE addresses energy price projection uncertainty with 155 U.S. Department of Energy-Energy Information Administration, Annual Energy Outlook 2023 (available at: www.eia.gov/outlooks/aeo/) (last accessed August 1, 2023). E:\FR\FM\18DER2.SGM 18DER2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations the use of sensitivity scenarios, in particular the high- and low-economicgrowth sensitivity scenarios. These utilize alternative economic growth cases in AEO, as well as alternative energy price projections. The conclusions of the analysis remain the same regardless of the scenario. APGA commented that, given the need to greatly expand electricity infrastructure to meet electrification and clean electricity goals, it is dubious that AEO2021 relied on in the NOPR predicts residential electricity prices declining over the next 30 years. (APGA, No. 387 at p. 60) In response, DOE notes that the analysis has been updated with AEO2023, which projects increasing electricity prices in years beyond 2030. khammond on DSKJM1Z7X2PROD with RULES2 5. Maintenance and Repair Costs Repair costs are associated with repairing or replacing product components that have failed in an appliance; maintenance costs are associated with maintaining the operation of the product. DOE estimated maintenance costs for residential furnaces at each considered efficiency level using a variety of sources, including 2023 RS Means,156 manufacturer literature, and information from expert consultants. DOE estimated the frequency of annual maintenance using data from RECS 2020 and the 2022 American Home Comfort Study.157 DOE accounted for the likelihood that condensing furnaces require more maintenance and repair than noncondensing furnaces by adding costs to check the secondary heat exchanger and condensate system (including regular replacement of the condensate neutralizer fill material). For repair costs, DOE included repair of the ignition, gas valve, controls, and inducer fan, as well as the furnace fan blower. For condensing repair costs, DOE assumed higher material repair costs for the ignition, gas valve, controls, inducer fan, and furnace fan blower, as well as replacing or repairing the condensate pump, if applicable. To determine the service lifetime of various components, DOE used a Gas Research Institute (‘‘GRI’’) study.158 For the 156 RS Means Company Inc., RS Means Facilities Maintenance & Repair Cost Data (2023) (available at: www.rsmeans.com/) (last accessed August 1, 2023). 157 Decision Analysts, 2022 American Home Comfort Study (available at: www.decisionanalyst.com/Syndicated/ HomeComfort/) (last accessed August 1, 2023). 158 Jakob, F.E., J.J. Crisafulli, J.R. Menkedick, R.D. Fischer, D.B. Philips, R.L. Osbone, J.C. Cross, G.R. Whitacre, J.G. Murray, W.J. Sheppard, D.W. DeWirth, and W.H. Thrasher, Assessment of Technology for Improving the Efficiency of VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 considered standby mode and off mode standards, DOE assumed that no additional maintenance or repair is required. In order to validate DOE’s approach, DOE did a review of maintenance and repair costs available from a variety of sources, including online resources. Overall, DOE found that the maintenance and repair cost estimates applied in its analysis fall within the typical range of published maintenance and repair charges. For more details on DOE’s methodology for calculating maintenance and repair costs, including all online resources reviewed, see appendix 8F of the TSD for this final rule. 6. Product Lifetime Product lifetime is the age at which an appliance is retired from service. DOE conducted an analysis of furnace lifetimes based on the methodology described in a recent journal paper.159 For this analysis, DOE relied on RECS 1990, 1993, 2001, 2005, 2009, 2015, and 2020.160 DOE also used the U.S. Census’s biennial American Housing Survey (‘‘AHS’’), from 1974–2021, which surveys all housing, noting the presence of a range of appliances.161 DOE used the appliance age data from these surveys, as well as the historical furnace shipments, to generate an estimate of the survival function. The survival function provides a lifetime range from minimum to maximum, as well as an average lifetime. DOE estimates the average product lifetime to be 21.5 years for NWGFs and MHGFs. This estimate is consistent with the range of values identified in a literature review, which included values from 16 years to 23.6 years. Residential Gas Furnaces and Boilers, Volume I and II—Appendices (September 1994) Gas Research Institute, Report No. GRI–94/0175 (available at: www.gti.energy/software-and-reports/) (last accessed August 1, 2023). 159 Lutz, J., A. Hopkins, V. Letschert, V. Franco, and A. Sturges, Using national survey data to estimate lifetimes of residential appliances, HVAC&R Research (2011) 17(5): p. 28. (Available at www.tandfonline.com/doi/abs/10.1080/ 10789669.2011.558166) (last accessed August 1, 2023). 160 U.S. Department of Energy: Energy Information Administration, Residential Energy Consumption Survey (‘‘RECS’’), Multiple Years (1990, 1993, 1997, 2001, 2005, 2009, 2015, and 2020). (Available at www.eia.gov/consumption/ residential/) (last accessed August 1, 2023). 161 U.S. Census Bureau: Housing and Household Economic Statistics Division, American Housing Survey, Multiple Years (1974, 1975, 1976, 1977, 1978, 1979, 1980, 1981, 1983, 1985, 1987, 1989, 1991, 1993, 1995, 1997, 1999, 2001, 2003, 2005, 2007, 2009, 2011, 2013, 2015, 2017, 2019, and 2021). (Available at www.census.gov/programssurveys/ahs/) (last accessed August 1, 2023). PO 00000 Frm 00071 Fmt 4701 Sfmt 4700 87571 To better account for differences in lifetime due to furnace utilization, DOE determined separate lifetimes for the North and rest of country (as identified in the shipments analysis) but only based on the difference in operating hours in the two regions. DOE assumed that equipment operated for fewer hours will have a longer service lifetime. DOE developed regional lifetime estimates by using regional shipments, RECS survey data, and AHS survey data and applying the methodology described above. More specifically, these data include AHRI shipments in the North and rest of country regions from 2010–2015,162 2020 RECS data,163 and 2015–2021 AHS data survey data.164 DOE also incorporated lifetime data from Decision Analysts AHCS from 2006, 2008, 2010, 2013, 2016, 2019, and 2022.165 The average lifetime used in this final rule is 22.5 years in the North and 20.2 years in the rest of country for both NWGFs and MHGFs (national average is 21.5 years). Consumer furnaces located in the North are generally higher capacity to meet the higher heating load, and, thus, can have lower operating hours. Additionally, furnace replacements in the rest of country are more likely to be linked to a paired central air conditioner. For these reasons, the consumer furnace lifetimes in the two regions differ slightly. DOE also conducted sensitivity analyses using a median lifetime of 16 years (low lifetime scenario) and 27 years (high lifetime scenario) for NWGFs and MHGFs (see appendix 8G in the TSD for this final rule). There is significant variation in the distribution of furnace lifetime, and DOE uses a Weibull distribution to account for this distribution of product failure. DOE accounts for this variation by projecting energy cost savings and health benefits through the final year of furnace lifetime for all products shipped in 2058 (i.e., through 2113). 162 Air-Conditioning, Heating, and Refrigeration Institute, Non-Condensing and Condensing Regional Gas Furnace Shipments for 2010–2015, Confidential Data Provided to Navigant Consulting (Nov. 26, 2016). 163 U.S. Department of Energy: Energy Information Administration, Residential Energy Consumption Survey (‘‘RECS’’) (2020). (Available at www.eia.gov/consumption/residential/) (last accessed August 1, 2023). 164 U.S. Census Bureau: Housing and Household Economic Statistics Division, American Housing Survey, Multiple Years (2015–2021). (Available at www.census.gov/programs-surveys/ahs/) (last accessed August 1, 2023). 165 Decision Analysts, 2006, 2008, 2010, 2013, 2016, 2019, and 2022 American Home Comfort Studies. (Available at www.decisionanalyst.com/ Syndicated/HomeComfort/) (last accessed August 1, 2023). E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 87572 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations Chapter 8 of the TSD for this final rule provides further details on the methodology and sources DOE used to develop furnace lifetimes. AGPA claimed that a more complex condensing furnace with more parts that could break down will have a shorter life. APGA asserted that appliance manufacturers have explained to DOE that condensing natural gas appliances are more complex than their baseline counterparts, so the likelihood that the condensing appliance will fail is greater than with a non-condensing appliance. (APGA, No. 387 at pp. 49–50) As described in more detail in appendix 8G of the final rule TSD, the historical lifetime data do not show any indication that condensing furnace lifetimes are significantly different from non-condensing furnaces. The historical data cover a time period during which condensing furnaces gained more significant market share. As described in section IV.F.5 of this document, DOE included additional repair and maintenance costs for condensing furnaces to account for the increased complexity of these products, which would cover minor component failures that do not necessitate replacing the furnace. APGA asserted that DOE made an absurd conclusion that the average lifetime used in this NOPR is 22.5 years in the North and 20.2 years in the rest of country for both NWGFs and MHGFs. APGA claims that where furnaces run longer and harder in the North, product lifetime should be shorter rather than longer. (APGA, No. 387 at p. 50) In response, DOE notes that although the heating load is higher in the North compared to the rest of country, furnace sizing is also typically much higher. As a result, burner operating hours are not necessarily higher in the North than the rest of country, due to the increased capacity, and, thus, the furnace is not necessarily ‘‘working harder’’ in the North as the commenter claims. Furthermore, furnaces in the rest of country are more likely to be paired with an air conditioner, and, thus, the air handler can have significantly higher operating hours than in the North. Therefore, the fact that the lifetime is slightly lower in the rest of country is a reasonable result. DOE also notes that, with a slightly shorter lifetime in the rest of country, which typically has lower furnace operating costs compared to the North, DOE’s estimates of LCC savings are, therefore, more conservative than if DOE had assumed a higher lifetime for the rest of country. AGA argued that DOE’s economic analysis is highly sensitive to equipment lifetime assumptions, but the VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 assumed consumer furnace lifetime used in that analysis is neither reasonable nor justified. More specifically, AGA asserted that the LCC spreadsheet incorrectly assumes that all consumer gas furnaces have the same lifetime regardless of energy efficiency. According to the commenter, since condensing furnaces are subject to condensing, acidic water vapor, contain more parts, and are generally more complex, it is unreasonable to assume condensing furnaces would not have a shorter lifetime than non-condensing furnaces. Indeed, AGA argued that the shorter lifespan of condensing products is well documented by actual data and studies that the NOPR fails to confront. AGA presented an analysis using DOE’s LCC model spreadsheet that seeks to demonstrate that even modest changes in assumed equipment lifetime produce significant changes in the life-cycle cost savings. (AGA, No. 405 at pp. 67–70) In response, DOE conducted an analysis of the available data on furnace lifetime, including both condensing and non-condensing furnaces. As discussed in further detail in appendix 8G of the final rule TSD, DOE found no data to support a shorter lifetime for condensing furnaces, despite their generally more complex nature. DOE further notes that it presented sensitivity scenarios with alternative lifetime estimates in the NOPR TSD and does so again for the final rule TSD (see appendix 8G). With a shorter lifetime assumption, the average LCC savings are obviously not as large as DOE’s reference case. However, LCC savings at the adopted standard level remain positive, with a similar percentage of consumers experiencing net cost, and the relative comparison between the potential standard levels remain the same. Therefore, DOE’s conclusions regarding the economic justification for the rule remain unchanged, even under these scenarios with alternative lifetimes. APGA argued that including distant benefits beyond 2058 is contrary to the statute and that DOE should limit its evaluation of savings in operating costs to the period of the estimated average life of the covered product. (APGA, No. 387 at p. 15) In response, DOE clarifies that the LCC analysis only considers the costs and operating savings throughout the estimated average life of the covered product. This is explicitly in line with the direction of the statute. (42 U.S.C. 6295(o)(2)(B)(i)(II)) The commenter appears to be conflating the LCC with national impact analysis (NIA), which additionally considers the aggregated national impact of products shipped over a 30 year period (2029–2058), in PO 00000 Frm 00072 Fmt 4701 Sfmt 4700 order to evaluate the total projected energy savings and net present value of the rule. (42 U.S.C. 6295(o)(2)(B)(i)(III)) Products shipped in that final year will accrue costs and savings beyond 2058. Both the LCC and NIA are considered as part of the evaluation of economic justification of potential standards. MHI asserted that DOE’s assumption that the lifetime of a MHGF is the same as the lifetime of a manufactured home is incorrect, as the useful life of manufactured homes is increasing and is now equivalent to site-built housing for properly maintained homes. Therefore, MHI argued that manufactured homeowners will incur substantial costs when replacing their furnace that may be prohibitively expensive. MHI further argued that this could lead consumers to continue servicing old equipment rather than making improvements, which would negate any energy savings the potential standards under consideration might bring, as well as potentially increasing the risk of air quality concerns such as carbon monoxide exposure. (MHI, No. 365 at p. 4) In response, DOE notes that its estimate of MHGF lifetime is approximately 21 years on average, which is the same as for NWGFs. It is not directly tied to the future life expectancy of a manufactured home. Additionally, DOE accounts for increased installation costs when replacing an existing MHGF in a manufactured home with a higherefficiency MHGF. This accounts for the situation described by the commenter in which the useful life of the manufactured home is longer and the MHGF is replaced. DOE also acknowledges that some consumers may choose to continue servicing an existing MHGF rather than replace it, and includes this effect in its repair vs. replace methodology. This will reduce energy savings to some degree, although eventually, the MHGF will ultimately need to be replaced. Finally, DOE assumes that any licensed professional servicing an existing MHGF will correct any leaks or potential safety issues and will not allow any unsafe operation of a MHGF to persist. 7. Discount Rates In the calculation of LCC, DOE applies discount rates appropriate to households and commercial buildings to estimate the present value of future operating cost savings. The discount rate used in the LCC analysis represents the rate from an individual consumer’s perspective. DOE estimated a distribution of discount rates for NWGFs and MHGFs based on consumer E:\FR\FM\18DER2.SGM 18DER2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 financing costs and the opportunity cost of consumer funds for residential applications and cost of capital for commercial applications. DOE applies weighted average discount rates calculated from consumer debt and asset data, rather than marginal or implicit discount rates.166 DOE notes that the LCC does not analyze the appliance purchase decision, so the implicit discount rate is not relevant in this model. The LCC analysis estimates net present value over the lifetime of the product, so the appropriate discount rate will reflect the general opportunity cost of household funds, taking this time scale into account. Given the long time horizon modeled in the LCC, the application of a marginal interest rate associated with an initial source of funds is inaccurate. Regardless of the method of purchase, consumers are expected to continue to rebalance their debt and asset holdings over the LCC analysis period, based on the restrictions consumers face in their debt payment requirements and the relative size of the interest rates available on debts and assets. DOE estimates the aggregate impact of this rebalancing using the historical distribution of debts and assets. For commercial applications, DOE’s method views the purchase of a higher-efficiency appliance as an investment that yields a stream of energy cost savings. DOE derived the discount rates for the LCC analysis by estimating the cost of capital for companies or public entities that purchase consumer boilers. For private firms, the weighted-average cost of capital (WACC) is commonly used to estimate the present value of cash flows to be derived from a typical company project or investment. Most companies use both debt and equity capital to fund investments, so their cost of capital is the weighted average of the cost to the firm of equity and debt financing, as estimated from financial data for publicly-traded firms in the sectors that purchase consumer boilers. As discount rates can differ across industries, DOE estimates separate discount rate distributions for a number of aggregate 166 The implicit discount rate is inferred from a consumer purchase decision between two otherwise identical goods with different first cost and operating cost. It is the interest rate that equates the increment of first cost to the difference in net present value of lifetime operating cost, incorporating the influence of several factors: transaction costs; risk premiums and response to uncertainty; time preferences; interest rates at which a consumer is able to borrow or lend. The implicit discount rate is not appropriate for the LCC analysis because it reflects a range of factors that influence consumer purchase decisions, rather than the opportunity cost of the funds that are used in purchases. VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 sectors with which elements of the LCC building sample can be associated. To establish residential discount rates for the LCC analysis, DOE identified all relevant household debt or asset classes in order to approximate a consumer’s opportunity cost of funds related to appliance energy cost savings. DOE estimated the average percentage shares of the various types of debt and equity by household income group using data from the Federal Reserve Board’s triennial Survey of Consumer Finances 167 (SCF) for 1995, 1998, 2001, 2004, 2007, 2010, 2013, 2016, and 2019. Using the SCF and other sources, DOE developed a distribution of rates for each type of debt and asset by income group to represent the rates that may apply in the year in which amended or new standards would take effect. DOE assigned each sample household a specific discount rate drawn from one of the distributions. DOE assigned each sample household a specific discount rate drawn from one of the distributions. DOE notes that the interest rate associated with the specific source of funds used to purchase a furnace (i.e., the marginal rate) is not the appropriate metric to measure the discount rate as defined for the LCC analysis. The marginal interest rate alone would only be the relevant discount rate if the consumer were restricted from rebalancing their debt and asset holdings (by redistributing debts and assets based on the relative interest rates available) over the entire time period modeled in the LCC analysis. The LCC is not analyzing a marginal decision; rather, it estimates net present value over the lifetime of the product, so, therefore, the discount rate needs to reflect the opportunity cost of both the money flowing in (through operating cost savings) and out (through upfront cost expenditures) of the net present value calculation. In the context of the LCC analysis, the consumer is not only discounting based on their opportunity cost of money spent today, but instead, they are additionally discounting the stream of future benefits. A consumer might pay for an appliance with cash, thereby forgoing investment of those funds into one of the interest earning assets to which they might have access. Alternatively, a consumer might pay for the initial purchase by going into debt, subject to the cost of capital at the interest rate relevant for that purchase. However, a consumer will also receive a stream of future benefits in terms of 167 The Federal Reserve Board, Survey of Consumer Finances (1995, 1998, 2001, 2004, 2007, 2010, 2013, 2016, and 2019) (available at: www.federalreserve.gov/econres/ scfindex.htm) (last accessed August 1, 2023). PO 00000 Frm 00073 Fmt 4701 Sfmt 4700 87573 annual operating cost savings that they could either put towards paying off that or other debts, or towards assets, depending on the restrictions they face in their debt payment requirements and the relative size of the interest rates on their debts and assets. All of these interest rates are relevant in the context of the LCC analysis, as they all reflect direct costs of borrowing, or opportunity costs of money either now or in the future. Additionally, while a furnace itself is not a readily tradable commodity, the money used to purchase it and the annual operating cost savings accruing to it over time flow from and to a household’s pool of debt and assets, including mortgages, mutual funds, money market accounts, etc. Therefore, the weighted-average interest rate on debts and assets provides a reasonable estimate for a household’s opportunity cost (and discount rate) relevant to future costs and savings. The best proxy for this re-optimization of debt and asset holdings over the lifetime of the LCC analysis is to assume that the distribution of debts and assets in the future will be proportional to the distribution of debts and assets historically. Given the long time horizon modeled in the LCC, the application of a marginal rate alone would be inaccurate. DOE’s methodology for deriving residential discount rates is in line with the weighted-average cost of capital used to estimate commercial discount rates. The average rate in this final rule analysis across all types of household debt and equity and across all income groups, weighted by the shares of each type, is 4.0 percent for NWGFs and 4.5 percent for MHGFs. To establish commercial discount rates for the small fraction of NWGFs installed in commercial buildings, DOE estimated the weighted-average cost of capital using data from Damodaran Online.168 The weighted-average cost of capital is commonly used to estimate the present value of cash flows to be derived from a typical company project or investment. Most companies use both debt and equity capital to fund investments, so their cost of capital is the weighted average of the cost to the firm of equity and debt financing. DOE estimated the cost of equity using the capital asset pricing model, which assumes that the cost of equity for a particular company is proportional to the systematic risk faced by that company. DOE’s commercial discount rate approach is based on the 168 Damodaran Online, Data Page: Costs of Capital by Industry Sector (2022) (available at: pages.stern.nyu.edu/∼adamodar/) (last accessed August 1, 2023). E:\FR\FM\18DER2.SGM 18DER2 87574 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 methodology described in a LBNL report, and the distribution varies by business activity.169 The average rate for NWGFs used in commercial applications in this final rule analysis, across all business activity, is 6.7 percent. See chapter 8 and appendix 8H of the final rule TSD for further details on the development of consumer and commercial discount rates. 8. Energy Efficiency Distribution in the No-New-Standards Case To accurately estimate the share of consumers that would be affected by a potential energy conservation standard at a particular efficiency level, DOE’s LCC analysis considered the projected distribution (i.e., market shares) of product efficiencies under the no-newstandards case (i.e., the case without amended or new energy conservation standards) in the compliance year (2029). This approach reflects the fact that some consumers may purchase products with efficiencies greater than the baseline levels, such that even in a no-new-standards case, consumers will be purchasing higher-efficiency furnaces. To estimate the effect of a potential standard, DOE must estimate not only the expected market share of products at varying efficiencies, but also estimate how such products will be used—that is, in what buildings. The base case reflects three analytical steps: (1) an estimate of the buildings likely to use furnaces, (2) an estimate of the efficiency of the furnaces that would be sold absent the rule; and (3) the matching of particular furnace efficiencies with particular building types. Each building in the sample was assigned a furnace efficiency sampled from the no-new-standards-case efficiency distribution for the appropriate product class, either NWGFs or MHGFs. In assigning furnace efficiencies, DOE determined that, based on the presence of well-understood market failures (discussed at the end of this section), a random assignment of efficiencies, with some modifications discussed below, best accounts for consumer behavior in the consumer furnaces market. Random assignment of efficiencies reflects the full range of consumer behaviors in this market, including consumers who make economically beneficial decisions and 169 Fujita, K. Sydny. Commercial, Industrial, and Institutional Discount Rate Estimation for Efficiency Standards Analysis: Sector-Level Data 1998–2022. 2023. (Available at: eta-publications.lbl.gov/ publications/commercial-industrial-and-2) (last accessed August 1, 2023). VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 consumers that, due to market failures, do not make such economically beneficial decisions. The LCC Monte Carlo simulations draw from the efficiency distributions and randomly assign an efficiency to the consumer furnaces purchased by each sample household and commercial building in the no-new-standards case. The resulting percentage shares within the sample match the market shares in the efficiency distributions. But, as mentioned previously, DOE considered available data in determining whether any modifications should be made to the random assignment methodology, as discussed in the following sections. a. Condensing Furnace Market Share in Compliance Year To estimate the efficiency distribution of NWGFs and MHGFs in 2029, DOE considered the market trends regarding increased sales of high-efficiency furnaces (including any available incentives). DOE relied on data provided by AHRI on historical shipments for each product class. DOE reviewed AHRI data from 1992 and 1994–2003 (which includes both NWGF and MHGF shipments data), detailing the market shares of non-condensing 170 and condensing (90-percent AFUE and greater) furnaces by State.171 AHRI also provided data for non-condensing and condensing furnace shipments by region for 2004–2009 172 and nationally for 2010–2014.173 AHRI additionally submitted proprietary data including shipments of condensing and noncondensing furnaces in the North and rest of country regions from 2010 to 2015.174 DOE also obtained 2013–2022 HARDI shipments data by efficiency for 170 The market share of furnaces with AFUE between 80 and 90 percent is well below 1 percent due to the very high installed cost of 81-percent AFUE furnaces, compared with condensing designs, and concerns about safety of operation. AHRI also provided national shipments data (not disaggregated by region) by efficiency for 1975, 1978, 1980, 1983–1991, and 1993. 171 Air-Conditioning, Heating, and Refrigeration Institute (formerly Gas Appliance Manufacturers Association), Updated Shipments Data for Residential Furnaces and Boilers (April 25, 2005) (available at www.regulations.gov/document/EERE2006-STD-0102-0138) (last accessed August 1, 2023). 172 Air-Conditioning, Heating, and Refrigeration Institute, Non-Condensing and Condensing Regional Gas Furnace Shipments for 2004–2009 Data Provided to DOE (July 20, 2010). 173 Air-Conditioning, Heating, and Refrigeration Institute, Non-Condensing and Condensing Gas Furnace Shipments for 2010–2014. (Available at www.regulations.gov/document/EERE-2014-BTSTD-0031-0052) (last accessed August 1, 2023). 174 Air-Conditioning, Heating, and Refrigeration Institute, Non-Condensing and Condensing Regional Gas Furnace Shipments for 2010–2015, Confidential Data Provided to Navigant Consulting (Nov. 26, 2016). PO 00000 Frm 00074 Fmt 4701 Sfmt 4700 most States.175 AHRI and HARDI data capture different fractions of the market. Using the shipments data from AHRI and HARDI, DOE derived historical trends for each State. DOE used the HARDI State-level data (2013–2022) to project the trends and to estimate the condensing furnace market share in 2029. This excludes years with a Federal tax incentive 176 177 in order to better reflect the trends of the current market. The maximum share of condensing furnace shipments for each region was assumed to be 95 percent, in order to reflect a small fraction of the market that would continue to install non-condensing furnaces. See chapter 8 and appendix 8I of the TSD for this final rule for further information on the derivation of the efficiency distribution projections. APGA argued that DOE used insufficient shipments data to estimate the share of condensing furnaces in the country, relying only on data from 2010–2014, and as a result, there is considerable reason to doubt the results of the analysis. (APGA, No. 387 at p. 13) In response, DOE notes that the commenter misunderstands the analysis. As detailed above, DOE utilizes significantly more historical shipment data than only 2010–2014, data which are disaggregated by efficiency in order to estimate the current and projected market share of condensing furnaces in the no-newstandards case. In particular, DOE includes shipment data by efficiency up to 2022 in its analysis. b. Market Shares of Different Condensing Furnace Efficiency Levels DOE used data on the shipments by efficiency from the 2013–2022 HARDI shipments to disaggregate the condensing furnace shipments among 175 Heating, Air-conditioning and Refrigeration Distributors International (HARDI), DRIVE portal (HARDI Visualization Tool managed by D+R International until 2022), proprietary Gas Furnace Shipments Data from 2013–2022 provided to Lawrence Berkeley National Laboratory (LBNL). 176 DOE did not use the data for 2008–2011 because these data appear to be influenced by incentives. AHRI also stated the period from 2008 through 2011 was an outlier. (AHRI, No. 303 at pp. 23–25). 177 The Energy Policy Act of 2005 established the tax credit for energy improvements to existing homes. The credit was originally limited to purchases made in 2006 and 2007, with an aggregate cap of $500 for all qualifying purchases made in these two years combined. For improvements made in 2009 and 2010, the cap was increased to $1,500. This coincides with a sharp increase in condensing furnace shipments. This credit has since been renewed several times, but the credit was reduced to its original form and original cap of $500 starting in 2011. More information is available at www.energy.gov/savings/dsire-page (last accessed August 1, 2023). E:\FR\FM\18DER2.SGM 18DER2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations the different condensing efficiency levels. Based on stakeholder input, DOE assumed that the fraction of furnace shipments of 95-percent or higher AFUE would be double in the new construction market. DOE also assumed that the fraction of furnace shipments of 95-percent or higher AFUE would be higher in the North compared to the South, because the threshold for ENERGY STAR designation in the North is 95-percent AFUE compared to 90- percent AFUE in the South. The resulting distributions were then used to assign the new furnace AFUE for each sampled household or building in the no-new-standards case, both in the replacement and new construction markets, and in each of the 50 States and Washington, DC. The estimated market shares by region (North and rest of country) and market segment (replacement and new construction) for the no-new-standards 87575 case for NWGFs and MHGFs in 2029 are shown in Tables IV.11 and IV.12 of this document, respectively. DOE estimated that the national market share of condensing products would be 61 percent in 2029 for NWGFs, and 34 percent for MHGFs. See chapter 8 and appendix 8I of the final rule TSD for further information on the derivation of the efficiency distributions. TABLE IV—10 AFUE EFFICIENCY DISTRIBUTION IN THE NO-NEW-STANDARDS CASE FOR NON-WEATHERIZED GAS FURNACES 2029 Market share (percent) Efficiency, AFUE (percent) North, repl North, new South, repl South, new Residential Market 80 90 92 95 98 ..................................................................................................................... ..................................................................................................................... ..................................................................................................................... ..................................................................................................................... ..................................................................................................................... 25.0 0.4 17.9 55.3 1.4 15.9 0.2 19.9 62.4 1.5 67.8 0.1 10.6 20.2 1.3 33.9 0.1 23.5 39.4 3.2 22.3 1.7 17.8 58.3 0.0 11.8 0.0 17.6 70.6 0.0 67.5 0.0 11.9 20.6 0.0 34.0 0.0 17.0 44.7 4.3 24.8 0.5 17.8 55.5 1.4 15.6 0.2 19.7 63.1 1.4 67.8 0.1 10.7 20.2 1.2 33.9 0.1 23.2 39.6 3.2 Commercial Market 80 90 92 95 98 ..................................................................................................................... ..................................................................................................................... ..................................................................................................................... ..................................................................................................................... ..................................................................................................................... All 80 90 92 95 98 ..................................................................................................................... ..................................................................................................................... ..................................................................................................................... ..................................................................................................................... ..................................................................................................................... Note: ‘‘Repl’’ means ‘‘replacement,’’ and ‘‘New’’ means ‘‘new construction.’’ TABLE IV—11 AFUE EFFICIENCY DISTRIBUTION IN THE NO-NEW-STANDARDS CASE FOR MOBILE HOME GAS FURNACES 2029 Market share (percent) Efficiency, AFUE (percent) North, repl 80 90 92 95 96 ..................................................................................................................... ..................................................................................................................... ..................................................................................................................... ..................................................................................................................... ..................................................................................................................... North, new 58.2 0.0 9.4 31.3 1.1 57.2 0.0 9.1 32.2 1.5 South, repl 83.7 0.0 5.5 8.7 2.0 South, new 85.2 0.0 4.8 8.7 1.3 khammond on DSKJM1Z7X2PROD with RULES2 Note: ‘‘Repl’’ means ‘‘replacement,’’ and ‘‘New’’ means ‘‘new construction.’’ MHI argued that manufactured homes already offer high-efficiency options, and that over 30 percent of manufactured homes meet or exceed EnergyStar Standards (MHI, No. 365 at p. 2) The DCA commented that consumers are already installing higher-efficiency furnaces across the country. (DCA, No. 372 at p. 1) NYSERDA similarly stated that the proposed standard’s efficiency VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 levels are already being met by a significant share of the New York market. (NYSERDA, No. 379 at p. 1) CEC commented that furnaces capable of meeting the proposed standards are already commercially available on the market, and that condensing furnaces have been required in Canada for over a decade. (CEC, No. 382 at p. 2) In response, DOE acknowledges that some consumers are already purchasing PO 00000 Frm 00075 Fmt 4701 Sfmt 4700 furnaces at an efficiency level equal to or greater than the standard level proposed in the NOPR and accounts for these consumers in the analysis. Such consumers are not impacted by the rule and are not included in the estimate of average LCC savings. As the commenters suggest, the availability of these high-efficiency furnaces on the market demonstrates their technological feasibility in the context of DOE’s E:\FR\FM\18DER2.SGM 18DER2 87576 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 consideration of amended energy conservation standards for NWGFs and MHGFs pursuant to EPCA at a national level. c. Assignment of Furnace Efficiency to Sampled Households For this final rule, DOE continued to assign furnace efficiency to households in the no-new-standards case in two steps, first at the State level, then at the building-specific level. However, DOE’s approach was modified to include other household characteristics. The market share of each efficiency level at the State level is based on historical shipments data (from the 2013–2022 HARDI data) and an estimated projection of trends between 2022 and the compliance year. The furnace efficiency distribution is then allocated to specific RECS households or CBECS, according to the market shares generated for each State. In some States, the market share of condensing furnaces is very high, and, therefore, most households in that State in the LCC analysis will be assigned a condensing furnace in the no-newstandards case. If a household is assigned a condensing furnace in the no-new-standards case, the replacement furnace is assumed to be condensing as well. To assign the efficiency at the building-specific level, DOE carefully considered any available data that might improve assignment of furnace efficiency in the LCC analysis. First, DOE examined the 2013–2022 HARDI data of gas furnace input capacity by efficiency level and region. DOE did not find a significant correlation between input capacity and condensing furnace market share in a given region, a correlation that might be expected a priori since buildings with larger furnace input capacity are more likely to be larger and have greater energy consumption. DOE next considered the GTI data submitted to DOE for 21 Illinois households, which included the efficiency of the furnace (AFUE), size of the furnace (input capacity), square footage of the house, and annual energy use.178 Recognizing the relatively small sample size, DOE notes that these data exhibit no significant correlations between furnace efficiency and other household characteristics (with most furnace installations in this sample being non-condensing furnaces with high energy use). DOE also considered other data of furnace efficiency 178 Gas Technology Institute (GTI), Empirical Analysis of Natural Gas Furnace Sizing and Operation, GTI–16/0003 (November 2016) (available at: www.regulations.gov/document/EERE2014-BT-STD-0031-0309) (last accessed August 1, 2023). VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 compared to household characteristics for other parts of the country, including the NEEA Database and permit data (see appendix 8I of the TSD for this final rule for more details). These data also suggest little to no correlation between furnace efficiency and household characteristics or economic factors. Finally, DOE considered the 2019 AHCS survey data.179 This survey includes questions to recent purchasers of HVAC equipment regarding the perceived efficiency of their equipment (Standard, High, and Super-High Efficiency), as well as questions related to various household and demographic characteristics. From these data, DOE did find a statistically significant, albeit weak, correlation: Households with larger square footage exhibited a slightly higher fraction of High or Super-High efficiency equipment installed. Specifically, the lower third of the square footage bins was five percent less likely to install higher efficiency units as compared to the middle third of the square footage bins, while the upper third of square footage bins was five percent more likely to do so than the middle square footage bin. Therefore, DOE used the AHCS data to adjust its furnace efficiency distributions as follows: (1) the market share of condensing equipment for households under 1,500 sq. ft. was decreased by five percentage points; and (2) the market share of condensing equipment for households above 2,500 sq. ft. was increased by five percentage points; however, DOE continued to maintain the same aggregate State-level efficiency distribution. For example, if a given State has a condensing market share of 50 percent based on the shipments data, the probability of any one household in that State being assigned a condensing furnace in the no-new-standards case is 50 percent. However, if the household is larger than 2,500 sq. ft., that probability increases to 55 percent instead. This adjustment preferentially assigns condensing furnaces within a given State to larger households (with presumably larger energy consumption) in the no-new-standards case, and preferentially assigns non-condensing furnaces to smaller households. This adjustment results in a more conservative estimate of potential energy savings. Beyond this adjustment of the probability distribution, which is bounded by the shipments data, the assignment of furnace efficiency to a 179 Decision Analysts, 2019 American Home Comfort Studies (available at: www.decisionanalyst.com/Syndicated/ HomeComfort/) (last accessed August 1, 2023). PO 00000 Frm 00076 Fmt 4701 Sfmt 4700 given household is performed according to the random-assignment method described in this section. While DOE acknowledges that economic factors may play a role when consumers, commercial building owners, or builders decide on what type of furnace to install, assignment of furnace efficiency for a given installation, based solely on economic measures such as life-cycle cost or simple payback period most likely would not fully and accurately reflect actual real-world installations. There are a number of market failures discussed in the economics literature, as discussed in the July 2022 NOPR and summarized below, that illustrate how purchasing decisions with respect to energy efficiency are unlikely to be perfectly correlated with energy use, as described subsequently. DOE maintains that the method of assignment, which is in part random, is a reasonable approach. It simulates behavior in the furnace market, where market failures result in purchasing decisions not being perfectly aligned with economic interests, and it does so more realistically than relying only on apparent cost-effectiveness criteria derived from the limited information in CBECS or RECS. DOE further emphasizes that its approach does not assume that all purchasers of furnaces make economically irrational decisions (i.e., the lack of a correlation is not the same as a negative correlation). As part of the random assignment, some homes or buildings with large heating loads will be assigned higher-efficiency furnaces, and some homes or buildings with particularly low heating loads will be assigned baseline furnaces, which aligns with the available data. By using this approach, DOE acknowledges the uncertainty inherent in the data and minimizes any bias in the analysis by using random assignment, as opposed to assuming certain market conditions that are unsupported by the available evidence. The following discussion provides more detail about the various market failures that affect consumer furnace purchases. First, consumers are motivated by more than simple financial trade-offs. There are consumers who are willing to pay a premium for more energy-efficient products because they are environmentally conscious.180 There are also several behavioral factors that can influence the purchasing decisions 180 Ward, D.O., Clark, C.D., Jensen, K.L., Yen, S.T., & Russell, C.S. (2011): ‘‘Factors influencing willingness-to pay for the ENERGY STAR® label,’’ Energy Policy, 39 (3), 1450–1458 (available at: www.sciencedirect.com/science/article/abs/pii/ S0301421510009171) (last accessed August 1, 2023). E:\FR\FM\18DER2.SGM 18DER2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 of complicated multi-attribute products, such as furnaces. For example, consumers (or decision makers in an organization) are highly influenced by choice architecture, defined as the framing of the decision, the surrounding circumstances of the purchase, the alternatives available, and how they are presented for any given choice scenario.181 The same consumer or decision maker may make different choices depending on the characteristics of the decision context (e.g., the timing of the purchase, competing demands for funds), which have nothing to do with the characteristics of the alternatives themselves or their prices. Consumers or decision makers also face a variety of other behavioral phenomena including loss aversion, sensitivity to information salience, and other forms of bounded rationality.182 Thaler, who won the Nobel Prize in Economics in 2017 for his contributions to behavioral economics, and Sunstein point out that these behavioral factors are strongest when the decisions are complex and infrequent, when feedback on the decision is muted and slow, and when there is a high degree of information asymmetry.183 These characteristics describe almost all purchasing situations of appliances and equipment, including furnaces. The installation of a new or replacement furnace is done very infrequently, as evidenced by the mean lifetime of 21.5 years for NWGFs and MHGFs. Additionally, it would take at least one full heating season for any impacts on operating costs to be fully apparent. Further, if the purchaser of the furnace is not the entity paying the energy costs (e.g., a building owner and tenant), there may be little to no feedback on the purchase. Additionally, there are systematic market failures that are likely to contribute further complexity to how products are chosen by consumers, as explained in the following paragraphs. The first of these market failures—the split-incentive or principal-agent problem—is likely to affect furnaces more than many other types of appliances. The principal-agent 181 Thaler, R.H., Sunstein, C.R., and Balz, J.P. (2014). ‘‘Choice Architecture’’ in The Behavioral Foundations of Public Policy, Eldar Shafir (ed). 182 Thaler, R.H., and Bernartzi, S. (2004). ‘‘Save More Tomorrow: Using Behavioral Economics in Increase Employee Savings,’’ Journal of Political Economy 112(1), S164–S187. See also Klemick, H., et al. (2015) ‘‘Heavy-Duty Trucking and the Energy Efficiency Paradox: Evidence from Focus Groups and Interviews,’’ Transportation Research Part A: Policy & Practice, 77, 154–166 (providing evidence that loss aversion and other market failures can affect otherwise profit-maximizing firms). 183 Thaler, R.H., and Sunstein, C.R. (2008). Nudge: Improving Decisions on Health, Wealth, and Happiness. New Haven, CT: Yale University Press. VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 problem is a market failure that results when the consumer that purchases the equipment does not internalize all of the costs associated with operating the equipment. Instead, the user of the product, who has no control over the purchase decision, pays the operating costs. There is a high likelihood of splitincentive problems in the case of rental properties where the landlord makes the choice of what furnace to install, whereas the renter is responsible for paying energy bills. In the LCC sample, 18.1 percent of households with a NWGF and 19.8 percent of households with a MHGF are renters. These fractions are significantly higher for low-income households (see section IV.I.1 of this document). In new construction, builders influence the type of furnace used in many homes but do not pay operating costs. Finally, contractors install a large share of furnaces in replacement situations, and they can exert a high degree of influence over the type of furnace purchased. In addition to the split-incentive problem, there are other market failures that are likely to affect the choice of furnace efficiency made by consumers. For example, emergency replacements of essential equipment such as a furnace in the heating season are strongly biased toward like-for-like replacement (i.e., replacing the non-functioning equipment with a similar or identical product). Time is a constraining factor during emergency replacements, and consumers may not consider the full range of available options on the market, despite their availability. The consideration of alternative product options is far more likely for planned replacements and installations in new construction. Additionally, Davis and Metcalf 184 conducted an experiment demonstrating that the nature of the information available to consumers from EnergyGuide labels posted on air conditioning equipment results in an inefficient allocation of energy efficiency across households with different usage levels. Their findings indicate that households are likely to make decisions regarding the efficiency of the climate-control equipment of their homes that do not result in the highest net present value for their specific usage pattern (i.e., their decision is based on imperfect information and, therefore, is not 184 Davis, L.W., and G.E. Metcalf (2016): ‘‘Does better information lead to better choices? Evidence from energy-efficiency labels,’’ Journal of the Association of Environmental and Resource Economists, 3(3), 589–625 (available at: www.journals.uchicago.edu/doi/full/10.1086/ 686252) (last accessed August 1, 2023). PO 00000 Frm 00077 Fmt 4701 Sfmt 4700 87577 necessarily optimal). Also, most consumers did not properly understand the labels (specifically whether energy consumption and cost estimates were national averages or specific to their State). As such, consumers did not make the most informed decisions. In part because of the way information is presented, and in part because of the way consumers process information, there is also a market failure consisting of a systematic bias in the perception of equipment energy usage, which can affect consumer choices. Attari et al.185 show that consumers tend to underestimate the energy use of large energy-intensive appliances (such as central air conditioners), but overestimate the energy use of small appliances. Therefore, it is possible that consumers systematically underestimate the energy use associated with furnaces, resulting in less cost-effective furnace purchases. These market failures affect a sizeable share of the consumer population. A study by Houde 186 indicates that there is a significant subset of consumers that appear to purchase appliances without taking into account their energy efficiency and operating costs at all. There are market failures relevant to furnaces installed in commercial applications as well. It is often assumed that because commercial and industrial customers are businesses that have trained or experienced individuals making decisions regarding investments in cost-saving measures, some of the commonly observed market failures present in the general population of residential customers should not be as prevalent in a commercial setting. However, there are many characteristics of organizational structure and historic circumstance in commercial settings that can lead to underinvestment in energy efficiency. First, a recognized problem in commercial settings is the principalagent problem, where the building owner (or building developer) selects the equipment and the tenant (or subsequent building owner) pays for 185 Attari, S.Z., M.L. DeKay, C.I. Davidson, and W. Bruine de Bruin (2010): ‘‘Public perceptions of energy consumption and savings.’’ Proceedings of the National Academy of Sciences 107(37), 16054– 16059 (available at: www.pnas.org/content/107/37/ 16054) (last accessed August 1, 2023). 186 Houde, S. (2018): ‘‘How Consumers Respond to Environmental Certification and the Value of Energy Information,’’ The RAND Journal of Economics, 49 (2), 453–477 (available at: onlinelibrary.wiley.com/doi/full/10.1111/1756– 2171.12231) (last accessed August 1, 2023). E:\FR\FM\18DER2.SGM 18DER2 87578 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 energy costs.187 188 Indeed, more than a quarter of commercial buildings in the CBECS 2018 sample are occupied at least in part by a tenant, not the building owner (indicating that, in DOE’s experience, the building owner likely is not responsible for paying energy costs). Additionally, some commercial buildings have multiple tenants. There are other similarly misaligned incentives embedded in the organizational structure within a given firm or business that can impact the choice of a furnace. For example, if one department or individual within an organization is responsible for capital expenditures (and therefore equipment selection) while a separate department or individual is responsible for paying the energy bills, a market failure similar to the principal-agent problem can result.189 Additionally, managers may have other responsibilities and often have other incentives besides operating cost minimization, such as satisfying shareholder expectations, which can sometimes be focused on short-term returns.190 Decision-making related to commercial buildings is highly complex and involves gathering information from and for a variety of different market actors. It is common to see conflicting goals across various actors within the same organization, as well as information asymmetries between market actors in the energy efficiency context in commercial building construction.191 Second, the nature of the organizational structure and design can influence priorities for capital budgeting, resulting in choices that do 187 Vernon, D., and Meier, A. (2012). ‘‘Identification and quantification of principal-agent problems affecting energy efficiency investments and use decisions in the trucking industry,’’ Energy Policy, 49, 266–273. 188 Blum, H. and Sathaye, J. (2010). ‘‘Quantitative Analysis of the Principal-Agent Problem in Commercial Buildings in the U.S.: Focus on Central Space Heating and Cooling,’’ Lawrence Berkeley National Laboratory, LBNL–3557E (available at: escholarship.org/uc/item/6p1525mg) (last accessed August 1, 2023). 189 Prindle, B., Sathaye, J., Murtishaw, S., Crossley, D., Watt, G., Hughes, J., and de Visser, E. (2007). ‘‘Quantifying the effects of market failures in the end-use of energy,’’ Final Draft Report Prepared for International Energy Agency (Available from International Energy Agency, Head of Publications Service, 9 rue de la Federation, 75739 Paris, Cedex 15 France). 190 Bushee, B.J. (1998). ‘‘The influence of institutional investors on myopic R&D investment behavior,’’ Accounting Review, 305–333. DeCanio, S.J. (1993). ‘‘Barriers Within Firms to Energy Efficient Investments,’’ Energy Policy, 21(9), 906– 914 (explaining the connection between shorttermism and underinvestment in energy efficiency). 191 International Energy Agency (IEA). (2007). Mind the Gap: Quantifying Principal-Agent Problems in Energy Efficiency. OECD Pub. (available at www.iea.org/reports/mind-the-gap) (last accessed August 1, 2023). VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 not necessarily maximize profitability.192 Even factors as simple as unmotivated staff or lack of prioritysetting and/or a lack of a long-term energy strategy can have a sizable effect on the likelihood that an energyefficient investment will be undertaken.193 U.S. tax rules for commercial buildings may incentivize lower capital expenditures, since capital costs must be depreciated over many years, whereas operating costs can be fully deducted from taxable income or passed through directly to building tenants.194 Third, there are asymmetric information and other potential market failures in financial markets in general, which can affect decisions by firms with regard to their choice among alternative investment options, with energy efficiency being one such option.195 192 DeCanio, S.J. (1994). ‘‘Agency and control problems in U.S. corporations: the case of energyefficient investment projects,’’ Journal of the Economics of Business, 1(1), pp. 105–124. Stole, L.A., and Zwiebel, J. (1996). ‘‘Organizational design and technology choice under intrafirm bargaining,’’ The American Economic Review, 195–222. 193 Rohdin, P., and Thollander, P. (2006). ‘‘Barriers to and driving forces for energy efficiency in the non-energy intensive manufacturing industry in Sweden,’’ Energy, 31(12), 1836–1844. Takahashi, M. and Asano, H. (2007). ‘‘Energy Use Affected by Principal-Agent Problem in Japanese Commercial Office Space Leasing,’’ In Quantifying the Effects of Market Failures in the End-Use of Energy. American Council for an Energy-Efficient Economy. February 2007. Visser, E. and Harmelink, M. (2007). ‘‘The Case of Energy Use in Commercial Offices in the Netherlands,’’ In Quantifying the Effects of Market Failures in the End-Use of Energy. American Council for an Energy-Efficient Economy. February 2007. Bjorndalen, J. and Bugge, J. (2007). ‘‘Market Barriers Related to Commercial Office Space Leasing in Norway,’’ In Quantifying the Effects of Market Failures in the End-Use of Energy. American Council for an Energy-Efficient Economy. February 2007. Schleich, J. (2009). ‘‘Barriers to energy efficiency: A comparison across the German commercial and services sector,’’ Ecological Economics, 68(7), pp. 2150–2159. Muthulingam, S., et al. (2013). ‘‘Energy Efficiency in Small and Medium-Sized Manufacturing Firms,’’ Manufacturing & Service Operations Management, 15(4), pp. 596–612 (finding that manager inattention contributed to the non-adoption of energy efficiency initiatives). Boyd, G.A., Curtis, E.M. (2014). ‘‘Evidence of an ‘energy management gap’in U.S. manufacturing: Spillovers from firm management practices to energy efficiency,’’ Journal of Environmental Economics and Management, 68(3), pp. 463–479. 194 Lovins, A. (1992). Energy-Efficient Buildings: Institutional Barriers and Opportunities (available at: rmi.org/insight/energy-efficient-buildingsinstitutional-barriers-and-opportunities/) (last accessed August 1, 2023). 195 Fazzari, S.M., Hubbard, R.G., Petersen, B.C., Blinder, A.S., and Poterba, J.M. (1988). ‘‘Financing constraints and corporate investment,’’ Brookings Papers on Economic Activity, 1988(1), 141–206. Cummins, J.G., Hassett, K.A., Hubbard, R.G., Hall, R.E., and Caballero, R.J. (1994). ‘‘A reconsideration PO 00000 Frm 00078 Fmt 4701 Sfmt 4700 Asymmetric information in financial markets is particularly pronounced with regard to energy efficiency investments.196 There is a dearth of information about risk and volatility related to energy-efficiency investments, and energy efficiency investment metrics may not be as visible to investment managers,197 which can bias firms towards more certain or familiar options. This market failure results not because the returns from energy efficiency as an investment are inherently riskier, but because information about the risk itself tends not to be available in the same way it is for other types of investment, like stocks or bonds. In some cases, energy efficiency is not a formal investment category used by financial managers, and if there is a formal category for energy efficiency within the investment portfolio options assessed by financial managers, they are seen as weakly strategic and not seen as likely to increase competitive advantage.198 This information asymmetry extends to commercial investors, lenders, and realestate financing, which is biased against new and perhaps unfamiliar technology (even though it may be economically beneficial).199 Another market failure known as the first-mover disadvantage can exacerbate this bias against adopting new technologies, as the successful integration of new technology in a particular context by one actor generates of investment behavior using tax reforms as natural experiments,’’ Brookings Papers on Economic Activity, 1994(2), 1–74. DeCanio, S.J., and Watkins, W.E. (1998). ‘‘Investment in energy efficiency: do the characteristics of firms matter?’’ Review of Economics and Statistics, 80(1), 95–107. Hubbard R.G. and Kashyap A. (1992). ‘‘Internal Net Worth and the Investment Process: An Application to U.S. Agriculture,’’ Journal of Political Economy, 100, 506–534. 196 Mills, E., Kromer, S., Weiss, G., and Mathew, P.A. (2006). ‘‘From volatility to value: analysing and managing financial and performance risk in energy savings projects,’’ Energy Policy, 34(2), 188–199. Jollands, N., Waide, P., Ellis, M., Onoda, T., Laustsen, J., Tanaka, K., and Meier, A. (2010). ‘‘The 25 IEA energy efficiency policy recommendations to the G8 Gleneagles Plan of Action,’’ Energy Policy, 38(11), 6409–6418. 197 Reed, J.H., Johnson, K., Riggert, J., and Oh, A.D. (2004). ‘‘Who plays and who decides: The structure and operation of the commercial building market,’’ U.S. Department of Energy Office of Building Technology, State and Community Programs (available at: www1.eere.energy.gov/ buildings/publications/pdfs/commercial_initiative/ who_plays_who_decides.pdf) (last accessed August 1, 2023). 198 Cooremans, C. (2012). ‘‘Investment in energy efficiency: do the characteristics of investments matter?’’ Energy Efficiency, 5(4), 497–518. 199 Lovins 1992, op. cit. The Atmospheric Fund. (2017). Money on the table: Why investors miss out on the energy efficiency market (available at: taf.ca/ publications/money-table-investors-energyefficiency-market/) (last accessed August 1, 2023). E:\FR\FM\18DER2.SGM 18DER2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 information about cost-savings, and other actors in the market can then benefit from that information by following suit; yet because the first to adopt a new technology bears the risk but cannot keep to themselves all the informational benefits, firms may inefficiently underinvest in new technologies.200 In sum, the commercial and industrial sectors face many market failures that can result in an under-investment in energy efficiency. This means that discount rates implied by hurdle rates 201 and required payback periods of many firms are higher than the appropriate cost of capital for the investment.202 The preceding arguments for the existence of market failures in the commercial and industrial sectors are corroborated by empirical evidence. One study in particular showed evidence of substantial gains in energy efficiency that could have been achieved without negative repercussions on profitability, but the investments had not been undertaken by firms.203 The study found that multiple organizational and institutional factors caused firms to require shorter payback periods and higher returns than the cost of capital for alternative investments of similar risk. Another study demonstrated similar results with firms requiring very short payback periods of 1–2 years in order to adopt energysaving projects, implying hurdle rates of 50 to 100 percent, despite the potential economic benefits.204 A number of other case studies similarly demonstrate the existence of market failures preventing the adoption of energy-efficient technologies in a variety of commercial sectors around the world, including office buildings,205 supermarkets,206 200 Blumstein, C. and Taylor, M. (2013). Rethinking the Energy-Efficiency Gap: Producers, Intermediaries, and Innovation. Energy Institute at Haas Working Paper 243 (available at: haas.berkeley.edu/wp-content/uploads/WP243.pdf) (last accessed August 1, 2023). 201 A hurdle rate is the minimum rate of return on a project or investment required by an organization or investor. It is determined by assessing capital costs, operating costs, and an estimate of risks and opportunities. 202 DeCanio 1994, op. cit. 203 DeCanio, S.J. (1998). ‘‘The Efficiency Paradox: Bureaucratic and Organizational Barriers to Profitable Energy-Saving Investments,’’ Energy Policy, 26(5), 441–454. 204 Andersen, S.T., and Newell, R.G. (2004). ‘‘Information programs for technology adoption: the case of energy-efficiency audits,’’ Resource and Energy Economics, 26, 27–50. 205 Prindle 2007, op. cit.; Howarth, R.B., Haddad, B.M., and Paton, B. (2000). ‘‘The economics of energy efficiency: insights from voluntary participation programs,’’ Energy Policy, 28, 477– 486. 206 Klemick, H., Kopits, E., Wolverton, A. (2017). ‘‘Potential Barriers to Improving Energy Efficiency VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 and the electric motor market.207 The existence of market failures in the residential and commercial sectors is well supported by the economics literature and by a number of case studies. If DOE developed an efficiency distribution that assigned furnace efficiency in the no-new-standards case solely according to energy use or economic considerations such as lifecycle cost or payback period, the resulting distribution of efficiencies within the building sample would not reflect any of the market failures or behavioral factors above. Thus, DOE concludes such a distribution would not be representative of the consumer furnace market. Further, even if a specific household/building/ organization is not subject to the market failures above, the purchasing decision of furnace efficiency can be highly complex and influenced by a number of factors not captured by the building characteristics available in the RECS or CBECS samples. These factors can lead to households or building owners choosing a furnace efficiency that deviates from the efficiency predicted using only energy use or economic considerations such as life-cycle cost or payback period (as calculated using the information from RECS 2020 or CBECS 2018). DOE further notes that, in certain States, the current market is heavily weighted toward either baseline furnace efficiency or a condensing furnace efficiency. Therefore, most consumers in these States are either similarly impacted (for States with predominantly non-condensing furnaces) or minimally impacted (for States with predominantly condensing furnaces). This result is merely a reflection of the available market data. Therefore, any variation to DOE’s efficiency assignment methodology would not produce substantially differing results than presented in this rule for these States, as most consumers would continue to be assigned the same efficiency regardless of the details of the methodology. APGA commented that in the NOPR, despite intense criticisms and detailed evidentiary showings, DOE has continued to justify its approach on the theory that consumers do not act rationally, such that random assignment in Commercial Buildings: The Case of Supermarket Refrigeration,’’ Journal of Benefit-Cost Analysis, 8(1), 115–145. 207 de Almeida, E.L.F. (1998). ‘‘Energy efficiency and the limits of market forces: The example of the electric motor market in France’’, Energy Policy, 26(8), 643–653; Xenergy, Inc. (1998). United States Industrial Electric Motor Systems Market Opportunity Assessment. (Available at: www.energy.gov/sites/default/files/2014/04/f15/ mtrmkt.pdf) (Last accessed August 1, 2023). PO 00000 Frm 00079 Fmt 4701 Sfmt 4700 87579 is as valid as using actual consumer choice data. APGA argued that although DOE acknowledges ‘‘that economic factors may play a role’’ when consumers decide on what type of furnace to install, DOE persists in maintaining that market failures render random assignment just as valid an approach. APGA argued that much of DOE’s recitation on market failure misses the mark and lacks reference to current studies of how residential furnaces are purchased. APGA further argued that DOE relies upon ‘‘inexplicit consumer patterns on all sorts of purchases.’’ Although APGA noted that DOE’s statement that it ‘‘intends to investigate this issue further . . . [to] improve its assignment of furnace efficiency in its analyses,’’ the commenter urged DOE to do so before acting on the subject NOPR because it argued that the agency’s methodology does not produce results that accurately reflect the market. (APGA, No. 387 at pp. 25–27) Similarly, AGA argued that DOE’s economic analysis suffers from a critical defect in the economic criteria of how gas furnace efficiencies are assigned to consumers in the no-newstandards case or ‘‘base case.’’ The commenter took issue with DOE’s use of so-called ‘‘random assignment’’ to determine which consumers in the base case would be assigned specific furnace efficiencies and whether they install condensing or non-condensing furnaces. AGA claimed that DOE is assuming that consumers completely disregard economics when selecting a gas furnace, arguing that random assignment leads to an overstatement of benefits associated with the proposed rulemaking and an underestimation of the total costs. According to AGA, this defect in the development of the base case renders all of DOE’s subsequent analyses of any proposed standard levels void and unusable. (AGA, No. 405 at pp. 54–57) Spire argued that DOE’s analysis of 10,000 trial cases does not represent the real world, where—as regional market share data for residential furnaces demonstrates—consumers generally purchase condensing gas furnaces when it is economically beneficial to do so and generally decline to purchase condensing gas furnaces where there are installation problems, insufficient economic returns, or insufficient resources for the initial investment required. Spire asserted that DOE’s trial cases represent an alternative universe in which consumers choose their gas furnaces with no consideration of the economic consequences of those decisions. (Spire, No. 413 at p. 7) Spire asserted that DOE’s use of random E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 87580 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations assignment implies that consumer purchasing decisions are never influenced by the economics of potential efficiency investments. (Spire, No. 413 at p. 39) NPGA commented that a key error in the economic analysis is the use of a ‘‘random assignment’’ process. NPGA stated that the examples of exceptions to the general rule of rational economic behavior relied upon in the rule are misplaced and do not justify ignoring that consumers do indeed act rationally in their own economic interest. (NPGA, No. 395 at pp. 11–12) Atmos Energy argued that DOE’s economic analysis approach of using a random assignment of consumers across design options considered in the life-cycle analysis has no technical basis or justification. The company further commented that this results in an inaccurate overstatement of efficiency standards’ potential to produce economic benefits for consumers. Atmos Energy argued that the use of random assignment results in consumers selecting furnaces that are suboptimal among available furnace options and artificially inflates the potential savings of the rule. (Atmos Energy, No. 415 at pp. 5–6) Spire further argued that base-case investments should disproportionately include investments with attractive economic outcomes; that rule-outcome investments should disproportionately include investments with unattractive economic outcomes, and, therefore, the average economic outcome for base-case investments would be better (and the average for rule-outcome investments would be worse) than the average of all potential investments in standardscompliant products. Spire further argued that purchasers of gas furnaces have a significant preference for economically beneficial investments, as evident from the fact that the market share for furnaces compliant with the proposed standard level is dramatically higher than average in colder regions where the economic benefits of moreefficient gas furnaces tend to be greatest and is dramatically lower than average in warmer regions where those benefits tend to be lowest. Spire went on to claim that DOE’s LCC analysis is based on a ‘‘random assignment’’ methodology that ‘‘assigns’’ particular efficiency investments to the ‘‘base’’ or ‘‘standards’’ case randomly, an approach that effectively assumes that purchasers of residential furnaces have no preference for economically beneficial efficiency investments—and no aversion to economically unfavorable investments. (Spire, No. 413 at pp. 22– 23) VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 These commenters significantly mischaracterize the Department’s analysis in this area. Most fundamentally, DOE does not assume that consumers act irrationally. As stated above, the use of a random assignment of furnace efficiency is a methodological approach that reflects the full range of consumer behaviors in this market, including consumers who make economically beneficial decisions and consumers who, due to market failures, do not or cannot make such economically beneficial decisions, both of which occur in reality. As explained in the proposed rule and previously, DOE begins its assignment of furnaces in the no-new standards case based on two empirical constraints: (1) historical shipment data, by State demonstrating regional variation, with some regions (e.g., the North) having a higher market share of condensing furnaces; and (2) survey data demonstrating a correlation (albeit small) between home size and installed furnace efficiency. Within those constraints, DOE then models consumer behavior, consistent with the economics literature discussed previously, to reflect neither purely rational nor purely irrational decisionmaking. This approach presents a close approximation of the current market reality. The alternative approach advanced by these commenters assumes consumer behavior that is not evidenced by the scientific literature surveyed above or by any data submitted in the course of this rulemaking. The commenters’ approach depends on the assumption, for example, that homeowners know— as a rule—the efficiency of their homes’ insulation and windows, such that they always make heating investments accordingly. Similarly, the commenters’ approach assumes that, faced with a furnace failure, homeowners will always select as a replacement the most efficient available model. DOE’s approach, by contrast, recognizes that assumptions like these hold for some consumers some of the time—but not all consumers and not at all times. As part of the random assignment, some households or buildings with large heating loads will be assigned higherefficiency furnaces, and some households or buildings with particularly low heating loads will be assigned baseline furnaces—i.e., the economically rational investments. For example, at the adopted standard level, approximately 19 percent of NWGF consumers experience a net cost. These are consumers who would not financially gain from a more-efficient furnace and have a non-condensing furnace in the no-new-standards case, PO 00000 Frm 00080 Fmt 4701 Sfmt 4700 reflecting an economically optimal investment. Similarly, at the adopted standard level, approximately 45 percent of NWGF consumers are not impacted by the rule, as they already purchase higher-efficiency furnaces. Many of these consumers experience lifetime savings compared to a baseline furnace, and the adoption of higher efficiency furnaces in the no-newstandards case again reflects an economically optimal investment. However, as DOE has noted, there is a complex set of behavioral factors, with sometimes opposing effects, affecting the furnace market. It is impractical to model every consumer decision incorporating all of these effects at this extreme level of granularity given the limited available data. Given these myriad factors, DOE estimates the resulting distribution of such a model, if it were possible, would be very scattered with high variability. It is for this reason DOE utilizes a random distribution (after accounting for market share constraints) to approximate these effects. The methodology is not an assertion of economic irrationality, but instead, it is a methodological approximation of complex consumer behavior. The analysis is neither biased toward high or low energy savings. The methodology does not preferentially assign lower-efficiency furnaces to households in the no-new-standards case where savings from the rule would be greatest, nor does it preferentially assign lower-efficiency furnaces to households in the no-new-standards case where savings from the rule would be smallest. Some consumers were assigned the furnaces that they would have chosen if they had engaged in the kind of perfect economic thinking upon which the commenters have focused. Others were assigned less-efficient furnaces even where a more-efficient furnace would eventually result in lifecycle savings, simulating scenarios where, for example, various market failures prevent consumers from realizing those savings. Still others were assigned furnaces that were more efficient than one would expect simply from life-cycle costs analysis, reflecting, say, ‘‘green’’ behavior, whereby consumers ascribe independent value to minimizing harm to the environment. DOE cites the available economic literature of which it is aware on this subject, supporting the existence of the various market failures which would give rise to such a distribution, and has repeatedly requested more data or studies on this topic. There are no studies DOE is aware of specific to how consumer furnaces are purchased. Commenters have failed to provide any E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations specific external data, information, or studies that could be incorporated into the analysis, but instead, they claim that DOE is assuming consumers are all making irrational decisions, which is incorrect and a mischaracterization of the analysis. DOE continues to evaluate the literature on this subject and is not aware of any new data or studies that contradict DOE’s analysis. DOE also notes that in a separate comment regarding the usage of RECS, APGA acknowledges that households may not have perfect information regarding their own furnace. (APGA, No. 387 at p. 11) Finally, DOE’s analysis does incorporate and reflect regional market share data and reflects this larger correlation. For States with a large majority of consumers already purchasing more-efficient furnaces per the available market data (e.g., in colder regions), the analysis assigns a correspondingly large majority of households with an efficient furnace at or above the adopted efficiency level in the no-new-standards case. The analysis also includes a greater probability that new construction is assigned higherefficiency furnaces in the no-newstandards case, given the typically lower installation costs in new construction; however, this probability is constrained by actual market share data. In response to Spire’s assertion that most investments in the no-newstandards case should include those with attractive economic outcomes and most outcomes as a result of the standard should be biased toward unattractive outcomes, DOE firmly disagrees. This assertion presupposes that any energy conservation standard would primarily result in unattractive outcomes by definition. The logical extension of this assertion is that the current furnace market already allocates furnace efficiencies in a nearly optimum manner, and, therefore, there is little to no benefit from an energy conservation standard. As DOE has presented, there is a wealth of academic literature clearly demonstrating that this view of the market is incorrect, as there are a number of identified market failures and other behaviors that prevent some consumers from maximizing their economic outcome in the absence of new energy conservation standards, and, therefore, the allocation of furnace efficiency among households is not economically optimal in the real world. Systematically biasing the analysis to preferentially produce unfavorable results due to an energy conservation standard, as the commenter suggests, has no basis in any of the available data or literature. DOE also notes that the acknowledgement of market failures and VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 the resulting distribution of energy efficiency in the no-new-standards case is commonplace in DOE’s analyses for other energy conservation standards rulemakings. DOE has further confirmed its determination that the proposed TSL is economically justified through additional analysis of the anticipated life-cycle costs. First, DOE presents total life-cycle costs at each efficiency level, averaged over all households, in section V.B of this document. This effectively compares costs for an average household in the sample, not an extreme outlier household. DOE also makes available total life-cycle costs for households at the 25th, 50th, 75th, and 95th percentile of the total life-cycle cost distribution in the LCC spreadsheet. Regardless of which value is considered, the total life-cycle cost of a furnace at the adopted standard level is lower than the total life-cycle cost of a baseline furnace or any lowerefficiency furnace. The claim that outlier results distort DOE’s conclusions can also be refuted by considering the median LCC savings instead of the mean LCC savings, which are robust against outlier results. The median LCC savings at the adopted standard level across the entire NWGF sample, which accounts for the existing distribution of furnace efficiency in the market, remain positive. If DOE were to exclude outlier results from the average LCC savings (e.g., both the top and bottom 10 percent of results), the average LCC savings would remain positive. If DOE were to adopt an even more conservative estimate and bias the results by excluding only the most favorable outcomes (e.g., the top 10 percent) but maintain the least favorable outcomes, the average LCC would still remain positive, and DOE’s conclusions would remain the same. Finally, none of these results include the estimated climate and health benefits, which as discussed in section V.C of this document are significant and only further reinforce the benefits of the rule. Spire stated that the results of the LCC analysis are disproportionately impacted by a relatively small percentage of individual trial cases, due to the efficiency assignment methodology, thereby producing unreasonable impacts that bias the conclusions of the analysis. (Spire, No. 413 at pp. 25–34) In response, DOE acknowledges that there are some LCC trials with very high LCC savings as part of the distribution of impacts. There are similarly some LCC trials with very high net LCC costs. However, when evaluating the median LCC impacts instead of the average LCC PO 00000 Frm 00081 Fmt 4701 Sfmt 4700 87581 impacts, the effects of outlier results are minimized. The median LCC savings remain positive at the adopted standard level. The median LCC savings are available in the LCC spreadsheet and presented in chapter 8 of the final rule TSD. Although the absolute magnitude of total savings would decrease if such extreme trial cases were excluded, the conclusions of the analysis would remain the same. APGA claimed that DOE’s method of randomly assigning furnace efficiencies eliminates from the no-new-standards case those instances where consumers would elect the most efficient product that costs the least, which inflates LCC benefits when compared to the standards case. Without random assignment, APGA claims that the estimated LCC benefits decline significantly because the consumer will rationally take the lower cost furnace that also brings higher energy efficiency regardless of a new standard. APGA further argued that outlier cases control LCC outcomes, even though those outlier cases are the most likely to be avoided by rational consumer behavior. APGA claimed that the analysis fails to reflect the market share of natural gas customers by State or Census Division. (APGA, No. 387 at pp. 22–33) Spire argued that DOE’s analysis inappropriately credits standards with the benefits of efficiency investments in which a higher-efficiency product selected as a result of a standard is the low-cost option in terms of initial costs and would provide additional economic benefits (in the form of operating cost savings) from day one. Because consumers would naturally select this result, Spire argued that DOE’s modeling approach produces spurious regulatory benefits. (Spire, No. 413 at p. 27) In response, DOE notes that the commenters are once again mischaracterizing the Department’s analysis. First, the costs estimated in the analysis for higher-efficiency products reflect DOE’s projection that such products are at the new baseline efficiency, produced in volume, and no longer offered as a ‘‘premium’’ product. As such, costs may deviate from those seen in the market today or in the nonew-standards case. In some regions, the market share of higher-efficiency products remains low, and they are generally perceived as a more premium product, with higher total installed costs. This will impact the existing market share by efficiency. If these higher-efficiency products become the new baseline, as DOE analyzes in the standards cases, their costs generally will be lower than seen in the market E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 87582 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations today. The costs developed in section IV.C of this document account for higher-efficiency products becoming the new baseline, produced at greater volume. The comparison made by the commenters does not account for this subtlety. Second, DOE notes that the assignment methodology is bounded by the available shipment data by efficiency, and, therefore, the market share of non-condensing/condensing furnaces reflects market data. Total installed costs for higher-efficiency products are generally lower in new construction, as discussed in section IV.F.2 of this document. However, in some States, the market share and estimated total shipments of condensing furnaces are lower than the estimated new construction; therefore, according to the data, some non-condensing furnaces must be installed in new construction. Thus, this market share constraint requires that some installations in new construction be assigned a baseline furnace even though a higher-efficiency furnace would cost less. Because such market shares are based upon real world data, this is not a spurious assumption on DOE’s part, and such approach does not produce spurious regulatory benefits. This is a factual result based on the available data and representative of the market as it is, which is indicative of some of the market failures DOE has identified. Nevertheless, if DOE were to exclude all these trial results from the average LCC savings, the result would remain positive, and DOE’s conclusions from the analysis would remain the same. Thus, the claim that outlier results control LCC outcomes—and, therefore, the justification for the rule—is incorrect. Finally, regarding the share of natural gas customers, DOE samples households and commercial buildings in RECS and CBECS that utilize natural gas furnaces. RECS and CBECS are large, nationally representative surveys with a representative sample of natural gas customers. DOE is not aware of any evidence to suggest these national surveys are systematically biased with respect to natural gas customers. APGA argued that DOE has not addressed prior stakeholder analyses (e.g., the GTI analysis) directly but only cataloged the stakeholder criticisms in defending its ‘‘random assignment’’ methodology. (APGA, No. 387 at p. 25) Those analyses, however, were based on LCC results presented as part of the 2015 NOPR and 2016 SNOPR, both of which were withdrawn and replaced by the 2022 NOPR. DOE is responding to all relevant comments, but comments related to the detailed results of the VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 withdrawn analyses are no longer applicable. Spire further argued that, for example, in a region in which 90 percent of consumers are already utilizing a furnace with an efficiency at or above the adopted standard level, the remaining 10 percent of consumers should disproportionately include the worst economic outcomes in the region as a result of the standard. (Spire, No. 413 at pp. 35–36) Again, DOE firmly disagrees with this assertion. Spire’s assertion ignores the wealth of welldocumented market failures and other behaviors that can explain why some of the remaining 10 percent of consumers may have favorable outcomes as a result of the energy conservation standard. There is no compelling evidence or data of which DOE is aware that would necessitate proactively biasing results toward unfavorable outcomes, as suggested by the commenter. Furthermore, DOE’s assignment methodology already includes adjustments based on household square footage and based on new construction vs. replacement installations. Spire argued that economic theory provides no basis to disregard fact. On this point, Spire asserted that if random assignment came close to representing the market as it is, the regional market share for condensing furnaces would not range from 5 percent to 95 percent in the replacement market (and 6 percent to 97 percent in the new construction market), with an obvious correlation to regional length and depth of the heating season. Spire further argued that if random assignment provided a reasonable simulation of base case purchasing behavior, there would not be a statistically significant correlation between the average regional LCC outcomes and regional market shares for condensing furnaces. (Spire, No. 413 at p. 42) In response, DOE agrees that economic factors may play a role in purchasing decisions, but the commenter is mischaracterizing both the Department’s analysis and its efficiency assignment methodology. DOE does not dispute that heatingdegree days likely play a role in consumers choosing furnace efficiency, and, as stated previously, the Department incorporates this effect into the analysis at the State/regional level based on current market share data (i.e., actual purchasing decisions). The efficiency assignment methodology is randomized as a last step, within a given State/region, to approximate a range of real-world effects and behaviors. Thus, the larger correlation based on region is taken into account. PO 00000 Frm 00082 Fmt 4701 Sfmt 4700 Consequently, at the next stage in the assignment methodology, the impact of large regional climate differences is no longer relevant, as most of those consumers experience a similar climate. Furthermore, the commenter did not acknowledge the role of historical incentive and rebate programs that have shaped consumer behavior and significantly increased the market share of higher-efficiency furnaces in some colder regions, beyond what consumers were adopting without those programs. Due to the bias toward like-for-like replacements, the estimated future market share in these regions is expected to remain dominated by higher-efficiency furnaces, but this market share is likely higher than what would have resulted had these past incentive and rebate programs not occurred. Therefore, the apparent correlation of efficiency with region would likely not be as evident without these programs. APGA argued that DOE’s inconsistent treatment of consumer behavior is arbitrary and capricious. On the one hand, APGA asserted that by using random assignment to predict consumer furnace selection, DOE assumes consumers to be ‘‘virtual zombies.’’ On the other hand, when it comes to fuel switching, APGA asserted that DOE assumes consumers to be rational and prescient by selecting the lowest cost option. (APGA, No. 387 at p. 24) Spire similarly commented that paradoxically, DOE employs a random assignment methodology that assumes that consumers never consider the economic consequences of choices between gas furnaces, but then included a fuel switching analysis that assumes consumers who do not (randomly) select a standards-compliant gas furnace on their own would always consider economics in deciding whether to switch from a gas appliance to an electric appliance. (Spire, No. 413 at pp. 49–50) AGA also argued that the assignment of furnace efficiency in the no-new-standards case does not adhere to the model logic related to consumer fuel switching to electricity, which assumes consumers consider economics when choosing to switch. Furthermore, AGA stated that some of the critical inputs in that model are derived from survey data which indicates that consumers do consider economics when making purchasing decisions. (AGA, No. 405 at pp. 54–57) Along these same lines, NPGA commented that DOE contradicts itself by assuming consumers will not act in their own selfinterest when purchasing a gas furnace but will when switching from gas E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations furnaces to electric alternatives. (NPGA, No. 395 at p. 2) In response, DOE notes that the commenters are significantly misrepresenting the Department’s analysis. As discussed in this section, DOE’s approach for assigning efficiency in the no-new-standards case does not assume that purchasers of furnaces all make economically irrational decisions (i.e., the lack of a correlation is not the same as a negative correlation). The use of a random assignment of furnace efficiency is merely a methodological approach that reflects the full range of consumer behaviors in this market, including consumers who make economically beneficial decisions and consumers that, due to market failures, do not make such economically beneficial decisions, both of which occur in reality. The Department’s product switching analysis was incorporated into the analysis to address prior comments from stakeholders specifically regarding price-sensitive consumers opting to switch to alternative electric heating options in response to increased NWGF costs as discussed in section IV.F.10 of this document. DOE has conducted a fuelswitching analysis in this rule as a form of sensitivity analysis. That is, DOE has modeled the economic impacts of the rule assuming both no fuel switching and the maximum level of fuel switching reasonably foreseeable. To model that maximum level of fuel switching, DOE has assumed that consumers would act based solely on costs. DOE uses a simplified decision model based only on costs, in this very specific instance, to estimate the impact of product switching. The percentage of consumers who engage in product switching based on this simplified decision model is intended as an estimate of the maximum fuel switching reasonably likely to result from the rule. In any event, as discussed further below, the proportion of consumers expected to switch fuels is small, and any further refinements to DOE’s modeling would be expected to lead to similar conclusions. That is, a further refined model, which incorporated the market failures likely to prevail in the market for fuel switching, would be unlikely to produce meaningfully different results. Given the limited purpose for which DOE has considered product switching, DOE has not found it necessary to further refine its assumptions about product-switching consumer behavior. Furthermore, DOE presents results both with and without incorporating this effect, as an upper and lower bound, and DOE’s VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 conclusions remain the same under both sets of results. The two approaches (assignment of efficiency in the no-newstandards case and estimating product switching) are not incompatible and are not inconsistent with each other. They simply reflect different levels of modeling approximation on different consumer samples. Further discussion of the product switching methodology is presented in section IV.F.10 of this document. NPGA stated that consumers will often voluntarily choose to install condensing furnaces, without mandatory standards, when it makes economic sense. (NPGA, No. 395 at p. 11) The commenter further stated that this is evident in the fact that highefficiency gas furnaces have a much higher market share where the economic benefits of such furnaces are greatest. (NPGA, No. 395 at pp. 11–12) In response, DOE agrees and incorporates the existing market share of condensing furnaces by State in its analysis. In States with a very high fraction of consumers with condensing furnaces at the adopted efficiency level or above in the current market (typically States with colder winters where the benefits of such furnaces are higher), most consumers in those States are not impacted by the rule and do not factor into the standards-case analysis. However, as noted previously, incentive and rebate programs have increased the market share of condensing furnaces beyond what consumers had been previously adopting, even in colder regions. Spire commented that the issue of efficiency assignment in the no-newstandards case was raised in American Public Gas Ass’n v. U.S. Dept. of Energy, 22 F.4th 1018 (D.C. Cir. 2022) (APGA v. DOE)—a challenge to DOE’s commercial packaged boiler standards—and the Court found that DOE had failed to respond to the ‘‘substantial concerns’’ about this ‘‘crucial part of its analysis’’ and that its ‘‘failure to engage the arguments raised before it . . . bespeaks a failure to consider an important aspect of the problem.’’ Id., 22 F.4th at 1027– 28. Spire claimed that the furnaces NOPR exhibits the same failing. (Spire, No. 413 at pp. 34–35) In response, DOE disagrees with Spire’s assertion that it has failed to adequately explain the choices made in its LCC analysis or has failed to provide sufficient opportunity for comment on those matters. Instead, DOE has extensively discussed the rationale and evidentiary basis for its LCC analysis in this both the July 2022 NOPR, as well as this final rule. DOE’s detailed explanation has focused on the presence PO 00000 Frm 00083 Fmt 4701 Sfmt 4700 87583 of numerous market failures that cause consumers to purchase commercial packaged boilers that do not maximize LCC savings. Furthermore, DOE provided and sought public comment on its thorough explanation in the July 2022 Furnaces NOPR as to why the assignment of efficiencies in the nonew-standards case, which is in part random, is a reasonable approach that simulates behavior in the furnace market, where market failures frequently result in purchasing decisions not being perfectly aligned with economic interests. 87 FR 40590, 40640–40643 (July 7, 2022). AGA presented an analysis using DOE’s LCC spreadsheet and claimed that it demonstrates that DOE’s method of randomly assigning furnace efficiencies in its base case is improper. AGA further argued that its analysis demonstrates that any market failure results in greater adoption of highefficiency equipment than would be expected by economics alone. AGA concluded that DOE, therefore, overstates the benefits of the proposed standards by assuming consumers do not consider economics at all when selecting furnaces. (AGA, No. 405 at pp. 59–67) In response, as discussed above, DOE notes that this is a mischaracterization of the analysis. DOE does not assume consumers never consider the economics of the purchase. DOE acknowledges that there are several market failures in the furnace market affecting some consumers, while other consumers are making economically beneficial decisions. Indeed, the existence of consumers experiencing a net cost in the standards case is an illustration of this. Such consumers are assigned a baseline efficiency furnace in the no-new-standards case and do not benefit from a higher efficiency furnace, reflecting an economically beneficial decision in the no-new-standards case. Similarly, some consumers are already purchasing a higher-efficiency furnace because it is beneficial to them and as a result are not impacted in the standards case. The characterization of the analysis as assuming all consumers are irrational is incorrect. AGA’s analysis of the NOPR results is flawed in several respects. Their analysis identifies a relationship that is known and discussed in the TSD, namely that regions with a higher current market share of condensing furnaces are more likely to be colder and, thus, have higher space-heating energy consumption. Therefore, it is no surprise that LCC savings for households or buildings in those regions that have not yet adopted condensing E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 87584 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations furnaces are likely to be higher. Similarly, regions with a lower current market share of condensing furnaces are more likely to be warmer, and consumers there may have negative LCC savings in the standards case. The analysis incorporates these regional market share trends as part of the efficiency assignment methodology. The commenter is attempting to highlight these relationships in the LCC, which is a reflection of the current market, as evidence that DOE cannot assume consumers never consider the economics of their purchasing decisions. However, this is a mischaracterization, and DOE is not making an assumption that consumers never consider the economics of their purchasing decision. The efficiency assignment is a methodological simplification that takes into account existing market trends, such as the regional trends identified by the commenter, and acknowledges a range of consumer behaviors and market failures. The LCC produces relationships in the results that AGA’s own analysis shows are reasonable and expected, given the current market shares of condensing and noncondensing furnaces. AGA noted that there are examples in the LCC where the total installed cost of a non-condensing furnace is higher than the total installed cost of a condensing furnace for an individual household or building, and yet DOE’s methodology assigns a non-condensing furnace in the no-new-standards case to this household or building. AGA argues this is an illogical scenario that ignores consumer rationality and biases the overall results to overly favorable outcomes. (AGA, No. 405 at pp. 57–58) APGA pointed to the inclusion of LCC trials where a higher efficiency furnace costs less than a baseline furnace, but for which the LCC assigns a baseline furnace in the no-new-standards case, as unreasonably inflating LCC benefits. (APGA, No. 387 at pp. 22–23) Spire also commented that the LCC includes LCC trials where the higher-efficiency furnace is the lower-cost option, but it argued that the LCC erroneously assigns benefits to such trial cases by assigning a baseline furnace in the no-newstandards case. (Spire, No. 413 at pp. 27–28) In response, DOE acknowledges that there are scenarios in which the total installed cost is lower for higherefficiency condensing furnaces. This situation primarily occurs in new construction, where a new vent is required for all installations, and condensing furnaces can often take advantage of a shorter vent length that VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 is incorporated into the construction design from the beginning. This scenario can also occur in replacement installations where the existing vent has reached the end of its life and requires replacement, even when replacing a non-condensing furnace with another non-condensing furnace. With respect to the LCC assigning a non-condensing furnace in some of these instances, DOE once again notes that the efficiency assignment methodology is constrained by the State-level shipments market share data. For example, in States with a low current market share of condensing furnaces, the methodology will be constrained to assign mostly non-condensing furnaces in the no-newstandards case, reflecting the current market, and, therefore, some new construction will be assigned noncondensing furnaces in the no-newstandards case. The commenters argue that this is an illogical outcome, but the methodology is simply reflecting the reality of the current market. This situation can also occur in replacement installations due to, for example, familiarity bias on the part of the consumer or contractor, biasing replacements to familiar technology options even if a lower cost option is available. However, the percentage of individual LCC trial outcomes where this situation occurs is limited to only a few percent in the final rule analysis, predominately in new construction. Even if DOE were to exclude these individual outcomes as extreme outlier results, the LCC analysis would demonstrate economic justification, as seen from the median LCC savings (as opposed to the average), available in the LCC spreadsheet and in chapter 8 of the final rule TSD. The median LCC savings are robust to outlier results, and they remain positive at the adopted standard level. Additionally, excluding these individual outcomes as extreme outlier results would not substantially change the percent of consumers with a net cost and would not alter the conclusion of economic justification. PHCC commented that DOE should reconsider its assumptions regarding consumer awareness of products, as the studies used for reference are 20–30 years old, and trends for LED lighting that indicate that consumers choose higher levels of performance in cases of lower cost and lower maintenance. (PHCC, No. 403 at p. 3) In response, DOE notes that it cites the relevant available literature, which is still applicable to consumers of furnaces even if published 20–30 years ago. DOE also cites studies performed with respect to appliances and HVAC PO 00000 Frm 00084 Fmt 4701 Sfmt 4700 equipment, which are more relevant than studies related to lighting. The lighting market and associated technology are very different than the furnaces market. PHCC commented that DOE’s conclusion that commercial customers will not value higher efficiency because typically owners do not pay operating bills or consider operating costs as write-offs is inaccurate. Because their clients seek out best-case operating expenses, owners seek to offer highquality facilities in order to give themselves an advantage in the market. PHCC further commented that write-offs are not desirable, as owners benefit from keeping their income and paying taxes in full rather than overspending. The commenter stated that there are contractors who have successfully marketed high-efficiency equipment. (PHCC, No. 403 at pp. 3–4) In response, DOE clarifies that it does not assert that commercial customers will not value higher-efficiency equipment. DOE merely notes that there are market failures prevalent in the commercial sector, similar to the residential sector, that may cause some commercial customers to undervalue the benefits of higher-efficiency equipment. DOE agrees that some commercial customers will highly value the benefits of efficient furnaces, and the efficiency assignment methodology approximates this range in commercial customer behavior. Sierra Club and Earth Justice commented that the claims of internal inconsistency posed by some commenters ignores that the DOE’s method of modeling the base-case furnace efficiency distribution reflects available data showing only a modest correlation between high-efficiency furnace installations and applications where those high-efficiency products are more likely to be cost-effective. (Sierra Club and Earth Justice, No. 401 at pp. 1–2) DOE agrees with the comment in support of the agency’s approach. NYSERDA expressed support for DOE’s methodology and approaches presented in the NOPR, particularly around random distribution. NYSERDA disagreed with commenters who argue that the random nature of DOE’s LCC distributions is problematic. NYSERDA further stated that using a random distribution in the no-new-standards case to model the assignment of furnace efficiency is a valid method, driven by the best available data. NYSERDA emphasized that DOE used AHRI and HARDI data to accurately capture the existing market distributions of furnaces at different efficiency levels, informing the efficiency distributions in the no- E:\FR\FM\18DER2.SGM 18DER2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 new-standards case. NYSERDA further noted that DOE includes a correlation of efficiency with household square footage, using available data to inform the structure of the probabilistic distribution. Consequently, NYSERDA concludes that the stochastic approach is valid and viable. (NYSERDA, No. 379 at pp. 11–12) DOE agrees with this comment. Similarly, Joint Efficiency Commenters stated that DOE’s assignment of efficiency levels in the no-new-standards case reasonably reflects actual consumer behavior and is more representative than assigning efficiencies based solely on costeffectiveness. Joint Efficiency Commenters noted that there are various market failures, as well as aspects of consumer preference, that significantly impact how products are chosen by consumers, including misaligned incentives for rental properties, the influence of contractors during replacement installations, and the very infrequent nature of furnace replacements impacting information transparency with respect to costs. (Joint Efficiency Commenters, No. 381 at pp. 6–7) DOE agrees. 9. Alternative Size Thresholds for Small Consumer Gas Furnaces DOE analyzed potential separate energy conservation standards for small and large NWGFs and MHGFs, with varying capacity thresholds for a small NWGF or MHGF. The examined thresholds had a maximum input rate that ranged from less than or equal to 40 kBtu/h to 100 kBtu/h, which were assessed in 5 kBtu/h increments. DOE assigned an input capacity to existing furnaces based on data from RECS 2020 and CBECS 2018. It is common industry practice to oversize furnaces to ensure that they can meet the house heating load in extreme temperature conditions. Under a scenario which envisions a separate energy conservation standard for small NWGFs and MHGFs set at a level which does not require condensing technology, DOE expects that some consumers who would otherwise install a typically oversized furnace 208 may choose to downsize in order to be able to purchase a less-expensive, non-condensing furnace. DOE identified households from the NWGF and MHGF sample that might 208 By typical oversizing, DOE refers to a value of 1.7, as specified in ASHRAE 103, ‘‘Method of Testing for Annual Fuel Utilization Efficiency of Residential Central Furnaces and Boilers,’’ which is incorporated by reference in the DOE residential furnace and boiler test procedure at 10 CFR part 430, subpart B, appendix N. VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 downsize at each of the considered standard levels. In identifying these households, DOE first determined whether a household would install a non-condensing furnace with an input capacity greater than the small furnace size limit in the no-new-standards case, based on the assigned input capacity (which reflects historical oversizing) and efficiency. DOE relied on the ASHRAE 103–1993 test procedure, ‘‘Method of Testing for Annual Fuel Utilization Efficiency of Residential Central Furnaces and Boilers,’’ (incorporated by referenced in the DOE residential furnace and boiler test procedure) 209 to estimate that the typical oversize factor used to size furnaces was 70 percent (i.e., the furnace capacity is 70-percent greater than required to heat the home under heating outdoor design temperature (‘‘ODT’’) conditions). If the input capacity of the furnace determined using a reduced oversize factor of 10 to 40 percent is less than or equal to the input capacity limit for small furnaces, DOE assumed that the consumer would downsize his or her furnace. DOE believes that an oversize factor of 10–40 percent is realistic because ACCA recommends a maximum oversize factor of 40 percent.210 Note that the 10 percent is the maximum downsizing, but in many cases, the actual downsizing is less because the resulting input capacity is rounded up to the nearest input capacity bin in 5 kBtu/h increments, and the unit is downsized up to the maximum small furnace size limit criteria. DOE has found that the available data regarding oversizing of furnaces in the existing stock indicate that an average oversizing in past installations of 70 percent is likewise reasonable.211 DOE 209 10 CFR part 430, subpart B, appendix N. recommends oversizing by a maximum of 40 percent. ACCA. See Manual S—Residential Equipment Selection (2nd Edition). (Available at https://www.acca.org/standards/technicalmanuals/manual-s) (Last accessed August 1, 2023) 211 City of Fort Collins, Evaluation of New Home Energy Efficiency: Summary Report (June 2002) (available at: www.fcgov.com/utilities/img/site_ specific/uploads/newhome-eval.pdf) (last accessed August 1, 2023). Pigg, Scott, What you need to know about residential furnaces, air conditioners and heat pumps if you’re NOT an HVAC professional (Feb. 2017) (available at: www.duluthenergydesign.com/ Content/Documents/GeneralInfo/ PresentationMaterials/2017/Day2/What-You-NeedPigg.pdf) (last accessed August 1, 2023). Energy Center of Wisconsin, Electricity Use by New Furnaces: A Wisconsin Field Study (2003) (available at: www.proctoreng.com/dnld/ WIDOE2013.pdf) (last accessed August 1, 2023). Burdick, Arlan, Strategy Guideline: Accurate Heating and Cooling Load Calculations. Ibacos, Inc. (June 2011) (available at: www.nrel.gov/docs/ fy11osti/51603.pdf) (last accessed August 1, 2023). 210 ACCA PO 00000 Frm 00085 Fmt 4701 Sfmt 4700 87585 acknowledges that the oversizing varies among furnace installations, and, thus, DOE assigned an oversizing factor to each household based on the furnace sizing methodology described in section IV.E.2 of this document (which rank ordered the estimated design heating load and matched to furnace shipments by input capacity). The actual oversizing factor in the analysis for a given existing household or building varies from 0 percent to 275 percent (85 percent on average). DOE continues to expect that in the case of an energy conservation standard that allows small furnaces to use noncondensing technology, some consumers would have a financial incentive to downsize their furnace. Even without oversizing, a furnace installation should be designed to handle dry-bulb temperatures that will occur 99 percent of the time. Therefore, handling nearly all extreme conditions is already accounted for when selecting the unit, so a 10–40 percent oversizing should provide ample allowance for the most extreme conditions that might occur. Thus, DOE reasons that there would be no loss of utility or comfort under the Department’s approach. DOE acknowledges that there could be cases where downsizing might not be advantageous. Therefore, for this final rule, DOE assumed that not all consumers would downsize when the oversize factor of 10–40 percent is less than or equal to the assumed input capacity limit for small furnaces. In addition, DOE conducted several sensitivity analyses of its downsizing methodology, assuming no downsizing as well as higher and lower levels of downsizing. See appendix 8M of the final rule TSD for further details. PHCC commented that current furnace models (both condensing and non-condensing) will have problems with oversizing, as excessive temperature rise can be detrimental to the life of the furnace, and that selecting excessive fan speed to compensate for the excess temperature rise will produce very drafty conditions. The commenter further stated that professional contractors have been accurately sizing equipment, despite ACCA references to limit oversizing to 40 percent. Finally, Ecovent, When Bigger is not Better (August 2014) (available at: docplayer.net/13225631-When-biggerisn-t-better.html) (last accessed August 1, 2023). Energy Center of Wisconsin, Central Air Conditioning in Wisconsin (May 2008) (available at: www.focusonenergy.com/sites/default/files/ centralairconditioning_report.pdf) (last accessed August 1, 2023). Washington State University, Efficient Home Cooling (2003) (available at: www.energy.wsu.edu/documents/AHT_ Energy%20Efficient%20Home%20Cooling.pdf) (last accessed August 1, 2023). E:\FR\FM\18DER2.SGM 18DER2 87586 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations although PHCC acknowledged that the exact furnace size required for a space is not always available, the commenter stated that contractors will select the next incremental size and be reluctant to select equipment below the ‘‘design day capacity,’’ as weather and needs vary. (PHCC, No. 403 at p. 4) DOE acknowledges that complex factors are relevant when contractors size equipment. However, as discussed previously, DOE has found multiple sources of data to indicate an average oversizing factor in historical installations and has used those data in the analysis. PHCC commented that DOE’s assumption that consumers have financial incentive to downsize products indicates that costs are a concern for them and that consumers are aware of the economic impacts of furnace sizing. (PHCC, No. 403 at p. 4) In response, DOE acknowledges that the initial total installed cost of a consumer furnace may result in a consumer making an alternative choice instead of a like-for-like replacement. For potential standard levels that include a capacity cutoff, below which the standard is not amended, DOE estimates some fraction of consumers would instead opt to purchase a slightly lower capacity furnace at a lower efficiency instead of a higher capacity furnace at the new efficiency level. DOE’s analysis similarly accounts for consumers who may choose to extend the life of their existing furnace with additional repairs, or switch to an electric space heat alternative altogether. All of these potential options are accounted for in the analysis, as discussed in further detail in chapter 8 of the final rule TSD. For this final rule, DOE analyzed the potential for similar separate energy conservation standards for small and large MHGFs as it did for NWGFs. a. Accounting for Impacts of Downsized Equipment The estimated degree of downsizing anticipated in the case of a noncondensing standard for small NWGFs and MHGFs is presented in Table IV.14 under the criteria of various ‘‘small furnace’’ definitions. For further details regarding this downsizing methodology, see appendix 8M of the TSD for this final rule. This appendix also presents sensitivity analysis results. TABLE IV.11—SHARE OF LCC SAMPLE HOUSEHOLDS MEETING SMALL FURNACE DEFINITION IN 2029 NWGFs Without amended standards (percent) Small furnace definition khammond on DSKJM1Z7X2PROD with RULES2 ≤40 kBtu/h ........................................................................................................... ≤45 kBtu/h ........................................................................................................... ≤50 kBtu/h ........................................................................................................... ≤55 kBtu/h ........................................................................................................... ≤60 kBtu/h ........................................................................................................... ≤65 kBtu/h ........................................................................................................... ≤70 kBtu/h ........................................................................................................... ≤75 kBtu/h ........................................................................................................... ≤80 kBtu/h ........................................................................................................... ≤85 kBtu/h ........................................................................................................... ≤90 kBtu/h ........................................................................................................... ≤95 kBtu/h ........................................................................................................... ≤100 kBtu/h ......................................................................................................... 10. Accounting for Product Switching Under Potential Standards During the development of the 2006 NOPR for consumer furnaces, manufacturers commented that when presented with potential standards for non-weatherized gas furnaces set at a level effectively requiring condensing technology, they expect consumers to switch to heat pumps or repair their existing equipment due to the increased cost of condensing non-weatherized gas furnaces. 71 FR 59204, 59230–59231 (Oct. 6, 2006). During the development of the 2011 direct final rule for consumer furnaces, some commenters again stated that a furnace standard set at a level effectively requiring condensing furnaces would cause some consumers to switch from gas furnaces to electric resistance heating or heat pumps. 76 FR 37408, 37483 (June 27, 2011). For the 2011 direct final rule, VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 PO 00000 Frm 00086 Fmt 4701 Sfmt 4700 With separate small furnace standard and downsizing (percent) 3.0 4.4 6.2 7.4 18.8 20.3 30.4 41.5 54.6 56.4 63.7 63.7 81.7 DOE did not explicitly quantify this potential for product switching, assuming that such switching was likely minimal in response to standards. Id. at 76 37483–37484. As part of the development of the March 2015 NOPR during informal workshops, some commenters again stated that consumers might switch to alternative electric heating systems due to a standard set at a level effectively requiring condensing furnaces. As noted previously, DOE recognizes that consumers may elect to switch from one heating source to another. Those consumer choices are affected by many factors. As commenters to this proposed rule and prior rules have noted, one such factor is the furnace efficiency standard itself. Accordingly, in this rulemaking, DOE has considered the potential for a standard level to impact the choice between various types of MHGFs 13.6 16.7 19.7 21.4 29.5 31.5 38.7 47.1 57.5 59.4 65.8 66.2 82.2 Without amended standards (percent) 5.6 9.7 12.7 13.8 29.0 32.8 43.6 59.6 82.9 85.9 92.0 92.0 98.7 With separate small furnace tandard and with downsizing (percent) 14.6 18.4 21.9 23.6 35.2 39.0 48.5 63.3 84.4 87.3 92.4 92.5 98.7 heating products, for residential new construction, new owners, and the replacement of existing products. Because home builders are sensitive to the initial cost of heating equipment, a standard level that significantly increases purchase price may induce some builders to switch to a different heating product than they would have otherwise installed in the no-newstandards case. Such an amended standard level may also induce some homeowners to replace their existing furnace at the end of its useful life with a different type of heating product. The central assumption is that, for consumers to switch, the total installed cost of the alternative heating equipment would be less than the cost of a new consumer furnace at the amended standard level (operating costs may or may not be higher). E:\FR\FM\18DER2.SGM 18DER2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 In conducting this analysis, DOE has remained focused on the covered products subject to this rulemaking— consumer furnaces. That is, this analysis is intended to inform DOE’s assessment of whether the standard level proposed is ‘‘economically justified’’ ‘‘for [the] type (or class) of covered product.’’ 42 U.S.C. 6295(o)(2)(A). To assess the effect of fuel switching, DOE modeled the proposed standard under two scenarios. The first scenario assumed no switching at all; that is, it assumed that consumers faced with negative LCCs as a result of the standard would nevertheless make those investments (the zero-switching scenario). Under the second scenario, DOE assumed that every consumer for whom switching would be economically justified (according to simplified assumptions, detailed below), would do so (the maximum-switching scenario). These scenarios are intended to bookend the range of reasonably plausible switching results foreseeable as a result of this rule. The assumptions underlying the maximum-switching scenario are intentionally simplified. The purpose of this scenario is not to model consumers’ actual expected behavior, but rather to estimate an outer bound for the possible range of responses. Accordingly, DOE has not attempted to incorporate into this model the market inefficiencies and consumer biases known to shape consumers’ actual purchasing decisions. Instead, by assuming perfect economic rationality, this model produces an estimate of the most switching reasonably foreseeable as a result of this rule. The results of these two estimates confirm DOE’s conclusion that the proposed standard level is economically justified. That is, whether DOE assumes that no consumers will switch fuels as a result of the rule or assumes that the maximum reasonably foreseeable number of consumers will do so, the rule is economically justified. The analysis underlying that conclusion is explained further below. a. Product Switching Resulting From Amended Standards for NonWeatherized Gas Furnaces In order to estimate the impact of potential product switching resulting from amended standards, DOE developed a consumer choice model to estimate the switching response of builders and homeowners in residential installations to potential amended AFUE standards for NWGFs. (Potential product switching for MHGFs is discussed in the following subsection.) However, the potential consumer VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 switching response is highly uncertain, as this represents a significant change in residential heating equipment. Given this uncertainty, DOE chose to bound the range of potential impacts by analyzing several scenarios, including a scenario with no product switching, scenarios with a moderate amount of product switching, and an additional scenario with a much higher percentage of consumers switching to heat pump systems due to the potential availability of tax credits. By analyzing this range of scenarios, DOE can determine whether the potential for product switching affects its evaluation of economic justification. For the purposes of the reference case analysis, DOE assumed a moderate level of product switching. DOE analyzed product switching scenarios that represent the most common combinations of space conditioning and water heating products. The model considers three options available for each sample home when installing a heating product: (1) a NWGF that meets a particular standard level, (2) a heat pump, or (3) an electric furnace. In addition, for situations in which installation of a condensing furnace would leave an ‘‘orphaned’’ gas water heater requiring costly re-venting, the model allows for the option to purchase an electric water heater as an alternative. For option 2, DOE took into consideration the age of the existing central air conditioner, if one exists, by including its residual value in the choice model. If an existing air conditioner is not very old, it is unlikely that the consumer would opt to install a heat pump, which can also provide cooling. The consumer choice model calculates the PBP between the higherefficiency NWGF in each standards case compared to the electric heating options using the total installed cost and firstyear operating cost for each sample household or building. The operating costs take into account the spaceheating load and the water heating load for each household, as well as the energy prices over the lifetime of the available product options.212 DOE accounted for any additional installation costs to accommodate a new product. DOE also accounted for the cooling load of each relevant household that might switch from a NWGF and 212 Electric furnaces are estimated to have the same lifetime as NWGFs (21.5 years); however, heat pumps have an estimated average lifetime of 19 years. To ensure comparable accounting, DOE annualized the installed cost of a second heat pump and multiplied the annualized cost by the difference in lifetime between the heat pump and a NWGF. PO 00000 Frm 00087 Fmt 4701 Sfmt 4700 87587 central air conditioners (‘‘CAC’’) to a heat pump. For switching to occur, the total installed cost of the electric option must be less than the NWGF standards case option. DOE used updated CAC and heat pump prices from the 2016 CAC and heat pump direct final rule,213 assuming implementation of the CAC/HP minimum standards scheduled to take effect in 2023. 82 FR 1786 (Jan. 6, 2017). These heat pump prices include the manufacturer production costs, shipping costs, markups, and installation costs determined in the 2016 final rule. These costs were updated to 2022$ and the installation costs were updated using the same labor costs as discussed in section IV.F.2 of this document. DOE additionally updated the decreasing price trend for heat pumps derived in the 2016 final rule with the latest price data available. This trend suppresses the cost of heat pumps over time for the analysis period in this rulemaking. The consumer choice model assumes that if a consumer switches to a heat pump, it is to a minimally compliant heat pump (SEER 14). If consumers were to instead install higher efficiency heat pumps, this would generally increase heat pump installation costs, lowering the rate of equipment switching. DOE estimated the price of electric furnaces in the engineering analysis (see section IV.C of this document). For water heaters, DOE used efficiency and consumer prices for models that meet the amended energy conservation standards that took effect on April 16, 2015. 10 CFR 430.32(d). DOE estimated the price of gas and electric storage water heaters based on the 2010 heating products final rule. 75 FR 20112 (April 16, 2010).214 For situations where a household with a NWGF might switch to an electric space-heating appliance, DOE determined the total installed cost of the electric heating options, including a separate circuit up to 100 amps that would need to be installed to power the electric resistance heater within an electric furnace or heat pump, as well as the cost of upgrading the electrical service panel for a fraction of households. For the purposes of the reference case analysis, the consumer choice model 213 U.S. Department of Energy-Office of Energy Efficiency and Renewable Energy, Residential Central Air Conditioners and Heat Pumps Technical Support Document (available at: www.regulations.gov/document/EERE-2014-BTSTD-0048-0098) (last accessed August 1, 2023). 214 U.S. Department of Energy-Office of Energy Efficiency and Renewable Energy, Heating Products Final Rule (available at: www.regulations.gov/ document?D=EERE-2006-STD-0129-0005) (last accessed August 1, 2023). E:\FR\FM\18DER2.SGM 18DER2 87588 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 needs to be calibrated to an available data point. The decision criterion in DOE’s model was based on proprietary survey data from Decision Analyst, collected from five separate surveys conducted between 2006 and 2022.215 Each survey involved approximately 30,000 homeowners. For a representative sample of consumers, the surveys identified consumers’ willingness to purchase more-efficient space-conditioning systems. The surveys asked respondents the maximum price they would be willing to pay for a product that was 25 percent more efficient than their existing product, which DOE assumed is equivalent to a 25-percent decrease in annual energy costs. From these data, as well as RECS billing data to determine average annual space-heating energy costs, DOE determined that consumers considering replacing their gas furnace would require, on average, a payback period of 3.5 years or less in order to purchase a condensing furnace rather than switch to an electric space-heating option. This resulting payback period requirement is very short, consistent with other studies discussed in section IV.F.8.c of this document that found consumers and organizations often have very short payback period requirements, despite the longer-term economic benefits, thereby leading to suboptimal allocation of energy efficiency as a decisional factor. This relatively low payback period requirement means that consumers are quite sensitive to first costs, and as such, this will tend to dominate the switching criterion. The consumer choice model calculates the PBP between the condensing NWGF in each standards case compared to the electric heating options using the total installed cost and first-year operating cost as estimated for each sample household or building. For switching to occur, the total installed cost of the electric option must be less than the NWGF standards case option. The model assumes that a consumer will switch to an electric heating option if the PBP of the condensing NWGF relative to the electric heating option is greater than 3.5 years or the PBP relative to the electric heating option is negative.216 In the case of switching to an electric heating option, the model selects the most economically beneficial 215 Decision Analysts, 2006, 2008, 2010, 2013, 2016, 2019, and 2022 American Home Comfort Studies (available at: www.decisionanalyst.com/ Syndicated/HomeComfort/) (last accessed August 1, 2023). Non-proprietary data of a similar nature were not available. 216 The PBP is negative when the electric heating option has lower operating cost compared to the condensing NWGF option. VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 product. For the proposed energy conservation standard, the switching fraction of NWGF consumers is 8.9 percent, and the switching fraction of MHGF consumers is 8.5 percent. This consumer model may overestimate the level of product switching that would occur, as not every consumer is likely to run through this PBP calculation to determine whether to switch or not. Familiarity bias and likefor-like replacement bias may reduce the impact of product switching. However, as previously mentioned, DOE developed several scenarios in order to place upper and lower limits on this effect, including a scenario in which no product switching occurs and a scenario with significantly more product switching. Analyzing all these scenarios allows DOE to account for the identified uncertainty in this consumer response. DOE acknowledges that the consumer survey data it used to determine the switching criterion do not directly address the consumer choice to switch heating fuels, but because the data reflect a trade-off between first cost and ongoing savings, it is reasonable to expect that the payback criterion is broadly reflective of the potential consumer behavior regarding switching. Furthermore, the fuel switching results from DOE’s analysis match the overall findings from the GTI Fuel Switching Study (see appendix 8J of the final rule TSD), which surveyed both contractors and home builders. In addition to the primary estimate, DOE conducted sensitivity analyses using higher and lower levels of switching, as well as a scenario with no switching. The sensitivity analyses use payback periods that are one year higher or lower than 3.5 years (i.e., 2.5 years and 4.5 years). DOE also analyzed a scenario in which potential tax credits (up to $2,000) significantly reduce the cost of installing a heat pump system, thereby incentivizing even more consumers to switch from nonweatherized gas furnaces to heat pumps. This scenario represents an upper bound on the fraction of consumers switching to alternative heating equipment in response to amended energy conservation standards for NWGFs.217 The relative comparison of the standard levels analyzed for NWGFs remains similar, regardless of the 217 DOE notes that any product switching that may occur in the absence of amended energy conservation standards due to tax credits is discussed in section IV.G of this document. Such switching would not be relevant in the LCC analysis as those consumers would switch in the no-newstandards case and thus not be part of the furnaces LCC sample anymore. PO 00000 Frm 00088 Fmt 4701 Sfmt 4700 switching scenario (including the scenario with no switching), as shown in appendix 8J of the final rule TSD. The average LCC savings and percentage of consumers experiencing a net cost vary between the different switching scenarios; however, at the adopted standard level, the average LCC savings are positive, and the percentage of consumers experiencing a net cost is below 25 percent in all scenarios. Therefore, DOE’s evaluation of economic justification for NWGFs does not depend on the specific details or assumptions regarding product switching, and DOE would come to the same conclusions regarding economic justification even if the impacts of the fuel switching analysis were not included. In response to the NOPR, APGA commented that DOE’s statutory interpretation that the incorporation of the results of fuel switching into the LCC analysis is permissible is contrary to clear intent of Congress. (APGA, No. 387 at pp. 19–20) APGA further commented that it is unlawful for DOE to compel fuel switching in a rule and that Congress intentionally designed EPCA to be fuel neutral—and specifically between gas furnaces and electric alternatives. APGA argued that EPCA requires DOE to consider the possibility of fuel switching and set a standard that ‘‘is not likely to result in a significant shift from gas heating to electric resistance heating with respect to either residential construction or furnace replacement.’’ APGA claimed that DOE allows fuel switching in some cases and not in others—for example depending on degree. APGA disagreed with DOE’s interpretation given a plain reading of the statute and upon the strength of the legislative history. (APGA, No. 387 at pp. 36–39) AGA similarly stated that it is improper for DOE to include LCC savings associated with fuel switching in the energy saving and economic justification of a consumer natural gas furnace standard. (AGA, No. 405 at pp. 74–77) AGA further argued, similarly to APGA, that the proposed rule would unlawfully compel many consumers to switch from gas to electric appliances. AGA argued that when Congress gave the Department authority to establish new standards for furnaces, it specified that those standards must not be ‘‘likely to result in a significant shift from gas heating to electric resistance heating with respect to either residential construction or furnace replacement,’’ and, therefore, the legislative history demonstrates that Congress did not intend for energy conservation standards to allow DOE to favor one fuel E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations over another or limit consumer choice. (AGA, No. 405 at pp. 102–103) AGA argued that Congress designed the energy conservation standard program to be fuel-neutral and prevent fuel switching. (AGA, No. 405 at p. 105) HARDI commented that the NOPR did not meet the requirements outlined by EPCA, stating that the statute prescribes that standards cannot ‘‘result in a significant shift from gas heating,’’ and that the fuel-switching analysis does not demonstrate this requirement has been met. (HARDI, No. 384 at pp. 3–4) NPGA stated that because the proposed minimum efficiency level can only be achieved using condensing technology that requires a condenser and venting configurations that differ from atmospherically drafted furnaces, the proposal exceeds authority under EPCA, unlawfully compels fuel switching from gas furnaces to electric alternatives, and imposes design requirements. (NPGA, No. 395 at p. 2) NPGA further stated that Congress gave DOE authority to promulgate standards, but such standards must not be ‘‘likely to result in a significant shift from gas heating to electric resistance heating with respect to either residential construction or furnace replacement.’’ NPGA commented that the proposed standard is contrary to this requirement because it is so uneconomical that it is predicted to force consumers from gas furnaces to electric alternatives, such as electric resistance heating or heat pumps. (NPGA, No. 395 at p. 4) NPGA cited Senate and Congressional reports from 1986 and 1987 discussing the standards to be set for small gas furnaces, in order to show that Congress did not want to set standards for small gas furnaces that would impact competition between fuel sources and cause a significant switch to electric resistance heating. (NPGA, No. 395 at pp. 4–8) NPGA commented that contrary to the intent of Congress, DOE’s proposal embraces fuel switching, biases against gas in favor of electricity, and harms an important industry vital to consumer wellbeing. (NPGA, No. 395 at pp. 8–9) The Heartland Institute expressed concern that consumers will switch from natural gas to less-efficient electricity or heat their homes in a dangerous or more inefficient manner, stating that this is unlawful and that EPCA is designed to be fuel-neutral. (Heartland Institute, No. 376 at pp. 1– 2) The Georgia Gas Authority commented that the lack of economic justification and the effect of driving consumers towards fuel-switching makes the proposed rule unlawful under EPCA. (Georgia Gas Authority, No. 367 at p. 2) Spire commented that VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 DOE’s fuel switching analysis is inconsistent with EPCA’s statutory scheme because it fails to provide comparisons between the cost of furnaces with the required efficiency improvements and the value of the operating cost savings those efficiency improvements would provide as a result of the standard. (Spire, No. 413 at pp. 45–46) Spire also commented that the proposed standards promote electrification rather than conserve energy through efficiency in gas products, thereby conflicting with EPCA and being inconsistent with the overall statutory scheme. (Spire, No. 413 at pp. 2, 43–49) Finally, Spire commented that the fuel-switching analysis occurs in instances without new standards, and that the fuel-switching numbers provided include those instances. (Spire, Public Meeting Webinar Transcript, No. 4099 at p. 15) The following paragraphs explain DOE’s rationale as to why the Department’s amended standard and fuel switching analysis are appropriate and are consistent with EPCA. First, DOE has concluded that the amended standards it is adopting for NWGFs and MHGFs are performancebased energy conservation standards that meet all relevant statutory requirements. As explained in section II.B of this document, DOE has determined that non-condensing technology and associated venting do not constitute a performance-related ‘‘feature’’ under 42 U.S.C. 6295(o)(4), consistent with the Department’s December 2021 Final Interpretive Rule. Consequently, DOE is not making any covered product with a performancerelated feature unavailable as a result of this rulemaking. These furnace standards are AFUE-based standards, which reflect efficiencies that are achieved by furnaces currently on the market. Although such levels are typically achieved by use of condensing technology, DOE does not mandate any specific technology or design to be used for meeting the standard, thereby allowing manufacturers maximum flexibility in terms of incorporating future technological advancements they deem appropriate. In the end, DOE has determined that the adopted furnace standards would result in the maximum energy savings that are technologically feasible and economically justified. Because these standards have been set in accordance with the applicable statutory criteria, DOE finds Spire’s and NPGA’s assertions that DOE has exceeded its statutory authority to be without merit. So, too, DOE finds without merit Spire’s comments that these standards seek to promote PO 00000 Frm 00089 Fmt 4701 Sfmt 4700 87589 electrification rather than to improve the energy efficiency of gas furnaces or that DOE’s rule evidences a bias against gas. Consistent with EPCA’s mandate, DOE has established product classes for each fuel source—gas, oil, and electricity—and set standards for those classes based on the criteria EPCA requires, i.e., to achieve the maximum improvement in energy efficiency which the Secretary determines is technologically feasible and economically justified. (42 U.S.C. 6295(o)(2)(A)) Second, DOE has concluded that an analysis of potential fuel switching effects is appropriate and consistent with EPCA. Initially, DOE notes that its analysis of fuel switching in the context of furnaces was initiated at the request of commenters who urged the Department to analyze such effects. As discussed previously, even in the absence of standards, consumers of HVAC appliances have a number of choices in terms of product selection in the current marketplace. For example, some number of consumers voluntarily switch their home heating system in any given year to a heat pump from a gas furnace, and some number of consumers switch from a gas furnace to an electric furnace. Understanding such routine changes is necessary for DOE to properly analyze the base case in any standards rulemaking, particularly as it relates to annual product shipments. DOE sees no reason why such realworld effects should be ignored in the standards cases. Instead, the failure to properly account for such effects would be inconsistent with EPCA’s direction to consider whether the standard is economically justified, accounting for, among other things, future product shipments. (See 42 U.S.C. 6295(o)(2)(B)(i)(I) and (III)) Consistent with that recognition, DOE has analyzed potential changes in consumer behavior in a number of other rulemakings—and without controversy in terms of the permissibility under EPCA of considering such effects. DOE has analyzed the impacts of a potential standard on out-of-scope products as well as cross-elasticities between different product classes in other rulemakings.218 DOE cautions that any primary analysis that refuses to acknowledge the potential for fuel switching (product switching) ignores reality, so DOE has continued to include the fuel switching model as part of its analysis, in order to provide the most accurate assessment of the costs and benefits of this rulemaking. However, as 218 For example, general service fluorescent lamps, motors, and clothes washers. E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 87590 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations discussed in the paragraph that follows, DOE has performed sensitivity analyses which assessed the effects of DOE’s proposed standards if there were to be no fuel switching (see appendix 8J of the final rule TSD). DOE’s sensitivity analysis shows that the rule would be economically justified even if consumers were assumed to forgo economically beneficial opportunities to switch from gas furnaces to electric heat pumps. For example, with the reference case switching assumptions, DOE estimates that 18.7 percent of NWGF consumers would experience a net cost with average LCC savings of $350. Assuming no switching, DOE estimates that 21.6 percent of consumers would experience a net cost with an overall average LCC savings of $164 across all consumers. In either case, DOE considers the amended standard level to be economically justified. Thus, even if EPCA required the Department to ignore the likely realworld effects of its standards, and instead compelled an analysis that assumed consumers would eschew all fuel-switching, the resulting analysis would produce the same results: the standards adopted for gas-fired furnaces by this rule would still be the standards that achieve the maximum improvement in energy efficiency and that are technologically feasible and economically justified. The amended standards plainly do not compel fuel switching. DOE’s rule does not ban gas furnaces, and the Department has concluded that there are technological solutions available to allow continued installation of gas-fired furnaces for virtually all installation scenarios, as discussed in section IV.F.2 of this document. Consequently, DOE’s rule does not compel any consumer to convert to an electric space-heating product, and consumers continue to have a variety of choices to suit their needs. DOE does acknowledge (and accounts for in its analysis) that in certain difficult installation situations with higher costs, consumers may choose to change their HVAC equipment to a product using a different fuel type, but as previously discussed, DOE expects this percentage to be small. Furthermore, newer technology options such as DuraVent FasNSeal may further reduce the prevalence and cost of such problematic installations. Although gas industry commenters have made numerous qualitative arguments regarding such installations, they have provided no data to demonstrate the quantitative impacts or to show that DOE’s estimates are incorrect. DOE also finds no basis to support the Heartland Institute’s assertion that consumers who VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 choose to change their home heating product would face safety challenges or encounter a lack of energy-efficient alternatives; DOE’s energy conservation standards for any of its covered spaceheating products set minimum energy efficiency requirements for those products, and there are typically a variety of even more efficient products available on the market. DOE further has found that there are trained and qualified personnel available to adequately install and service such products, thereby alleviating any potential safety or reliability concerns. Finally, DOE clarifies the concept of fuel neutrality. Contrary to commenters’ arguments, EPCA does not contain a general fuel-neutrality provision. In addition, in several specific provisions, EPCA requires particular consideration of fuel switching and the utility consumers derive from different fuels. DOE has adhered to these requirements of EPCA, as applicable. The Department has made clear in other rules that ‘‘DOE does not agree that EPCA, as amended, mandates fuel neutral energy conservation standards.’’ See Full-FuelCycle Final Statement of Policy, 76 FR 51281, 51284 (August 18, 2011). In that document, DOE confirmed that it will continue to consider comparable products that use different fuels in separate classes as required by 42 U.S.C. 6295(q)(1). Id. As explained in DOE’s August 2021 proposed interpretive rule, fuel switching is a natural part of market operation for the subject appliances, and it may occur even in the absence of amended energy conservation standards. The Department has recognized that ‘‘fuel switching occurs frequently and most certainly in the context of new energy conservation standards.’’ 86 FR 48049, 40856 (August 27, 2021). Installation costs may influence consumer decisions regarding fuel choice, and at any time, a segment of consumers may choose replacement products that rely on a different fuel source than that of the unit being replaced. Id. Because fuel switching may be impacted by the adoption of standards, when conducting an energy conservation standards rulemaking, the Department routinely accounts for potential fuel switching in its consumer choice model, which is one part of its full suite of analyses. Accordingly, ‘‘[a]lthough DOE typically analyzes fuelswitching effects, the agency is generally free to set an appropriate level under the applicable statutory criteria regardless of any ancillary fuel switching effects.’’ Id. Consequently, to the extent EPCA imposes a general principle of fuel-neutrality, DOE has PO 00000 Frm 00090 Fmt 4701 Sfmt 4700 understood that principle to be ‘‘violate[d]’’ only by ‘‘a degree of fuel switching that is much greater than typically found in DOE energy conservation standards rulemakings.’’ Id. The specific provision to which gas industry commenters cite in support of their fuel-neutrality argument is not applicable to this rulemaking. Specifically, commenters rely on a provision requiring DOE to determine that a particular energy conservation standard not ‘‘result in a significant shift from gas heating to electric resistance heating with respect to either residential construction or furnace replacements’’ (see 42 U.S.C. 6295(f)(1)(B)(iii)). However, commenters ignore the limited applicability of that provision. That limitation is one of three requirements applicable to DOE’s issuance of an energy conservation standard for small furnaces (i.e., less than 45,000 BTUs) (see 42 U.S.C. 6295(f)(1)(B)(i)), for which DOE was required to establish standards no later than January 1, 1989 (see Id. at 42 U.S.C. 6295(f)(1)(B)). DOE discharged that obligation by rulemaking in 1989. See Energy Conservation Program for Consumer Products: Energy Conservation Standards for Two Types of Consumer Products, 54 FR 47916 (Nov. 17, 1989). The statutory provision to which commenters point demonstrates that Congress knew how to address concerns about fuel neutrality, doing so explicitly at the relevant place in the statute; Congress did not choose to adopt fuel neutrality provisions in other, broader provisions of EPCA’s rulemaking authority. The commenters seek to expand the reach of that provision to all subsequent furnace rulemakings. As explained subsequently, neither the language of the statute nor the legislative history support such a broad expansion of this fuel-neutrality limitation. Congress did not place this fuel neutrality requirement in a provision of EPCA applicable to all rulemakings or even in a separate provision applicable to all furnace rulemakings. Instead, this specific limitation was included in a grant of authority for a single rulemaking to be completed by January 1, 1989, establishing an energy conservation standard for furnaces (other than furnaces designed solely for installation in mobile homes) having an input of less than 45,000 Btu per hour and manufactured on or after January 1, 1992. (42 U.S.C. 6295(f)(1)(B)(i)) The statute further provided that DOE’s final rule must be set at an AFUE between 71 percent and 78 percent. (42 U.S.C. 6295(f)(1)(B)(ii)) Congress set specific E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations AFUE levels for most consumer furnaces by statute. (See Id. at 42 U.S.C. 6295(f)(1) and (2)) For this specific small furnaces rulemaking, however, Congress granted DOE discretion, but nevertheless imposed unusually prescriptive guidelines. Those specific guidelines make sense against a backdrop of otherwise congressionally mandated standards. However, they are entirely inconsistent with the general rulemaking authority Congress conferred upon the Department to set new or amended standards for covered products. The previous subsection makes this plain. Subsection (f)(1)(B)(ii) mandates that a January 1, 1989, regulation for ‘‘such furnaces’’—i.e., small furnaces manufactured after January 1, 1992—must set an AFUE between 71 and 78 percent. (Id. at 42 U.S.C. 6295(f)(1)(B)(ii)) But that provision is obviously inapplicable to all future furnace rulemakings. In its 1989 regulation, DOE established a standard for the small furnaces to which these provisions apply with an AFUE of 78 percent. In 2007, pursuant to EPCA’s requirement that DOE consider amended standards for consumer furnaces, DOE promulgated amended standards for furnaces—including both these small furnaces and furnaces of other sizes—which raised the AFUE standard to 80-percent AFUE for NWGFs, to 81-percent AFUE for weatherized gas furnaces, to 80-percent AFUE for MHGFs, and to 82-percent AFUE for non-weatherized oil-fired furnaces. Such a rule would have been impossible if the efficiency range specified by 42 U.S.C. 6295(f)(1)(B)(ii)— 71–78 percent AFUE—applied to that rulemaking. Of course, it did not, because 42 U.S.C. 6295(f)(1)(B)(ii) applied only to the Department’s initial small-furnace rulemaking in 1989. Commenters never explain why subsection (f)(1)(B)(iii)—proscribing a significant shift to electric resistance heating—should apply to future rulemakings while subsection (f)(1)(B)(ii) should not. Further, even if applicable to this rulemaking, the specific prohibition of 42 U.S.C. 6295(f)(1)(B)(iii) would have far less effect here than commenters assert. That section prevented DOE from setting a standard that would likely result in a significant shift from gas heating to ‘‘electric resistance heating.’’ Although that statutory requirement to avoid a shift to electric resistance heating was limited to the past rulemaking conducted under 42 U.S.C. 6295(f)(1)(B)(iii), DOE has concluded that the current rulemaking is also unlikely to drive a shift to electric VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 resistance heating. To the extent the standard at issue here may result in a shift, it is far more likely to result in a shift from gas heating to electric heat pumps, a different technology with very different characteristics. At the time these particular statutory provisions were adopted, electric heat pumps were not as common with low market share in regions traditionally heated by furnaces, but in the intervening years, the heat pump market has seen considerable development. Heat pumps are far more efficient than electric resistance heating and can be more energy efficient than gas-fired furnaces. It would pervert EPCA’s energy-savings purpose to infer from a prohibition on setting a standard likely to result in an inefficient shift an additional, a textual prohibition on setting a standard likely to result in an efficient one. Although the relevant statutory text is clear and controls, DOE nonetheless examined the legislative history to confirm its reading of the text, particularly since certain commenters advanced a contrary reading based at least in part on legislative history. This inquiry confirmed DOE’s understanding of the statutory text and likewise confirmed that the contrary reading espoused by those commenters is incorrect, for the reasons discussed subsequently. The legislative history that commenters cite supports the Department’s interpretation. In one set of remarks regarding amendments to EPCA, Senator Bennett Johnston, Chairman of the Senate Committee on Energy and Natural Resources, stated: We were concerned that if the Secretary establishes a standard for small gas furnaces at 78 percent, as originally proposed, the first cost differential between electric resistance heat and natural gas will increase to the point where builders will not even consider gas heat, particularly in southern areas where heating is a minor part of the overall residential energy requirement. With regard to the first cost, according to AGA, a 71percent efficient gas furnace costs $475. Electric-resistance-heating equipment costs on an average $350, a difference of $125. By contrast, a 78-percent efficient gas furnace entails additional installation and duct work cost estimated conservatively at $150 to $200. Thus, the builder could save some $500 per living unit by choosing electric resistance heat over a 78-percent efficient gas furnace. One of the main goals of this legislation is to encourage energy conservation without unduly altering the economics of fuel choices. This goal will be impaired unless the standard for small gas furnaces is set so as to avoid raising the cost of these furnaces to the point where builders are forced to select electric resistance heat instead of a gas furnace purely on the basis of first cost. PO 00000 Frm 00091 Fmt 4701 Sfmt 4700 87591 That is why I added language in our Energy and Natural Resources Committee report making it clear that the Secretary must pay due consideration to the need for utilities to continue to compete fairly when DOE considers setting the standard for small gas furnaces. I made it clear the committee was concerned that setting a standard for small gas furnaces at or near the 78-percent level mandated in the bill for larger gas furnaces would increase the first cost of the small gas furnace sufficiently to induce a significant switch to electric resistance heating. The report language goes on to say that the bill will, upon a sufficient showing, * * * forbid a standard for small gas furnaces being set at a level that would increase the price to the point that the product would be noncompetitive, resulting in minimal demand for the product.219 In Senate Report No. 99–497, the report states in relevant part: In addition, the Committee agreed to adopt specific report language clarifying its intent with respect to small furnaces; those having an input of less than 45,000 Btu’s per hour. The Committee did not establish an initial standard for small gas furnaces in the statute and instead directed the DOE to establish the standard by rule at an annual fuel utilization efficiency of not less than 71 percent and not more than 78 percent. The Committee was concerned that setting a standard for small gas furnaces, at or near 78 percent (the level for larger gas furnaces), would increase their initial price. Because of the competition between small gas furnaces and electric resistance heating in some areas of the Nation, such a price increase for small gas furnaces could induce builders or consumers to switch to electric resistance heating. No specific standard for electric resistance heating is included in this bill. Section 325(j) provides several safeguards against a standard for small gas furnaces being set at a level that results in a buying preference or significant switching from gas heating to electric resistance heating. The Secretary must consider the impact of any lessening of competition that is likely to result from the establishment of a standard for small furnaces. He must consider the economic impact of the standard on manufacturers and consumers. In addition, the Secretary must consider the total projected amount of energy savings likely to result from the establishment or revision of a standard for small furnaces. Finally, section 325(j)(4) forbids a standard being set so as to result in the unavailability in the United States in any covered product type (or class) of performance charact[e]ristics, such as size or capacity. This paragraph, upon a sufficient showing, would forbid a standard for small gas furnaces being set at a level that would increase the price to the point that the product would be noncompetitive and that would result in minimal demand for the product.’’ 220 Language from Senate Report 219 132 Cong. Rec. 31328 (Oct. 15, 1986) (emphasis added). 220 S. Rep. No. 99–497, at 5 (1986) (emphasis added). E:\FR\FM\18DER2.SGM 18DER2 87592 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations No. 100–6 similarly reflects Congress’s specific focus on small gas furnaces: ‘‘On page 23, lines 13 through 18, the Committee modified the language of the bill amending section 325(f)(1)(B) of EPCA to include an additional clause (iii). The purpose of the new clause is to clarify that, in setting an energy conservation standard for small gas furnaces (those having an input of less than 45,000 Btu’s per hour), the Secretary of Energy shall, in a manner which is otherwise consistent with this Act, establish the standard at a level between 71 percent and 78 percent AFUE ‘which the Secretary determines is not likely to result in a significant shift from gas heating to electric resistance heating with respect to either residential construction or furnace replacement. The Committee did not establish an initial standard for small gas furnaces in the statute and instead directed the DOE to establish the standard by rule at an annual fuel utilization efficiency of not less than 71 percent and not more than 78 percent. The Committee was concerned that setting a standard for small gas furnaces, at or near 78 percent (the level for larger gas furnaces), would increase their initial price. Because of the competition between small gas furnaces and electric resistance heating in some areas of the Nation, such a price increase for small gas furnaces could induce builders or consumers to switch to electric resistance hearing. No specific standard for electric resistance heating is included in this bill. Section 325(j) provides additional safeguards against a standard for small gas furnaces being set at a level that results in a buying preference or significant switching from gas heating to electric resistance heating (see section-by-section analysis).221 khammond on DSKJM1Z7X2PROD with RULES2 Although the legislative history reveals a broader statement 222 by one individual member of Congress, once again Senator Bennett Johnston, its breadth is an outlier which contrasts with his own later statements and committee report language which demonstrates a focus on the small furnaces standard. The grants of rulemaking authority at 42 U.S.C. 6295(f)(4) and 42 U.S.C. 6295(m)(1), on which this rulemaking relies, do not limit the Department’s discretion in the manner of 42 U.S.C. 6295(f)(1)(B)(iii). As relevant here, rather, the Department’s discretion under those provisions is constrained by the generally applicable limits found in 42 U.S.C. 6295(m), (o), (p), and (q). Those provisions disallow establishment of a standard likely to result in the unavailability of a feature (see 42 U.S.C. 221 S. Rep. No. 100–6, at 5–6 (emphasis added). 133 Cong. Rec. 545 (Jan. 6, 1987), Senator Johnston states, ‘‘One very sensitive aspect of this bill has been to minimize the effect it might have on the intense competition between the electric and gas industries. We don’t want the bill to have the effect of creating a significant bias against any fuel—be it oil, gas, or electricity—so as to favor one over the other.’’ 222 At VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 6295(o)(4)), and require establishment of a separate standard for any covered products that ‘‘consume a different kind of energy from that consumed by other covered products within’’ the regulated type of products (42 U.S.C. 6295(q)(1)(A)). The standards established by this final rule comport with these statutory requirements. AGA stated that it is improper for DOE to consider fuel switching as one of the benefits of the proposed standards. To be consistent with EPCA’s text, purpose, structure, and intent, AGA argued instead that the purported savings due to fuel switching must be subtracted from the analysis of whether the standards would be economically justified. (AGA, No. 405 at p. 105) In response, DOE notes that the impacts of fuel switching are not necessarily benefits. There are differences in costs and energy consumption compared to the no-new-standards case, and DOE is merely accounting for these differences in the sensitivity analysis described in this section. DOE has evaluated a variety of fuel-switching scenarios (including a scenario with no switching). The relative comparison of the standard levels analyzed for NWGFs remains similar, regardless of the switching scenario. The results for all scenarios are found in appendices 8J and 10E of the final rule TSD. Therefore, DOE’s evaluation of economic justification for NWGFs does not depend on the specific details or assumptions regarding product switching, and DOE comes to the same conclusions even if the impacts of fuel switching are not included. AGA argued that DOE also fails to acknowledge that with a condensing furnace, consumers will use more electricity, counteracting the fuel savings. AGA asserted that DOE should recognize that fuel switching, under the proposed rule, would increase overall energy consumption, which runs counter to the objectives of an energy conservation standard. (AGA, No. 405 at pp. 74–77) In response, DOE finds AGA’s claim to be incorrect and without merit. DOE’s analysis does account for the slight increase in electricity consumption for condensing furnaces compared to non-condensing furnaces, as presented in section IV.E.4 of this document, and the estimated energy savings of the rule incorporate this impact. DOE also accounts for the increase in electricity consumption if a consumer switches to a heat pump or electric furnace. These effects are incorporated in both the LCC analysis and national impact analysis. However, the energy savings from reduced natural gas consumption vastly outweigh the PO 00000 Frm 00092 Fmt 4701 Sfmt 4700 slight increase in electricity consumption. Furthermore, DOE fully accounts for these impacts in all fuelswitching scenarios. Even in scenarios where some fraction of consumers switch to an electric heating alternative, the energy savings from reduced natural gas consumption vastly outweigh the increase in electricity consumption. It would run counter to the purposes of EPCA to forgo such energy savings unnecessarily. Spire commented that forced transition to electric alternatives would increase energy consumption. (Spire, No. 413 at pp. 5–14) In response, DOE accounts for the increased electricity consumption as a result of product switching to electric alternatives in its analysis. APGA commented that DOE’s analysis fails to appropriately account for the increased emissions from the electricity sector that results from increased electrical energy consumption caused by fuel switching. (APGA, No. 387 at p. 29) AGA commented that DOE should fully examine the impacts fuel switching would have on the entire energy system, including utilities and end-use residential consumers. According to the commenter, fuel switching can impact existing and future natural gas utility and electricity consumers, so, therefore, the Department should thoroughly examine how fuel switching would impact future electricity generation, transmission, or distribution infrastructure requirements. (AGA, No. 405 at pp. 105–106) In response, DOE emphasizes that the impacts of fuel switching are incorporated in all parts of its analysis (as part of the reference new-standards scenario). This includes the impacts on end-use residential consumers, electric utilities, natural gas utilities, and emissions reductions or increases. The results do account for increased emissions from the electricity sector. The utility impact analysis specifically accounts for the effects of fuel switching. APGA opined that the estimates of potential switching in the TSD remain low, especially given financial incentives just passed by Congress in the Inflation Reduction Act, various initiatives of DOE to support lowincome households, and numerous State initiatives. According to APGA, another reason that DOE’s estimate of fuel switching is low is that DOE continues to underestimate the cost of difficult retrofits. The commenter reasoned that additional fuel switching to electric appliances decreases energy savings under DOE’s analysis. (APGA, No. 387 at pp. 33–34) As discussed more fully E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations subsequently, DOE has amended its shipments projection to account for existing policy initiatives with known impacts (see section IV.G.2 of this document), which has resulted in adjustments to the no-new-standards shipments projection. For the final rule, the shipments projected in 2050 are approximately 3 percent lower than was estimated in the NOPR. With respect to costs, DOE estimates its installation costs based on the best available data and information submitted by commenters, as discussed in section IV.F.2 of this document. DOE has evaluated all relevant information and data and has not identified any data that contradict its cost estimates. DOE concludes that its installation cost estimates are reasonable and representative and, therefore, that the resulting fuel-switching impacts are reasonable and representative. Finally, DOE accounts for all energy consumption differences compared to the no-new-standards case. In fuelswitching scenarios where some fraction of consumers switch to an electric heating alternative, the energy savings from reduced natural gas consumption vastly outweigh the increase in electricity consumption. Spire claimed that DOE employs a fuel-switching analysis that assumes that consumers facing higher initial costs will engage in fuel-switching and does not consider the economic outcome of an investment in a standards-compliant furnace. Spire further argued that this is statutorily prohibited, as it is not fuel-neutral and is not comparing directly within classes because the technology is changing (non-condensing to electric). Spire claimed that DOE’s fuel-switching analysis seeks to justify standards imposing economically unjustified efficiency by driving consumers to choose alternatives to gas furnaces. (Spire, No. 413 at pp. 43–44) In response, DOE finds that Spire is incorrect in its characterization of the analysis. The analysis considers the economic outcome of an investment in a standards-compliant furnace. Only a small fraction of consumers then opt for an electric alternative after this consideration. Even in the absence of amended standards, some portion of consumers with furnaces will choose to convert their home’s heating system to a heat pump, changes which reflect consumer choice and the availability of alternative space-heating appliances in the marketplace. As commenters acknowledge, amended standards are likely to have some effect on such consumer purchasing decisions, so it VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 would be inappropriate for DOE to fail to analyze these effects in both the nonew-standards case and standards cases. Furthermore, DOE evaluates a range of sensitivity scenarios with respect to fuel-switching assumptions, including a scenario with no fuel switching. The relative comparison of the standard levels analyzed for NWGFs remains similar, regardless of the switching scenario. The results for all scenarios are found in appendices 8J and 10E of the final rule TSD. Therefore, DOE’s evaluation of economic justification for NWGFs does not depend on the specific details or assumptions regarding product switching, and DOE would reach the same conclusions even if the impacts of fuel switching are not included. To be clear, contrary to the assertions of Spire and others, justification for the amended standards set by DOE in this final rule does not hinge on fuel-switching results. Spire commented that DOE’s analysis does not appear to account for base case fuel switching (i.e., fuel switching that would occur in the absence of new standards). (Spire, No. 413 at p. 50) In response, DOE notes that this assertion is incorrect. As previously mentioned, DOE incorporates existing market trends, including a shift to heat pumps and other heating alternatives in the absence of new standards, in its shipments projection and national impact analysis (see section IV.G of this document for further discussion). The LCC analysis specifically analyzes existing furnace consumers and the impacts on them due to a standard. Consumers that have already switched in the absence of a standard are not part of the LCC analysis, as they are not directly impacted by the rule; however, the reduction of future furnace shipments due to product switching will reduce overall energy savings in the national impact analysis, and that is accounted for in the analysis. Spire further argued that DOE’s assumptions appear to be designed to maximize LCC savings rather than to simulate actual consumer purchasing behavior. (Spire, No. 413 at p. 51) In response, DOE notes that this is a significant mischaracterization of the analysis. The incorporation of product switching is intended to capture a potential effect raised in previous comments. DOE evaluated a variety of fuel-switching scenarios (including a scenario with no switching). The relative comparison of the standard levels analyzed for NWGFs remains similar, regardless of the switching scenario. The results for all scenarios are found in appendices 8J and 10E of the final rule TSD. Therefore, DOE’s PO 00000 Frm 00093 Fmt 4701 Sfmt 4700 87593 evaluation of economic justification for NWGFs does not depend on the specific details or assumptions regarding product switching, and DOE reaches the same conclusions even if the impacts of fuel switching are not included. Spire argued that DOE’s fuelswitching analysis understates the adverse impacts of fuel switching resulting from the standards by significantly understating the costs associated with switching to heat pumps and ignoring the extent to which high initial costs and installation constraints can be expected to drive fuel-switching consumers to the worst option from an energy conservation perspective: electric resistance heating. (Spire, No. 413 at p. 15) Spire further argued that DOE arbitrarily limits the fuel-switching options to heat pumps and electric furnaces, ignoring the fact that baseboard heating is readily available, easy to install, and has extremely low initial costs. (Spire, No. 413 at p. 52) In response, DOE notes that its estimates of heat pump costs are based on the 2016 final rule technical support document for central air conditioners and heat pumps and adjusted to 2022$. These are the most recently published estimates by DOE. Heat pump costs are unlikely to have changed significantly in the intervening years, other than due to the dollar value (which was accounted for). DOE’s current analysis is consistent with the prior analysis specific to heat pumps. DOE further notes that the product-switching analysis considers alternative heating options that work with the existing ducted HVAC system. For a stand-alone gas furnace, the only other option is an electric furnace (i.e., electric resistance heating). For a system that includes both an air conditioner and a furnace, a heat pump becomes another comparable option. DOE also considers switching options related to a water heater that formerly shared an exhaust vent with a NWGF. Switching from a NWGF to electric baseboard heating requires extensive electrical work in all rooms of a home and a likely upgrade of the electrical panel, which likely costs several thousands of dollars. DOE disagrees that this is a low-cost option and estimates that very few consumers, if any, would switch to this option as a result of amended energy conservation standards, given the availability of other lower-cost alternatives. Additionally, DOE does not consider electric resistance space heaters as a viable space-heating alternative to a NWGF, because such heaters provide only localized heating utility as opposed to whole-home heating. E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 87594 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations Spire argued that fuel switching substantially increases overall carbon emissions and claimed that DOE is understating the adverse energy consumption and emissions impacts due to product switching. (Spire, No. 413 at pp. 5–6) In response, DOE notes that these assertions are incorrect and a mischaracterization of the analysis. Product switching does not substantially increase carbon emissions, and DOE evaluates a full range of energy savings and emissions impacts for all the switching sensitivity scenarios (including a scenario with no switching). The national impact analysis results for all scenarios are presented in appendix 10E of the final rule TSD. Although incorporating product switching decreases national energy savings (due to increased electricity consumption), in all scenarios, the rule will result in significant energy savings and emissions reductions compared to the no-new-standards case. The energy savings from reduced natural gas consumption vastly outweigh the increase in electricity consumption, when addressed on a comparable FFC basis. APGA stated that a 95-percent AFUE furnace costs nearly three times as much as an 80-percent AFUE natural gas furnace and that an average air-source heat-pump system could cost $5,000 to $10,000 to install, which the commenter claimed is several times more than a gas furnace. (APGA, No. 387 at p. 65) APGA further commented that the heat pumps and central air conditioners test procedure final rule that the July 2022 NOPR cited for its product prices did not clearly explain how the prices were developed. APGA questioned whether DOE used a different methodology to predict the future prices of heat pumps, and the commenter stated that these matters should be clearly explained in the final rule. (APGA, No. 387 at p. 53) DOE has described how it estimated furnace costs previously in significant detail. With respect heat pumps, as noted, DOE utilized the estimated costs published in the January 2017 direct final rule for central air conditioners and heat pumps. 82 FR 1786 (Jan. 6, 2017). The heat pump product switching analysis is only relevant for households with an existing air conditioning system, because adding an air conditioner or heat pump requires significant additional installation costs, as well as space requirements (including adding a concrete pad). Households without an existing air conditioning system are unlikely to switch to a heat pump in response to an amended standard for consumer furnaces, VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 whereas households with an existing (and aging) air conditioning system might opt to switch to a heat pump for both their heating and cooling needs. PHCC commented that DOE’s assumption that heat pump equipment costs will go down is incorrect, as material prices have increased due to the COVID–19 pandemic and resulting supply chain issues. PHCC further stated that heat pump costs are too low as estimated in the NOPR, and that the costs for adding power capacity and estimates of the number of homes that require additional power capacity are also too low. (PHCC, No. 403 at p. 5) In response, DOE acknowledges the supply chain issues that were prevalent during the COVID–19 pandemic; however, DOE estimates that by the first year of compliance (i.e., 2029) these constraints will no longer be relevant. DOE has also adjusted all cost estimates to $2022 to reflect recent inflation trends. Lastly, no additional data were submitted to support further adjustment of the number of homes that require additional power capacity. PHCC expressed uncertainty as to whether DOE’s updates related to heat pumps and to its fuel-switching analysis are sufficient, including whether the Department considered the impacts on the recent proposal to require a new refrigerant. (PHCC, No. 403 at pp. 4–5) In response, DOE notes that it incorporates the latest refrigerant requirements for heat pumps in its fuelswitching estimates. PHCC commented that the fuelswitching and repair information in Tables V.3 and V.4 of the NOPR are understated. (PHCC, No. 403 at p. 6) In response, DOE notes that the commenter did not provide any meaningful information or data to update or improve the analysis. DOE’s analysis is based on the best available data and information, including that submitted by commenters. DOE has evaluated all relevant information and data and has not identified any data that contradicts its estimates. Therefore, DOE concludes that its estimate of the percentage of consumers switching to an electric heating alternative or opting for extended repair are reasonable and representative. NGA of Georgia commented that the proposed rule will create a competitive disadvantage because the high initial cost of the installation requirements for condensing furnaces will cause consumers to switch from natural gas to less-efficient home heating alternatives such as oil, kerosene, and electric resistance furnaces. (NGA of Georgia, No. 380 at p. 3) In response, DOE disagrees that consumers will likely PO 00000 Frm 00094 Fmt 4701 Sfmt 4700 switch to oil or kerosene alternatives, as there are significantly higher operating and installation costs for those fuels. For example, as projected in AEO2023, the cost of fuel oil per MMBtu is more than double that of natural gas. Therefore, DOE does not include these fuels in its fuel-switching estimates. With respect to electric furnaces, DOE already accounts for a fraction of consumers that opt to switch to an electric furnace and includes these impacts in its analysis. The Georgia Gas Authority stated that the residential customers served by its members continue to choose the noncondensing furnace as the most economical and energy-efficient option. The commenter stated that this is evidenced by the number of noncondensing furnaces financed through the Georgia Gas Authority’s on-bill financing program and the responses of HVAC contractors interviewed throughout the various regions their members serve. According to the commenter, the interviewed HVAC contractors indicated that the unavailability of non-condensing furnaces would cause widespread fuel switching to electric heating. Furthermore, the Georgia Gas Authority stated that many natural gas customers would face higher monthly energy costs without any improved energy efficiencies by switching to electric appliances. (The Georgia Gas Authority, No. 367 at p. 2) In response, DOE estimates the total costs and benefits associated with existing non-condensing furnace consumers moving to a condensing furnace. DOE’s analysis is national in scope but captures regional variability. DOE’s analyses show that a majority of consumers, nationally, are expected to receive a net LCC benefit under this rulemaking, and DOE disagrees with the commenter that most consumers would switch to an electric alternative. In particular, the availability of condensing furnaces will change in the new-standards case, and, therefore, it is highly unlikely that consumers will switch to electric alternatives due to the unavailability of products. Furthermore, DOE’s analysis estimates that only a modest fraction of consumers would switch to an electric alternative. The full impacts of this switch, including all operating costs and energy consumption impacts, are accounted for in DOE’s analysis and evaluation of economic justification. The DCA also commented that this proposed rulemaking would lead to customers switching to electric furnaces. The commenter further added that this switch would lead to higher operating costs and necessitate upgrades to electrical systems. (DCA, No. 372 at E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations p. 2) In response, DOE has evaluated this possibility of consumers switching to electric furnaces as part of the fuelswitching analysis, including the impacts of potentially higher operating costs and the need for upgrades to electrical systems. Edison Electric Institute commented that the fuel-switching analysis should account for the other standards that have been implemented for related products such as heat pumps. (Edison Electric Institute, Public Meeting Webinar Transcript, No. 363 at p. 85) Edison Electric Institute similarly commented that the fuel-switching model should include technologies such as oil furnaces or other technologies besides electric heating systems. (Edison Electric Institute, Public Meeting Webinar Transcript, No. 4099 at p. 18) In response, DOE notes that the fuelswitching analysis does account for relevant and up-to-date standards for heat pumps. DOE further estimates that switching from gas-fired to oil-fired furnaces is highly unlikely, given the installation costs necessary to do so and significantly higher fuel oil prices. As a general matter, there has been an overall market shift away from oil-fired furnaces. HARDI commented that DOE’s analysis fails to adequately measure the impact of the NOPR. Specifically, HARDI commented that the LCC model and its fuel-switching analysis contain incorrect assumptions that will make it more difficult for distributors to predict the market changes and warehouse the appropriate inventory. (HARDI, No. 384 at p. 2) In response, DOE notes that in the standards case, the market for furnaces will be more predictable in terms of furnace efficiency options. DOE acknowledges the uncertainty in how consumers may respond in terms of product switching, which is why there are several product switching sensitivity scenarios, but in all cases, DOE concludes that the rule is economically justified. Sierra Club and Earthjustice commented that the modeling of consumers’ decisions to switch to electric space-heating appliances in response to amended consumer furnace standards is solidly grounded in the available data. (Sierra Club and Earthjustice, No. 401 at p. 2) Sierra Club and Earthjustice further commented that industry stakeholders misapprehend DOE’s objective in modeling consumer decisions about fuel switching. These commenters stated, as long-term industry trends suggest, some portion of consumers will switch to heat pumps no matter what standard DOE selects. Further, Sierra Club and Earthjustice VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 stated that the amended standard would not be driving the broader shift to electric heating appliances, but it may encourage customers to invest in costeffective electric alternatives to consumer furnaces. These organizations commented that the base-case efficiency and consumer fuel-switching analysis serve different roles in the analysis of impact. (Sierra Club and Earthjustice, No. 401 at p. 2) In response, DOE clarifies that there are indeed separate aspects to fuel switching addressed in the analysis. To the extent that the existing NWGF market is shifting to electric heating alternatives, such as heat pumps, in the absence of any amended energy conservation standard for NWGFs, that is reflected in the nonew-standards case shipments projection, as discussed in more detail in section IV.G of this final rule. The second aspect of fuel switching is in response to an amended energy conservation standard for NWGFs. DOE agrees with Sierra Club and Earth Justice that an amended energy conservation standard will not drive a significantly broader shift to electric heating alternatives. As explained previously, the estimated fraction of consumers that switch to an electric heating alternative in response to an amended energy conservation standard for NWGFs is expected to be modest. Joint Efficiency Commenters stated that DOE’s sensitivity analyses demonstrate that the proposed standards are cost-effective even with alternative assumptions for key parameters. These groups further commented that, while higher product switching was found to result in greater LCC savings and a lower simple payback period, assuming no product switching still resulted in positive LCC savings for the proposed standard level. (Joint Efficiency Commenters, No. 381 at pp. 4–5) DOE agrees. b. Product Switching Resulting From Amended Standards for Mobile Home Gas Furnaces As in the NOPR analysis, DOE has included product switching in its analysis for MHGFs for this final rule, including a variety of sensitivity scenarios. The MHGF product-switching methodology is similar to the productswitching methodology for NWGFs, except that the model does not assume any switching from gas storage water heaters to electric storage water heaters, since MHGFs and gas storage water heaters do not share common vents. See appendix 8J of the TSD for this final rule for more details regarding the product-switching model for MHGFs. PO 00000 Frm 00095 Fmt 4701 Sfmt 4700 87595 The relative comparison of the standard levels analyzed for MHGFs in this final rule remains similar, regardless of the switching scenario (including the scenario with no switching), as presented in appendix 8J of the final rule TSD. The average LCC savings and percentage of consumers experiencing a net cost vary between the different switching scenarios. However, at the adopted standard level, the average LCC savings are positive, and the percentage of consumers experiencing a net cost is below 25 percent in all scenarios. Therefore, DOE’s evaluation of economic justification demonstrates that MHGFs are not significantly impacted by the specific details or assumptions regarding product switching. MHI suggested that the standards proposed in the July 2022 NOPR could lead consumers to adopt less-efficient, and sometimes dangerous, heating methods. (MHI, No. 344 at p. 1) JCI similarly commented that DOE should evaluate whether the proposed MHGF standards would drive homeowners to unsafe heating alternatives such as portable space heaters. (JCI, No. 411 at p. 2) In response, DOE has not found data to suggest that MHGF standards would drive homeowners to unsafe heating alternatives such as portable space heaters. In addition, DOE notes that the commenters did not provide, and that DOE was unable to identify, data to support the claim that consumers would switch to dangerous heating methods in response to an amended efficiency standard for the subject furnaces. While homeowners of manufactured homes could purchase multiple portable space heaters to fulfill their heating needs throughout the winter in various rooms, switching to portable electric resistance heating would substantially increase operating costs for most consumers to maintain the same level of comfort and increase monthly utility bills for most owners of manufactured homes. DOE believes this occurrence will be rare because homeowners are unlikely to forgo the use of heat throughout the winter, are unlikely to choose unsafe heating alternatives where warnings regarding their constant use are readily available and apparent, and are sensitive to monthly expenses on utility bills. Thus, DOE believes any occurrences of the type posited by MHA and JCI would be rare in practice. DOE has identified and evaluated the likely heating alternatives for consumers of MHGFs, based on existing and safe products on the market, in its switching analysis. E:\FR\FM\18DER2.SGM 18DER2 87596 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 11. Accounting for Furnace Repair as an Alternative to Replacement Under Potential Standards For this final rule, DOE added a repair option into its consumer choice model. Because repair is likely to be considered first by consumers facing furnace replacement, DOE evaluated this option before the product switching options. To estimate the fraction of consumers in a standards case that would choose to repair their existing furnace rather than replace it or switch to an alternative product, DOE used a price elasticity parameter, which relates the incremental total installed cost to total gas furnace shipments, and an efficiency elasticity parameter, which relates the change in the operating cost to gas furnace shipments. Both types of elasticity relate changes in demand to changes in the corresponding characteristic (price or efficiency). A regression analysis estimated these terms separately from each other and found that the price elasticity of demand for several appliances is on average ¥0.45.223 Thus, for example, a price increase of 10 percent would result in a shipment decrease of 4.5 percent, all other factors held constant. The same regression analysis found that the efficiency elasticity is estimated to be on average 0.2 (i.e., a 10-percent efficiency improvement, equivalent to a 10-percent decrease in operating costs, would result in a shipments increase of 2 percent, all else being equal). From these two parameters, DOE derived a probability that a given household will not purchase a furnace, which is interpreted as the household repairing rather than replacing the furnace. The regression analysis included a range for the elasticity parameters. The price elasticity parameter was adjusted by income such that the higher elasticity was assigned to lower-income households and the lower elasticity was assigned to higher-income households, resulting in a greater probability of repairing existing equipment for lowerincome households. Households that are designated as doing a repair rather than replacement are not considered in the subsequent switching analysis. DOE also conducted sensitivity analyses using higher and lower rates of repair. See appendix 8J of the TSD for this final rule for more details on the repair vs. replace consumer choice model for NWGFs and MHGFs. 223 Fujita, S., Estimating Price Elasticity Using Market-Level Appliance Data. LBNL–188289 (August 2015) (available at: eta-publications.lbl.gov/ sites/default/files/lbnl-188289.pdf) (last accessed August 1, 2023). VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 HARDI commented that the proposed standards would increase repairs of older equipment, which would make it more challenging to stock repair parts, make these repairs more expensive, and take longer due to more product shipments. Finally, HARDI argued that many consumers would still opt for these higher repair costs rather than replace their furnace due to the increased cost of a new, standardscompliant unit. (HARDI, No. 384 at pp. 2–3) ACCA also stated its expectation that the proposals in the July 2022 NOPR would result in a significant increase in homeowners opting to repair their existing equipment rather than working with a licensed professional to replace it. (ACCA, No. 398 at p. 3) In response, DOE acknowledges that some consumers may opt to extend the lifetime of an existing lower-efficiency furnace rather than replace it, and the Department includes this effect in its analysis as part of its repair vs. replace methodology. Incorporating this effect into DOE’s analysis reduces the total energy savings expected as a result of the standards. However, DOE estimates that only a few percent of consumers will opt for an extended repair, which will only delay the replacement by a few years given that the furnace will ultimately need to be replaced (see results presented in section V.B of this document). DOE’s shipments projection accounts for these extended repair situations. With respect to the availability of non-condensing furnace replacement parts, DOE acknowledges that as the share of non-condensing furnaces in the building stock decreases over time, the availability of replacement parts will decrease as well, but the Department expects that manufacturers will have both an economic incentive to continue to make such parts available, as well as a desire to maintain good relations with their customer base. PHCC expressed disagreement with DOE’s conclusion that new standards will not cause consumers to repair products or use alternate heating methods. The commenter surmised that DOE’s rationale relates to contractors not doing much of this type of repair work in the market now, but PHCC argued that the relatively low rate of repair is likely tied to consumers currently having other non-condensing furnace options. PHCC pointed to the air-conditioning industry, where repairs increased when refrigerant requirements changed. Finally, the commenter argued that low- and fixed-income consumers would be impacted by these increased costs, and that these costs should be PO 00000 Frm 00096 Fmt 4701 Sfmt 4700 considered as a part of the LCC and PBP analysis. (PHCC, No. 403 at p. 5) In response, DOE clarifies that it does include repair and maintenance costs as part of the analysis, differentiated by efficiency level. DOE also considers that a fraction of consumers may choose to repair a furnace, rather than replace it, at the end of its lifetime, in response to an amended energy conservation standard, as described previously. DOE also clarifies that it considered the possibility that consumers may adopt alternative heating methods in response to an amended energy conservation standard for consumer furnaces, as described in section IV.F.10 of this document. 12. Payback Period Analysis The payback period is the amount of time (expressed in years) it takes the consumer to recover the additional installed cost of more-efficient products, compared to baseline products, through energy cost savings. Payback periods that exceed the life of the product mean that the increased total installed cost is not recovered in reduced operating expenses. The inputs to the PBP calculation for each efficiency level are the change in total installed cost of the product and the change in the first-year annual operating expenditures relative to the baseline. The PBP calculation uses the same inputs as the LCC analysis when deriving first-year operating costs, except that discount rates are not needed. As noted previously in section III.F.2 of this document, EPCA establishes a rebuttable presumption that a standard is economically justified if the Secretary finds that the additional cost to the consumer of purchasing a product complying with an energy conservation standard level will be less than three times the value of the first year’s energy savings resulting from the standard, as calculated under the applicable test procedure. (42 U.S.C. 6295(o)(2)(B)(iii)) For each considered efficiency level, DOE determined the value of the first year’s energy savings by calculating the energy savings in accordance with the applicable DOE test procedure, and multiplying those savings by the average energy price projection for the year in which compliance with the amended standards would be required. APGA argued that since the product switching decision criterion is based on a simple payback period calculation, the inclusion of product switching biases the average PBPs to be more attractive than they should be. (APGA, No. 387 at pp. 57–58) In response, DOE notes that it has performed a sensitivity scenario E:\FR\FM\18DER2.SGM 18DER2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations with no product switching, including calculating the resulting PBPs, and the conclusions of economic justification remain the same regardless of whether product switching is included or not. G. Shipments Analysis khammond on DSKJM1Z7X2PROD with RULES2 1. Shipments Model and Inputs DOE uses projections of annual product shipments to calculate the national impacts of potential amended or new energy conservation standards on energy use, NPV, and future manufacturer cash flows.224 The shipments model takes an accounting approach, tracking market shares of each product class and the vintage of units in the stock. Stock accounting uses product shipments as inputs to estimate the age distribution of in-service product stocks for all years. The age distribution of in-service product stocks is a key input to calculations of both the NES and NPV, because operating costs for any year depend on the age distribution of the stock. DOE developed shipment projections based on historical data and an analysis of key market drivers for each product. DOE estimated NWGF and MHGF shipments by projecting shipments in three market segments: (1) replacement of existing consumer furnaces; (2) new housing; and (3) new owners in buildings that did not previously have a NWGF or MHGF or existing NWGF or MHGF owners that are adding an additional consumer furnace.225 DOE also considered whether standards that require more efficient consumer furnaces would have an impact on consumer furnace shipments, as discussed in section IV.G.2 of this final rule. An anonymous commenter stated that with recent shortages, it has been hard to find air-conditioner or furnace units that meet the ultra-low NOX requirement in areas that require them. (Anonymous 2, No. 346 at p. 1) The anonymous commenter further recommended that more resources should be made available to manufacturers so that availability is no longer an issue. (Id.) The same anonymous commenter also stated that heat pumps alleviate the issue of not having available resources to meet ultra224 DOE uses data on manufacturer shipments as a proxy for national sales, as aggregate data on sales are lacking. In general, one would expect a close correspondence between shipments and sales. 225 The new owners primarily consist of households that add or switch to NWGFs or MHGFs during a major remodel. Because DOE calculates new owners as the residual between its shipments model compared to historical shipments, new owners also include shipments that switch away from NWGFs or MHGFs. VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 low NOX requirements. (Id.) The same anonymous commenter referenced a blog from Lee’s Air, Plumbing, and Heating that may serve as a resource for helping residential homeowners upgrade old furnaces to ultra-low NOX systems. (Id.) In response, DOE acknowledges recent supply chain constraints but assumes that all such constraints will be resolved by the first year of compliance (2029), as such constraints were heavily tied to the COVID–19 pandemic. DOE assumes that current supply chain issues will not persist out to 2029 and beyond, given that such issues are already in the process of resolving and current supply chains are not as constrained as they were during the pandemic. The Georgia Gas Authority stated that over the past 15 years, the average residential natural gas consumption per customer has dropped from 72 MMBtu per year to 65 MMBtu per year. The Georgia Gas Authority commented that condensing units are currently 50 percent of the market and 60 percent of shipped NWGFs. (Georgia Gas Authority, No. 367 at p. 2) Citing a report from the Bonneville Power Administration, NEEA stated that 65 percent of gas furnace sales in the Northwest in 2020 were at an efficiency of 95 percent AFUE or higher. Similarly, NEEA added that less than one-third of gas furnaces sales in the Northwest are non-condensing, and that this figure has been stable and declining from 2016 to 2020. (NEEA, No. 368 at p. 3) The Heartland Institute commented that condensing furnaces capture more than half the market, with six in ten NWGFs shipped being condensing models. Accordingly, the commenter argued that the proposed standards for NWGFs and MHGFs are not needed. (Heartland Institute, No. 376 at p. 2) APGA asserted that growth in the market share for condensing furnaces is likely to be higher than DOE’s estimate and undermines DOE’s economic justification for further market intervention in the form of new standards. (APGA, No. 387 at pp. 7–8) In contrast, NYSERDA further commented that DOE’s condensing furnace national projections are lower than as described in the 2021 HARDI data for the Northeast and New York, which shows 76 percent and 64 percent of natural gas furnace shipments as being condensing systems, respectively. (Id.) NYSERDA also commented that HARDI sales data for New York show that over 50 percent of furnaces sold in the Northeast and over 45 percent of those sold in New York are at 96percent AFUE. (NYSERDA, No. 379 at p. 2) PO 00000 Frm 00097 Fmt 4701 Sfmt 4700 87597 DOE acknowledges the increasing market saturation of condensing furnaces and has included this trend as part of the shipments analysis based on historical shipments data. These data do indicate a high fraction of condensing furnaces in the Northeast. Evergreen Action commented that condensing furnaces represent about half of the new purchases on the current market; the other half of purchases are made by landlords or builders who are not responsible for the utility bills, or by homeowners who are making a quick decision when replacing a broken furnace. (Evergreen Action, No. 364 at p. 1) In response, although DOE acknowledges that a mix of landlords or homeowners purchase consumer furnaces, the Department bases its shipments projection on historical shipment and saturation data. DOE further notes that these observations regarding landlords and builders, as well as homeowners making quick replacement decisions, are consistent with DOE’s discussion of market failures in section IV.F.8 of this document. Nortek commented that the proposed furnace standards could lead the already relatively small retail market for MHGFs to shrink, which could cause companies to stop making them. The commenter further stated that this could reduce competition and, in turn, cause problems for manufactured homeowners who would have to turn to more expensive alternatives. (Nortek, No. 406 at p. 6) Mortex commented that DOE’s shipments estimates for MHGFs are too high, and estimating that these values should be closer to 36,000 (consistent with 2021 shipments). In contrast to DOE’s projection of increasing shipments, Mortex forecasted that shipments of MHGFs will decline, reaching 19,000 by 2040. (Mortex, No. 410 at p. 2) As discussed in the subsections that fellow, DOE’s shipments projections for MHGFs are based on historical shipment data submitted to DOE by manufacturers and trade associations and historical and projected manufactured housing data (existing and new construction), as described in chapter 9 and appendix 9A of the final rule TSD. Projected housing trends are based on AEO2023. These data indicate that MHGF shipments are unlikely to decrease to the level suggested by Mortex, primarily due to replacements needed for existing manufactured homes. AGA inquired about how the modeled market correlates to the 2020 RECS data, pointing out that the modeled market E:\FR\FM\18DER2.SGM 18DER2 87598 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations share of the Pacific Region in 2029 differs from the 2020 RECS data. (AGA, Public Meeting Transcript, No. 363 at p. 55) In response, DOE clarifies that it includes market share trends into its analysis, such that the market shares projected for 2029 will not exactly match 2020 market shares. Furthermore, RECS data represent the market share of the existing stock, whereas the market share for 2029 represents new shipments of consumer furnaces. a. Historical Shipments Data khammond on DSKJM1Z7X2PROD with RULES2 DOE assembled historical shipments data for NWGFs and MHGFs from Appliance Magazine for 1954–2012,226 AHRI from 1996–2022,227 HARDI from 2013–2022,228 and BRG from 2000– 2022.229 DOE also used the 1992 and 1994–2003 shipments data by State provided by AHRI 230 and 2004–2009 and 2010–2015 shipments data by North and rest of country regions provided by AHRI,231 as well as HARDI shipments data that is disaggregated by region and most States to disaggregate shipments by region. DOE also used CBECS 2018 data and BRG shipments data to estimate the commercial fraction of shipments. Disaggregated shipments for MHGFs are not available, so DOE disaggregated MHGF shipments from the total by using a combination of data 226 Appliance Magazine. Appliance Historical Statistical Review: 1954–2012 (2014). 227 Air-Conditioning, Heating, & Refrigeration Institute, Furnace Historical Shipments Data. (1996–2022) (Available at: www.ahrinet.org/ resources/statistics/historical-data/furnaceshistorical-data) (last accessed August 1, 2023). 228 Heating, Air-conditioning and Refrigeration Distributors International (HARDI). DRIVE portal (HARDI Visualization Tool managed by D+R International until 2022), proprietary Gas Furnace Shipments Data from 2013–2022 proprietary Gas Furnace Shipments Data from 2013–2022 provided to Lawrence Berkeley National Laboratory (LBNL). 229 BRG Building Solutions. The North American Heating & Cooling Product Markets (2023 Edition) (available at: www.brgbuildingsolutions.com/ reports-insights) (last accessed August 1, 2023). 230 Air-Conditioning, Heating, and Refrigeration Institute (formerly Gas Appliance Manufacturers Association). Updated Shipments Data for Residential Furnaces and Boilers, April 25, 2005 (available at: www.regulations.gov/document/EERE2006-STD-0102-0138) (last accessed August 1, 2023). 231 Air-Conditioning, Heating, and Refrigeration Institute. Non-Condensing and Condensing Regional Gas Furnace Shipments for 2004–2009 and 2010–2015 Data Provided to DOE contractors, July 20, 2010, and November 26, 2016. VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 from the U.S. Census 232 233 American Housing Survey (AHS),234 and RECS.235 b. Shipment Projections in No-NewStandards Case As stated previously, DOE estimated NWGF and MHGF shipments by projecting shipments in three market segments: (1) replacement of existing furnaces; (2) new housing; and (3) new owners in buildings that did not previously have a NWGF or MHGF or existing NWGF or MHGF owners that are adding an additional consumer furnace. These projections reflect equipment switching that is occurring without standards and additions to homes without central heating. To project furnace replacement shipments, DOE developed retirement functions from furnace lifetime estimates and applied them to the existing products in the housing stock, which are tracked by vintage. DOE calculated replacement shipments using historical shipments and the lifetime estimates (average 21.5 years). In addition, DOE adjusted replacement shipments by taking into account demolitions, using the estimated changes to the housing stock from AEO2023. To project shipments to the new housing market, DOE utilized a forecast of new housing construction and historic saturation rates of furnaces in new housing. DOE used the AEO2023 housing starts and commercial building floor space projections and data from U.S. Census Characteristics of New Housing,236 237 Home Innovation Research Labs Annual Builder Practices Survey,238 RECS 2020, AHS 2021, and 232 U.S. Census Bureau, Manufactured Homes Survey: Annual Shipments to States from 1994– 2022 (available at: www.census.gov/data/tables/ time-series/econ/mhs/shipments.html) (last accessed Aug. 1, 2023). 233 U.S. Census Bureau, Manufactured Homes Survey: Historical Annual Placements by State from 1980–2013 (available at: www.census.gov/data/ tables/time-series/econ/mhs/historical-annualplacements.html) (last accessed August 1, 2023). 234 U.S. Census Bureau—Housing and Household Economic Statistics Division, American Housing Survey, multiple years from 1973–2021 (available at: www.census.gov/programs-surveys/ahs/ data.html) (last accessed August 1, 2023). 235 Energy Information Administration (EIA). Residential Energy Consumption Survey (RECS), multiple years from 1979–2020 (available at: www.eia.gov/consumption/residential/) (last accessed August 1, 2023). 236 U.S. Census. Characteristics of New Housing from 1999–2022 (available at: www.census.gov/ construction/chars/) (last accessed August 1, 2023). 237 U.S. Census. Characteristics of New Housing (Multi-Family Units) from 1973–2022 (available at: www.census.gov/construction/chars/mfu.html) (last accessed August 1, 2023). 238 Home Innovation Research Labs (independent subsidiary of the National Association of Home PO 00000 Frm 00098 Fmt 4701 Sfmt 4700 CBECS 2018 to estimate new construction saturations. DOE also estimated future furnace saturation rates in new single-family housing based on a weighted average of values from the U.S. Census Bureau’s Characteristics of New Housing from 1990 through 2022.239 To project shipments to the newowner market, DOE estimated the new owners based on the residual shipments from the calculated replacement and new construction shipments compared to historical shipments over five years (2016–2020 for this final rule). DOE compared this with data from Decision Analysts’ 2002 to 2019 American Home Comfort Study,240 2023 BRG data,241 and AHRI’s estimated shipments in 2000,242 which showed similar historical fractions of new owners. DOE assumed that the new-owner fraction would be the 10-year average in 2029 and then decrease to zero by the end of the analysis period (2058). If the resulting fraction of new owners is negative, DOE assumed that it was primarily due to equipment switching or non-replacement and added this number to replacements (thus reducing the replacements value). Table IV.12 shows the fraction of shipments for the replacement, new construction, and new owner markets in 2029. For NWGFs in residential applications, 59 percent of shipments are projected to be in the North and 41 percent in the rest of the country. For NWGFs in commercial applications, 51 percent of shipments are projected to be in the North and 49 percent in the rest of the country. For MHGFs, 70 percent of shipments are projected to be in the North and 30 percent in the rest of the country. See chapter 9 of the final rule TSD for more details on the shipments analysis. Builders (NAHB). Annual Builder Practices Survey (2015–2019) (available at: www.homeinnovation.com/trends_and_reports/ data/new_construction) (last accessed August 1, 2023). 239 U.S. Census Bureau, Characteristics of New Housing (available at: www.census.gov/ construction/chars/) (last accessed August 1, 2023). 240 Decision Analysts, 2002, 2004, 2006, 2008, 2010, 2013, 2016, 2019, and 2022 American Home Comfort Study (available at: www.decisionanalyst.com/Syndicated/ HomeComfort/) (last accessed August 1, 2023). 241 BRG Building Solutions. The North American Heating & Cooling Product Markets (2023 Edition) (available at: www.brgbuildingsolutions.com/ reports-insights) (last accessed August 1, 2023). 242 AHRI (formerly GAMA), Furnace and Boiler Shipments data provided to DOE for Furnace and Boiler ANOPR (Jan. 23, 2002). E:\FR\FM\18DER2.SGM 18DER2 87599 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations TABLE IV—12 TOTAL AND FRACTION OF NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES SHIPMENTS BY MARKET SEGMENT (REPLACEMENTS, NEW CONSTRUCTION, AND NEW OWNERS) IN 2029 North Product class Rest of country Total Market segment Million NWGF (Residential) ..................... NWGF (Commercial) .................... MHGF ........................................... % Million % Million % Replacements * ............................ New Construction ......................... 1.412 0.316 82 18 0.948 0.255 79 21 2.360 0.571 81 19 Total ...................................... 1.728 100 1.202 100 2.930 100 Replacements * ............................ New Construction ......................... 0.057 0.020 74 26 0.052 0.020 72 28 0.109 0.040 73 27 Total ...................................... 0.077 100 0.072 100 0.149 100 Replacements * ............................ New Construction ......................... 0.050 0.021 70 30 0.020 0.011 64 36 0.070 0.032 68 32 Total ...................................... 0.071 100 0.031 100 0.102 100 * Includes new owners. Note: percentages may not add up to 100 percent due to rounding khammond on DSKJM1Z7X2PROD with RULES2 Regarding the proposed California 2016 Air Quality Management Plan (AQMP),243 which targets ozonedepleting NOX emissions, DOE notes that the proposed control measure has two components: (1) implementing the existing Rule 1111 244 emission limit of NOX for residential space heaters; and (2) incentivizing the replacement of older space heaters with more efficient low-NOX products, and/or ‘‘green technologies’’ such as solar heating or heat pumps. Incentivizing heat pumps is only one of the proposed approaches to reduce NOX emissions that were offered in the plan, but it is unclear how this would trigger actual market and/or policy changes in the future. Current requirements in many parts of California for low-NOX and ultra-low-NOX furnaces could also increase the cost of these furnaces, but it is currently unclear if it will be enough to drive shipments towards other heating options (including heat pumps). Thus, it is very uncertain to what extent installations of heat pumps would increase. For the NOPR, assumptions regarding future policies encouraging electrification of households were speculative at that time, so such policies were not incorporated into the shipments projection. For the final rule, DOE accounted for the 2022 update to Title 24 in California 245 and also the 243 South Coast Air Quality Management District. 2016 Air Quality Management Plan (AQMP) (available at: www.aqmd.gov/home/air-quality/ clean-air-plans/air-quality-mgt-plan/final-2016aqmp) (last accessed Feb. 15, 2022). 244 See www.aqmd.gov/docs/default-source/rulebook/reg-xi/rule-1111.pdf (last accessed May 31, 2023). 245 The 2022 update includes heat pumps as a performance standard baseline for water heating or VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 decision of the California Public Utilities Commission to eliminate ratepayer subsidies for the extension of new gas lines beginning in July 2023. Together, these policies are expected to lead to the eventual phase-out of NWGFs and MHGFs in new singlefamily homes in California. The California Air Resources Board has adopted a 2022 State Strategy for the State Implementation Plan that would effectively ban sales of new gas furnaces beginning in 2030.246 However, because a final decision on a rule would not happen until 2025, DOE did not include this latter policy in its analysis for the final rule. DOE understands that ongoing electrification policies at the Federal, State, and local levels are likely to encourage installation of heat pumps in some new homes and adoption of heat pumps in some homes that currently use NWGFs and MHGFs. However, there are many uncertainties about the timing and effects of these policies that make it difficult to fully account for their likely impact on NWGF and MHGF market shares in the time frame for this analysis (i.e., 2029 through 2058). Nonetheless, DOE has modified some of its projections to attempt to account for impacts that are most likely in the relevant time frame. The assumptions are described in chapter 9 and appendix space heating in single-family homes, as well as space heating in multi-family homes. Under the California Code, builders will need to either include one high-efficiency heat pump in new constructions or subject those buildings to more-stringent energy efficiency standards. 246 See https://ww2.arb.ca.gov/resources/ documents/2022-state-strategy-stateimplementation-plan-2022-state-sip-strategy#:∼: text=The%202022%20State%20SIP%20Strategy, all%20nonattainment%20areas%20across%20 California (last accessed August 1, 2023). PO 00000 Frm 00099 Fmt 4701 Sfmt 4700 9A of the final rule TSD. The changes result in a decrease of NWGF and MHGF shipments in the no-newstandards case in 2029 compared to the NOPR analysis, with a corresponding decrease in estimated energy savings resulting from the standards. DOE acknowledges that electrification policies may result in a larger decrease in shipments of NWGFs and MHGFs than projected in this final rule, especially if stronger policies are adopted in coming years. However, this would occur in the no-new-amendedstandards case and, thus, would only reduce the energy savings estimated in this rule. For example, if incentives and rebates shifted five percent of shipments in the no-new-amended-standards case from NWGFs to heat pumps, then the energy savings estimated and associated monetized benefits for NWGFs in this rule would decline by approximately five percent. The estimated consumer impacts are likely to be similar, however, except that the percentage of consumers with no impact at a given efficiency level would increase. Nor does DOE expect that a modest shift in shipments would have a significant effect on manufacturers. DOE notes that the economic justification for the rule would be unlikely to significantly change even if DOE were to include these larger impacts of incentives and rebates in the no-new-standards case, although the absolute magnitude of the savings might decline. Regarding this aspect of the July 2022 NOPR, Lennox commented that Resolution 22–14 (i.e., the 2022 State SIP Strategy in California), the New York State scoping plan, and the incentives and tax credits for electric HVAC in the Inflation Reduction Act E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 87600 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations will contribute to additional shifting towards electrification for heating and cooling. The commenter asserted that DOE should consider these factors in the shipment estimates and related analysis for consumer furnaces. (Lennox, No. 389 at p. 3) In response, as noted in the previous discussion, DOE has accounted for some policies encouraging the electrification of homes, such as the 2022 update to Title 24 in California. The shipments analysis reflects these initiatives. With respect to the California 2022 State Strategy for the State Implementation Plan, a rule specific to NWGFs and MHGFs is not yet final and remains uncertain at this time. Similarly, the specific implementation of any incentives or rebates as part of the New York State Scoping Plan and Inflation Reduction Act remain speculative at this time. Therefore, DOE did not incorporate either of these initiatives in the shipments projections for this rulemaking. As DOE has noted, however, the economic justification for the rule would be unlikely to change significantly, even if DOE were to include these larger impacts of incentives and rebates in the no-newstandards case, although the absolute magnitude of the savings might decline. Rheem commented that it does not agree with DOE’s shipment projections that predict a 30-percent increase in furnace sales between 2035 and 2050, arguing that they are inaccurate because of the Federal and State-level policy trends toward electric appliances which is largely buoyed by manufacturers. (Rheem, No. 394 at p. 2) In response, DOE clarifies that at the proposed standard levels in the NOPR, total furnace shipments (NWGFs and MHGFs) only increased by approximately 15 percent between 2035 and 2050, not 30 percent. DOE notes, however, that it has revised its shipments projection to reflect Federal, State, and local-level initiatives currently in effect, as described previously, which results in a smaller increase in furnace sales. Accordingly, for the final rule shipments projection, total furnace shipments (NWGFs and MHGFs) are expected to increase by approximately 5 percent between 2035 and 2050. Atmos Energy commented that the proposed rule would likely reduce the effectiveness of existing rebate programs, arguing that it would undermine the overall goals of the energy efficiency program. The commenter added that the proposed rule would reduce the pool of customers able to take advantage of available incentive programs. (Atmos Energy, No. VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 415 at p. 4) Atmos Energy further stated that it currently offers conservation and energy efficiency programs in its Louisiana, Mississippi, Colorado, and Mid-Tex divisions, adding that it provides financial incentives to purchase high-efficiency natural gas equipment, smart thermostats, and home weatherization upgrades. Atmos Energy stated that in 2020, 1.39 million therms of natural gas were conserved and 8,117 tons of CO2 emissions were avoided annually as a result of energy efficiency programs. (Atmos Energy, No. 415 at p. 5) In response, DOE acknowledges that rebate programs incentivizing the purchase of higher efficiency condensing furnaces will no longer be needed after energy conservation standards for consumer furnaces come into effect. 2. Impact of Potential Standards on Shipments a. Impact of Equipment Switching DOE applied the consumer choice model described in section IV.F.10 of this document to estimate the impact on NWGF and MHGF shipments of product switching that may be incentivized by potential standards. The options available to each sample household or building are to purchase and install: (1) the NWGF or MHGF that meets a particular standard level, (2) a heat pump, or (3) an electric furnace.247 As applied in the LCC and PBP analyses, the consumer choice model considers product prices in the compliance year and energy prices over the lifetime of products installed in that year. The shipments model considers the switching that might occur in each year of the analysis period (2029–2058). To do so, DOE estimated the switching in the first year of the analysis period (2029) and derived trends from 2029 to 2058. First, DOE applied the NWGF and MHGF product price trend described in section IV.F.1 of this document to project prices in 2058. DOE used the appropriate energy prices over the lifetime of products installed in each year. Although the inputs vary, the decision criteria were the same in each year. For each considered standard level, the number of NWGFs or MHGFs shipped in each year is equal to the base shipments in the no-new-standards case minus the number of NWGF or MHGF buyers who switch to either a heat pump or an electric furnace. The 247 DOE also accounted for situations when installing a condensing furnace could leave an ‘‘orphaned’’ gas storage water heater that would require expensive re-sizing of the vent system. Rather than incurring this cost, the consumer could choose to purchase an electric storage water heater along with a new furnace. PO 00000 Frm 00100 Fmt 4701 Sfmt 4700 shipments model also tracks the number of additional heat pumps and electric furnaces shipped in each year. b. Impact of Repair vs. Replace As discussed in section IV.F.11 of this document, for this final rule, DOE estimated a fraction of both NWGF and MHGF replacement installations that choose to repair their equipment, rather than replace their equipment or switch to a heat pump or electric furnace, in the new standards case. The approach captures not only a decrease in NWGF and MHGF replacement shipments, but also the energy use from continuing to use the existing furnace and the cost of the repair. For purposes of this analysis, DOE assumes that the demand for space heating is inelastic and, therefore, that no modeled household or commercial building will forgo either repairing or replacing their equipment (either with a new NWGF of MHGF or a suitable space-heating alternative). While DOE recognizes that edge cases exist, DOE believes that its analytical assumption of inelasticity is representative of the vast majority of households. For details on DOE’s shipments analysis, product and fuel switching, and the repair option, see chapter 9 of the final rule TSD. H. National Impact Analysis The NIA assesses the national energy savings (NES) and the NPV from a national perspective of total consumer costs and savings that would be expected to result from new or amended energy conservation standards at specific efficiency levels.248 (‘‘Consumer’’ in this context refers to consumers of the product being regulated.) DOE calculates the NES and NPV for the potential standard levels considered based on projections of annual product shipments, along with the annual energy consumption and total installed cost data from the energy use and LCC analyses.249 For the present analysis, DOE projected the energy savings, operating cost savings, product costs, and NPV of consumer benefits over the lifetime of NWGFs and MHGFs sold from 2029 through 2058. DOE evaluates the impacts of new or amended standards by comparing a case without such standards with standardscase projections. The no-new-standards case characterizes energy use and consumer costs for each product class in the absence of new or amended energy conservation standards. For this 248 The NIA accounts for impacts in the 50 States and U.S. territories. 249 For the NIA, DOE adjusts the installed cost data from the LCC analysis to exclude sales tax, which is a transfer. E:\FR\FM\18DER2.SGM 18DER2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations projection, DOE considers historical trends in efficiency and various forces that are likely to affect the mix of efficiencies over time. DOE compares the no-new-standards case with projections characterizing the market for each product class if DOE adopted new or amended standards at specific energy efficiency levels (i.e., the TSLs or standards cases) for that class. For the standards cases, DOE considers how a given standard would likely affect the market shares of products with efficiencies greater than the standard. In the standards cases, a small fraction of households will replace the furnace a second time within the 30-year analytical period of the NIA. For these households, the installation cost adders for going from a non-condensing furnace to a condensing furnace are not applied in the standards cases for the second replacement, as the household will already have a condensing furnace. DOE uses a spreadsheet model to calculate the energy savings and the national consumer costs and savings from each TSL. AEO2023 is the source of the energy price trends as well as other inputs to the NIA such as projected housing starts and new 87601 commercial building floor space, heating and cooling degree day projections, and building shell efficiency projections. Interested parties can review DOE’s analyses by changing various input quantities within the spreadsheet. The NIA spreadsheet model uses typical values (as opposed to probability distributions) as inputs. Table IV.13 summarizes the inputs and methods DOE used for the NIA analysis for the final rule. Discussion of these inputs and methods follows the table. See chapter 10 of the final rule TSD for further details. TABLE IV.13—SUMMARY OF INPUTS AND METHODS FOR THE NATIONAL IMPACT ANALYSIS Inputs Method Shipments ........................................... Compliance Date of Standard ............ Efficiency Trends ................................ Annual shipments from shipments model. 2029. No-new-standards case: Based on historical data. Standard cases: Roll-up in the compliance year (except for EL 1, 90-percent AFUE for NWGFs as described below) and then DOE estimated growth in shipment-weighted efficiency in all the standards cases, except max-tech. Annual weighted-average values are a function of energy use at each TSL. Incorporates projection of future energy use based on AEO2023 projections for HDD/cooling degree days (CDD) and building shell efficiency index. Annual weighted-average values are a function of cost at each TSL. Incorporates projection of future product prices based on historical data. Annual weighted-average values vary by efficiency level. Annual Energy Consumption per Unit Total Installed Cost per Unit ............... Repair and Maintenance Cost per Unit. Energy Price Trends ........................... Energy Site-to-Primary and FFC Conversion. Discount Rate ..................................... Present Year ....................................... AEO2023 projections (to 2050) and extrapolation thereafter. Natural gas and electricity marginal prices based on EIA and RECS 2020 and CBECS 2018 billing data. A time-series conversion factor based on AEO2023. Three and seven percent. 2023. khammond on DSKJM1Z7X2PROD with RULES2 1. Product Efficiency Trends A key component of the NIA is the trend in energy efficiency projected for the no-new-standards case and each of the standards cases. Section IV.F.8 of this document describes how DOE developed an energy efficiency distribution for the no-new-standards case (which yields a shipment-weighted average efficiency) for each of the considered product classes for the year of anticipated compliance with an amended or new standard (2029). To project the trend in efficiency absent amended standards for NWGFs and MHGFs over the entire shipments projection period, DOE extrapolated the historical trends in efficiency that were described in section III.F.8 of this document. These trends are based on industry shipment data from AHRI and HARDI and include a near 100-percent saturation of condensing furnaces in the North region. For this final rule, DOE estimated that the national market share of condensing products would grow from 61 percent in 2029 to 71 percent by 2058 for NWGFs, and from 34 VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 percent to 48 percent for MHGFs during those same years. The market shares of the different condensing efficiency levels (i.e., 90-, 92-, 95-, and 98-percent AFUE for NWGFs and 92-, 95-, and 96percent AFUE for MHGFs) are maintained in the same proportional relationship as in 2029. The approach is further described in appendix 8I and chapter 10 of the final rule TSD. For the standards cases, DOE used a ‘‘roll-up’’ scenario to establish the shipment-weighted efficiency for the year that standards are assumed to become effective (2029). In this scenario, the market shares of products in the no-new-standards case that do not meet the standard under consideration would ‘‘roll up’’ to meet the new standard level, and the market share of products above the standard would remain unchanged. In the standards case with a 90-percent AFUE national standard, DOE estimated that many consumers will purchase a 92-percent AFUE NWGF rather than a 90-percent AFUE furnace because the extra installed cost is minimal, and the PO 00000 Frm 00101 Fmt 4701 Sfmt 4700 market has already moved significantly toward the 92-percent AFUE level. To develop standards-case efficiency trends after 2029, DOE estimated growth in shipment-weighted efficiency in the standards cases, except in the max-tech standards case. 2. National Energy Savings The national energy savings analysis involves a comparison of national energy consumption of the considered products between each potential standards level (TSL) case and the case with no new or amended energy conservation standards. DOE calculated the national energy consumption by multiplying the number of units (stock) of each product (by vintage or age) by the unit energy consumption (also by vintage). DOE calculated annual NES based on the difference in national energy consumption for the no-newstandards case and for each higherefficiency standards case. DOE estimated energy consumption and savings based on site energy and converted the electricity consumption E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 87602 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations and savings to primary energy (i.e., the energy consumed by power plants to generate site electricity) using annual conversion factors derived from AEO2023. For natural gas and LPG, DOE assumed that site energy consumption is the same as primary energy consumption. Cumulative energy savings are the sum of the NES for each year over the timeframe of the analysis. The per-unit annual energy use is adjusted with the building shell improvement index, which results in a decline of three percent in the heating load from 2029 to 2058, and the climate index, which results in a decline of nine percent in the heating load. DOE incorporated a rebound effect for NWGFs and MHGFs by reducing the site energy savings (and the associated FFC energy savings) in each year by 15 percent. However, for commercial applications, DOE applied no rebound effect in order to be consistent with other recent standards rulemakings (see section IV.F.3 of this document). In the standards cases, there are fewer shipments of NWGFs or MHGFs compared to the no-new-standards case because of product switching and repair vs. replaced, but there are additional shipments of heat pumps, electric furnaces, and electric water heaters. DOE incorporated the per-unit annual energy use of the heat pumps and electric furnaces that was calculated in the LCC and PBP analyses (based on the specific sample households that switch to these products) into the NIA model. NYSERDA expressed support for DOE’s methodology and approaches used for this NOPR, particularly around the rebound effect, stating that it is consistent with documented behaviors. The commenter further stated agreement with DOE’s use of the 15-percent estimate for rebound effect. (NYSERDA, No. 379 at pp. 11–12) DOE agrees and maintains a 15-percent rebound effect estimate for the final rule. NYSERDA recommended that DOE should qualitatively discuss the indirect rebound effect in the rebound section of the TSD. (NYSERDA, No. 379 at p. 13) In response, DOE acknowledges that indirect rebound (increased energy consumption by consumers in other areas due to the monetary savings from efficiency standards) may be a factor warranting consideration in the context of amended energy conservation standards for the subject furnaces, but quantifying such a macroeconomic effect is particularly challenging and subject to inherently large uncertainties. However, regardless of the specific magnitude of this effect, DOE notes that VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 it is very likely to be welfare-increasing even if energy savings are reduced.250 In the standards cases, there are fewer shipments of NWGFs or MHGFs compared to the no-new-standards case because of product switching and product repairs, but there are also additional shipments of heat pumps, electric furnaces, and electric water heaters. DOE incorporated the per-unit annual energy use of the heat pumps and electric furnaces that was calculated in the LCC and PBP analyses (based on the specific sample households that switch to these products) into the NIA model. In 2011, in response to the recommendations of a committee on ‘‘Point-of-Use and Full-Fuel-Cycle Measurement Approaches to Energy Efficiency Standards’’ appointed by the National Academy of Sciences, DOE announced its intention to use FFC measures of energy use and greenhouse gas and other emissions in the national impact analyses and emissions analyses included in future energy conservation standards rulemakings. 76 FR 51281 (August 18, 2011). After evaluating the approaches discussed in the August 18, 2011 announcement, DOE published a statement of amended policy in which DOE explained its determination that EIA’s National Energy Modeling System (NEMS) is the most appropriate tool for its FFC analysis and its intention to use NEMS for that purpose. 77 FR 49701 (August 17, 2012). NEMS is a public domain, multi-sector, partial equilibrium model of the U.S. energy sector 251 that EIA uses to prepare its Annual Energy Outlook. The FFC factors incorporate losses in production and delivery in the case of natural gas (including fugitive emissions) and additional energy used to produce and deliver the various fuels used by power plants. The approach used for deriving FFC measures of energy use and emissions is described in appendix 10A of the final rule TSD. 3. Net Present Value Analysis The inputs for determining the NPV of the total costs and benefits experienced by consumers are: (1) total annual installed cost; (2) total annual operating costs (energy costs and repair and maintenance costs), and (3) a discount factor to calculate the present value of costs and savings. DOE 250 For example, see www.journals.uchicago.edu/ doi/abs/10.1093/reep/rev017?journalCode=reep (last accessed August 1, 2023). 251 For more information on NEMS, refer to The National Energy Modeling System: An Overview 2023, DOE/EIA–0581(2023) (available at: www.eia.gov/forecasts/aeo/index.cfm) (last accessed August 1, 2023). PO 00000 Frm 00102 Fmt 4701 Sfmt 4700 calculates net savings each year as the difference between the no-newstandards case and each standards case in terms of total savings in operating costs versus total increases in installed costs. DOE calculates operating cost savings over the lifetime of each product shipped during the projection period. As discussed in section IV.F.1 of this document, DOE developed NWGF and MHGF price trends based on historical PPI data. DOE applied the same trends to project prices for each product class at each considered efficiency level. DOE’s projection of product prices is described in appendix 10C of the final rule TSD. To evaluate the effect of uncertainty regarding the price trend estimates, DOE investigated the impact of different product price projections on the consumer NPV for the considered TSLs for NWGFs and MHGFs. In addition to the default price trend, DOE considered two product price sensitivity cases: (1) a high-price-decline case based on PPI data from 1990–2006 and (2) a constantprice-trend case. The derivation of these price trends and the results of these sensitivity cases are described in appendix 10C of the final rule TSD. As described in section IV.H.2 of this document, DOE assumed a 15-percent rebound from an increase in utilization of the product arising from the increase in efficiency (i.e., the direct rebound effect). In considering the economic impact on consumers due to the direct rebound effect, DOE accounted for change in consumer surplus attributed to additional heating/comfort from the purchase of a more-efficient unit. Overall consumer surplus is generally understood to be enhanced from rebound. The net consumer impact of the rebound effect is included in the calculation of operating cost savings in the consumer NPV results. See appendix 10G of the final rule TSD for details on DOE’s treatment of the monetary valuation of the rebound effect. The operating cost savings are energy cost savings, which are calculated using the estimated energy savings in each year and the projected price of the appropriate form of energy. To estimate energy prices in future years, DOE multiplied the average regional energy prices by the projection of annual national-average residential energy price changes in the Reference case from AEO2023, which has an end year of 2050. To estimate price trends after 2050, DOE used the average annual rate of change in prices from 2045 through 2050. As part of the NIA, DOE also analyzed scenarios that used inputs from variants of the AEO2023 Reference E:\FR\FM\18DER2.SGM 18DER2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations case that have lower and higher economic growth. Those cases have lower and higher energy price trends compared to the Reference case. NIA results based on these cases are presented in appendix 10D of the final rule TSD. In considering the consumer welfare gained due to the direct rebound effect, DOE accounted for change in consumer surplus attributed to additional heating from the purchase of a more efficient unit. Overall consumer welfare is generally understood to be enhanced from rebound. The net consumer impact of the rebound effect is included in the calculation of operating cost savings in the consumer NPV results. See appendix 10G of the final rule TSD for details on DOE’s treatment of the monetary valuation of the rebound effect. In calculating the NPV, DOE multiplies the net savings in future years by a discount factor to determine their present value. For this final rule, DOE estimated the NPV of consumer benefits using both a 3-percent and a 7percent real discount rate. DOE uses these discount rates in accordance with guidance provided by the Office of Management and Budget (‘‘OMB’’) to Federal agencies on the development of regulatory analysis.252 The discount rates for the determination of NPV are in contrast to the discount rates used in the LCC analysis, which are designed to 87603 the final rule TSD describes the consumer subgroup analysis. reflect a consumer’s perspective. The 7percent real value is an estimate of the average before-tax rate of return to private capital in the U.S. economy. The 3-percent real value represents the ‘‘social rate of time preference,’’ which is the rate at which society discounts future consumption flows to their present value. 1. Low-Income Households Low-income households are significantly more likely to be renters and/or live in subsidized housing units, compared to homeowners. DOE notes that in these cases, the landlord purchases the equipment and may pay the gas bill as well. RECS 2020 includes data on whether a household pays for the gas bill, allowing DOE to categorize households appropriately in the analysis.253 For this consumer subgroup analysis, DOE considers the impact on the low-income household narrowly, excluding any costs or benefits that are accrued by either a landlord or subsidized housing agency. This allows DOE to determine whether low-income households are disproportionately affected by an amended energy conservation standard in a more representative manner. DOE takes into account a fraction of renters that face costly product switching, that is, when landlords switch to products that have lower upfront costs but higher operating costs, which will be incurred by tenants. Table IV.19 summarizes the low-income statistics and potential impacts. For the low-income subgroup, renters account for more than half of the NWGF installations and close to thirty percent of the MHGF installations. I. Consumer Subgroup Analysis In analyzing the potential impact of new or amended energy conservation standards on consumers, DOE evaluates the impact on identifiable subgroups of consumers that may be disproportionately affected by a new or amended national standard. The purpose of a subgroup analysis is to determine the extent of any such disproportional impacts. DOE evaluates impacts on particular subgroups of consumers by analyzing the LCC impacts and PBP for those particular consumers from alternative standard levels. For this final rule, DOE analyzed the impacts of the considered standard levels on three subgroups: (1) lowincome households, (2) senior-only households, and (3) small businesses. The analysis used subsets of the RECS 2020 sample composed of households that meet the criteria for the considered subgroups. DOE used the LCC and PBP spreadsheet model to estimate the impacts of the considered efficiency levels on these subgroups. Chapter 11 in TABLE IV.19—LOW-INCOME SUBGROUP CHARACTERISTICS AND POTENTIAL NET BENEFITS Percentage of low-income sample * Type of household * (pay for gas?) ** NWGF Renters (Pay for Gas Bill) ............................................................... Renters (Pay for Part of Gas Bill) ................................................... Renters (Do Not Pay for Gas Bill) .................................................. Owners (Pay for Gas Bill) ............................................................... Owners (Pay for Part of Gas Bill) ................................................... Owners (Do Not Pay for Gas Bill) .................................................. Benefits from energy cost savings MHGF 43.0 1.5 8.6 45.9 0.1 0.9 27.8 0.0 2.0 64.3 0.0 5.9 Full ......................... Partial savings ....... None ...................... Full ......................... Partial savings ....... None ...................... Responsibility for incremental cost None. None. None. Full. Full. Full. khammond on DSKJM1Z7X2PROD with RULES2 * RECS 2020 lists three categories: (1) Owned or being bought by someone in your household (classified as ‘‘Owners’’ in this table); (2) Rented (classified as ‘‘Renters’’ in this table); (3) Occupied without payment of rent (also classified as ‘‘Renters’’ in this table). Therefore, renters include occupants in subsidized housing including public housing, subsidized housing in private properties, and other households that do not pay rent. RECS 2020 does not distinguish homes in subsidized or public housing. ** RECS 2020 lists four categories: (1) Household is responsible for paying for all used in this home; (2) All used in this home is included in the rent or condo fee; (3) Some is paid by the household, some is included in the rent or condo fee; and (4) Paid for some other way. ‘‘Pay for Gas Bill’’ includes only category (1); all other categories are included in ‘‘Don’t Pay for Gas Bill.’’ Note that DOE also takes into account if the occupant pays for electricity, as for some higher-efficiency options, electricity use can vary compared to baseline equipment. Atmos Energy commented that in fulfilling its statutory obligations, DOE cannot rely on potential external measures to mitigate the negative impacts of its standards, including rebate programs so as to improve its analytical outcomes and reduce the burden on low-income households. (Atmos Energy, No. 415 at p. 3) In response, DOE clarifies that it does not rely on potential measures, such as rebate programs, to justify a standard. These measures are not part of the lowincome subgroup analysis. DOE merely 252 United States Office of Management and Budget, Circular A–4: Regulatory Analysis (Sept. 17, 2003) Section E (available at: obamawhitehouse.archives.gov/omb/circulars_ a004_a-4/) (last accessed August 1, 2023). 253 RECS 2020 includes a category for households that pay only some of the gas bill. For the lowincome consumer subgroup analysis, DOE assumes that these households pay 50 percent of the gas bill, and, therefore, would receive 50 percent of operating cost benefits of an amended energy conservation standard. VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 PO 00000 Frm 00103 Fmt 4701 Sfmt 4700 E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 87604 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations notes their possible existence, which would improve the assessed impacts to low-income households as presented in section V.B of this document. MHI commented that it stands ready to work with DOE to ensure that standards for consumer furnaces do not negatively impact potential manufactured homeowners. (MHI, No. 365 at p. 5) In response, DOE analyzed the impact of the considered amended energy conservation standards on manufactured-home households, including low-income manufacturedhome households, and the Department has concluded that these standards are economically justified, as discussed in section V.C of this document. Measures of energy insecurity provide another accounting of the number of households that are affected by cost changes due to rules for heating equipment energy efficiency in addition to the senior-only and low-income categories used by DOE in this analysis. Energy insecurity in the 2020 RECS quantifies the households reporting one or more of the metrics for energy insecurity, including that they that are forgoing basic necessities to pay for energy, and that they leave their home at an unhealthy temperature due to energy cost. The energy insecurity data are disaggregated by heating equipment type, income category, race, ethnicity, presence of children, presence of seniors, regional distribution, and ownership/rental status. DOE has determined that the energy-insecure designation captures more households than the low-income and seniors-only categories used for distributional analysis. Similar PBP and net savings/ net cost analysis applied to energy insecure households could result in larger impacts than for the categories DOE chose to analyze and may be more directly interpreted in terms of welfare changes that can be disaggregated by the factors already listed. Commenting on the NOPR, a number of commenters opposed the proposed rule based on, in part, the potential impacts to low-income households. Southwest Gas Corporation commented that for low-income and vulnerable populations, the appliance replacement and retrofit costs would be a financial burden. Southwest estimated that the NOPR would not be economically justifiable for a majority of its customers. (Southwest, No. 353 at p. 2) The Georgia Gas Authority recognized the importance of appliance efficiency but argued that energy conservation standards should not sacrifice the wellbeing of low-income families to achieve VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 such goals. (The Georgia Gas Authority, No. 367 at p. 2) NGA of Georgia stated that DOE’s proposed rule would place an undue burden on those who can afford it the least, including seniors and low-income consumers. (NGA of Georgia, No. 380 at p. 1) The commenter more specifically argued that the rule would unfairly impact low- and fixed-income homeowners and renters, seniors, and small businesses. NGA of Georgia added that low- and fixed-income homeowners are less likely to purchase a new home and, thus, would be forced to endure costly retrofit installations. Additionally, the commenter stated, that low- and fixed-income homeowners typically live in smaller spaces requiring less energy to heat, which diminishes the value of a highefficiency product in such applications. Further, NGA of Georgia stated that lowincome renters would be forced to deal with increased rent when landlords try to recoup the high cost of retrofitting apartments with condensing furnaces. (NGA of Georgia, No. 380 at p. 2) APGA claimed that DOE’s analysis shows that low-income households fare much worse than average consumers under the proposed rule. APGA further claimed that DOE has not fully accounted for the impacts on lowincome residents. The commenter asserted that regional differences in the impact of the proposed rule would create even more unfavorable results for low-income households in certain negatively affected regions; for example, the South, where APGA has many members, would be expected to be more adversely affected than average. APGA further argued that the impact of fuel switching on low-income households is not clear in the NOPR. (APGA, No. 387 at pp. 45–47) Spencer and Dayaratna stated that the amended standards proposed in the July 2022 NOPR will unjustifiably reduce consumer choice. The commenters added that the economic value of energy efficiency is best determined by individual consumers and businesses. The commenters also added that the flexibility to assess individual economic tradeoffs is even more important to lowincome Americans, citing statements from OMB and research studies. Spencer and Dayaratna argued that a nine-year payback period may not make sense for many Americans who would be better served by having additional resources available for food or housing. The commenters opined that DOE should not compel Americans to take on these extra costs or degrade the livability of their homes. (Spencer and Dayaratna, No. 390 at pp. 8–9) PO 00000 Frm 00104 Fmt 4701 Sfmt 4700 Black Hills Energy commented that, if adopted, the proposed rule would negatively impact individual homeowners, including senior and lowincome households, small business, and the overall furnace market. The commenter stated that DOE should not issue a rule with such negative impacts as those described in the proposal that would affect low-income households, seniors, and energy insecure consumers. (Black Hills Energy, No. 397 at pp. 1– 2) PHCC commented that energy insecurity is a significant concern and that access to gas products and noncondensing products remains an important solution to this issue. (PHCC, No. 403 at p. 5) AHRI stated that the impacts of a full condensing furnace standards would fall disproportionately on lower-income and senior households. AHRI referenced a statement from MHI that the median income for mobile home purchasers is $35,000 and that manufactured homeowners comprise a disproportionate amount of the Nation’s fixed-income citizens and first-time homebuyers. (AHRI, No. 414–2 at p. 3) Atmos Energy commented that DOE should amend the proposed furnace standards to address the significant adverse impacts on low-income households, adding that DOE’s assessment on this matter is insufficient. (Atmos Energy, No. 415 at p. 2) Atmos Energy further commented that the proposed rule burdens low-income households because it would cause an increase in furnace costs. Atmos Energy stated that condensing furnaces cost consumers around $1,300 more than non-condensing furnaces, adding that this increase in cost would burden homeowners and place upward pressure on rents by adding to maintenance costs. (Atmos Energy, No. 415 at p. 3) Several commenters expressed concern regarding the July 2022 NOPR’s potential impacts on housing affordability and consumers. AGA et al., The Coalition, The Heartland Institute, Plastics Pipe Institute, ACCA, and DCA all commented that the proposed rule would have significant adverse impacts, especially on low-income or fixedincome households, seniors, energy insecure consumers, small businesses, and/or the overall furnace market. (AGA et al., No. 391 at p. 1; The Coalition, No. 378 at p. 2; The Heartland Institute, No. 376 at pp. 1–2; Plastics Pipe Institute, No. 404 at p. 1; ACCA, No. 398 at pp. 1–2; DCA, No. 372 at pp. 1–2) Strauch objected to the life-cycle methodology of DOE’s proposed rulemaking due to concerns about consumer impacts. (Strauch, No. 366 at p. 1) Strauch stated E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations that poorer individuals or those with fixed incomes may not be able to afford the up-front investment that would allow them access to the future dollar savings of a more-efficient product. (Id.) Strauch also noted that the elderly population similarly may not live long enough to recover these additional costs through energy savings. (Id.) Strauch also argued that the July 2022 NOPR will reduce consumer choice. (Id.) MTNGUD, WMU, Consumer Energy Alliance, LANGD, Georgia Gas Authority, and the Heartland Institute stated that the potential negative impacts of the proposals in the July 2022 NOPR on consumers, including senior-only households, low-income households, and small business consumers, are inconsistent with the Biden-Harris Administration’s priority of achieving environmental justice in Federal programs. (MTNGUD, No. 350 at p. 1; WMU, No. 350 at p. 1; Consumer Energy Alliance, No. 354 at p. 1; LANGD, No. 355, at p. 1; Georgia Gas Authority, No 367 at p. 2; The Heartland Institute, No. 376 at p. 1) Also, several commenters noted that manufactured housing provides a source of affordable homeownership, which is impacted by this rulemaking. (Nortek, No. 406 at p. 5; MHI, No. 344 at p. 1; MHI, Public Meeting Webinar Transcript, No. 363 at p. 25–29; MHI, No. 365 at p. 1) Nortek commented that the median annual income of manufactured homeowners is below the national average, and that these individuals and families make up a larger group of America’s fixedincome citizens and first-time homebuyers. Nortek stated that this makes the demographic more vulnerable to changes that could price them out of the homebuying market. (Nortek, No. 406 at p. 5) MHI similarly argued that the July 2022 NOPR could reduce the affordability of manufactured homes without providing substantial energyefficiency or cost-saving benefits. (MHI, No. 344 at p. 1; MHI, Public Meeting Webinar Transcript, No. 363 at pp. 25– 27) Also, MHI asserted that should furnaces become less affordable, some manufactured housing owners may switch to less efficient and less safe heating methods. (MHI, No. 365 at p. 1) Nortek further stated that additional regulation that increases the cost to purchase or maintain a home could prevent some financially vulnerable consumers from achieving homeownership. (Nortek, No. 406 at p. 2) The Coalition commented that, given current housing prices, many potential homebuyers have been priced out of the market. (The Coalition, No. 378 at p. 3) The Coalition also stated that these VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 proposed standards place added pressure on households that are simultaneously struggling with rapidly rising prices for food, utilities, transportation, and other basic needs. (Id.) In contrast, a number of other commenters supported the proposed rule based on, in part, the potential benefits to low-income households. NCEL stated that outdated and inefficient gas furnaces generate high energy bills that particularly burden lower-income households. The State legislators commented that heating bills are one of the biggest energy expenses for most households, and those with inefficient gas furnaces face annual average heating bills of about $700. Furthermore, NCEL stated that increasing gas furnace efficiency will go a long way towards easing the burden of energy costs. (NCEL, No. 359 at p. 1) GHHI stated that due to historic underinvestment in low-income communities of color, residents often lack the resources to fix their aging and deteriorating homes, leading to poor insulation, drafts, and outdated HVAC systems. Consequently, GHHI stated that low-income communities, disproportionately of Black, Hispanic, and Native backgrounds, end up paying three times as much of their income on energy bills compared to those with higher income. (GHHI, No. 371 at p. 2) While GHHI acknowledged that newer appliances have greater upfront costs, GGHI argued that the savings from reduced utility costs mean the payback period from low-income families averages just over two years. (GHHI, Public Meeting Webinar Transcript, No. 363 at p. 18) The State Agencies commented that a 95-percent AFUE would help to decrease the energy burden for low-income households that spend a large portion of their income on energy bills. (State Agencies, No. 375 at p. 2) NYSERDA commented that, based on their review of DOE’s LCC analysis, the commenter has concluded that for New York and the rest of the U.S., establishing a standard at TSL 8 would yield significant consumer benefits that outweigh potential costs, especially for low-income consumers and those living in disadvantaged communities. (NYSERDA, No. 379 at p. 3) The commenter stated that DOE’s LCC analysis demonstrates the importance of this standard for low-income households. NYSERDA further commented that it found that adopting TSL 8 would not unfairly burden lowincome or disadvantaged communities in the Northeast but instead would provide significant benefits, especially PO 00000 Frm 00105 Fmt 4701 Sfmt 4700 87605 to renters who pay for utility bills. (NYSERDA, No. 379 at pp. 6–7) NYSERDA commented that in September 2022, Con Edison reported that, for that winter, electricity bills in their territory are expected to increase by 22 percent (to an average of $116 per month), and natural gas bills are expected to increase by 32 percent (to an average of $460 per month). NYSERDA emphasized the importance of transitioning to more efficient appliances for the general New York population, especially low-income households. (NYSERDA, No. 379 at p. 6) NCLC et al. commented on a 2021 analysis by the Pew Research Center, stating that 60 percent of those in the lowest income quartile are renters and that only 10 percent of households in the highest income quartile rent. NCLC et al. added that since tenants cannot dictate the efficiency of furnaces that owners purchase, strong standards are often the only way to ensure that tenants will benefit from having efficient furnaces. (NCLC et al., No. 383 at pp. 4–5) The Pennsylvania Groups commented in support of improved efficiency standards because they expect that such standards would help reduce energy burden disparities for systematically marginalized communities across the Commonwealth. These commenters stated that communities of color and low-income families face high energy burdens and often struggle to afford and maintain energy services to their homes. (The Pennsylvania Groups, No. 396 at p. 2) The Pennsylvania Groups stated that to achieve baseline affordability standards, a family’s total housing costs—including utility costs—should account for no more than 30 percent of the household’s total income. These commenters further stated that throughout Pennsylvania, families living at or below 150 percent of the Federal Poverty Line spend as much as 29 percent of their income on utility costs alone. (The Pennsylvania Groups, No. 396 at p. 2) The Pennsylvania Groups stated that these households often forgo other basic necessities in order to pay their heating bills, and when they cannot keep up with payments, their heat is shut off. These commenters further stated that this shut-off creates serious risks to the health and well-being of family members and threatens stable employment and education. (The Pennsylvania Groups, No. 396 at p. 3) The Pennsylvania Groups commented that low-income and BIPOC (Black, Indigenous, and People of Color) residents disproportionately occupy E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 87606 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations older, lower-quality housing, and these homes are more likely to use lessefficient, natural gas-fueled appliances. These commenters stated that Pennsylvania has some of the oldest housing stock in the country and that 55 percent of homes are heated with gas or propane. The Pennsylvania Groups pointed out that renters may bear even more of the negative impacts of wasteful furnaces than homeowners. (The Pennsylvania Groups, No. 396 at p. 3) They stated that the increased demand for rental housing and escalating rental costs have resulted in a market with limited access to safe, healthy, and quality housing, with significant cost burdens to low-income households. (The Pennsylvania Groups, No. 396 at pp. 3–4) The Pennsylvania Groups stated that their Commonwealth has over 435,000 low-income renters whose home heating is up to their landlords. Additionally, these commenters stated that the estimated savings under DOE’s proposed standard would be a significant amount to low-income families. (The Pennsylvania Groups, No. 396 at p. 4) Climate and Health Coalition stated that high heating bills can force a terrible choice upon consumers between paying for heat and other necessities, particularly for low-income households which pay three times as much of their incomes on energy costs than non-lowincome households and are disproportionately Black, Hispanic, and Native American. (Climate and Health Coalition, No. 399 at p. 4) The NCLC commented that lowincome rental properties are more likely to have less-efficient furnaces and pass the associated larger energy bill on to tenants. (NCLC, Public Meeting Webinar Transcript, No. 363 at pp. 8–10) NEEA stated that the proposals in the July 2022 NOPR will improve equitable outcomes by ensuring that rental units have efficient heating, thereby benefiting the larger portion of lowerincome rental units, and better insulating lower-income households from variable energy prices. (NEEA, No. 368 at pp. 3–4) The Joint Efficiency Commenters stated that DOE’s analysis shows that the majority of consumers, and especially low-income consumers, will benefit from the proposed standard level for MHGFs. (Joint Efficiency Commenters, No. 381 at p. 5) Climate Smart Missoula et al. stated that DOE’s proposal would lead to health benefits through the emissions reductions and by lowering utility bills for low-tomoderate income households, thereby freeing up resources that can be spent on food and medicine. (Climate Smart VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 Missoula et al., No. 393 at pp. 1–2) NCLC commented that increased efficiency standards will benefit lowincome families by lowering utility bills and mitigating harms caused by global warming, which provides both pocketbook savings and health benefits. (NCLC et al., No. 383 at p. 2) CFA stated that all of the conclusions about consumer benefits in the aggregate (i.e., payback period less than half the appliance lifetime, many more consumers with net benefits than with net costs, and individual who benefit having larger gains than the losses of individuals who do not) apply to lowincome consumers as well. (CFA, Public Meeting Webinar Transcript, No. 363 at p. 20) PSEA stated that high-efficiency condensing furnaces dramatically reduced the energy costs of low-income Philadelphians while also reducing indoor air pollution, and stated that the proposed standards would bring tremendous financial benefits and health benefits to low-income people nationwide. (PSEA, Public Meeting Webinar Transcript, No. 363 at p. 37) In response, DOE acknowledges the importance of considering the potential impacts on low-income households from energy conservation standards for consumer furnaces. As discussed in further detail in section V.C of this document, DOE concludes that lowincome households are not disproportionately negatively impacted compared to the national average. DOE’s analysis takes into account a variety of factors, as described in detail in section IV.F of this document, that are important to consider for low-income households, including typical equipment price, installation costs, furnace sizing, heating load, discount rate. DOE also considers the possibility of equipment switching to alternative options that meet all safety requirements. DOE finds no evidence that consumers are likely to switch to less-safe heating methods, and even if some consumers do so, such switching is likely to be very rare. A significantly higher fraction of lowincome households are renters compared to the national average. Renters are unlikely to be responsible for the selection and purchase of a consumer furnace but are often responsible for energy costs. The main LCC results assume all equipment costs are ultimately paid for by the household, as an upper-bound estimate of costs paid for by each household, and the low-income subgroup analysis represent a lower-bound estimate by assuming no passthrough. DOE did not make this upper-bound assumption in PO 00000 Frm 00106 Fmt 4701 Sfmt 4700 the low-income subgroup analysis in order to better understand the likely impacts on this specific subgroup, excluding the impact to landlords, who are not part of the low-income subgroup. There is no evidence DOE is aware of that suggests a price increase on the installation of a consumer furnace, paid for by a landlord, would be passed down to any significant extent to low-income renters. Rental markets are a separate market determined by their own supply and demand, and lowincome rents can be further restricted by local requirements or subsidies. There are some indications that premium, efficient appliances can result in higher rents, but this correlation mostly applies to premium rental properties, not lowincome households. Therefore, DOE assumes that landlords are very likely to bear the increased installation costs, not the low-income renter households. The main LCC results and the lowincome subgroup results provide an upper and lower bound on the likely impacts to low-income renter households, either assuming 100 percent of equipment and installation costs are passed through to renters or 0 percent of costs are passed through. Even if costs are passed through to renters to some extent in practice, DOE concludes that low-income renters are very likely to disproportionately benefit from an energy conservation standard for consumer furnaces as a result of significant operating cost savings. DOE acknowledges that for low-income owner households, there are some consumers with a net LCC cost and some households with a net LCC savings. Those are included as part of the overall low-income subgroup results. In addition, these results are all considered as part of DOE’s evaluation of economic justification, balancing the various burdens and benefits of a potential standard. ACCA recommended that DOE should focus on educating and incentivizing homeowners to demand that HVAC systems are installed according to the industry’s recommended minimum standards (including proper equipment sizing, duct redesign and sealing, and appropriate refrigerant charge levels). (ACCA, No. 398 at p. 2) ACCA commented that implementing such changes would result in a 25 to 30 percent efficiency improvement and would result in fewer negative consumer impacts. (Id.) APGA asserted that to the extent that a landlord incurs net costs under the proposed rule, landlords will flow those cost increases through to their lowincome tenants, but DOE’s methodology intentionally excludes that negative E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations impact in its analysis. APGA argued that DOE’s failure even to try to consider how much of the cost will be passed down to low-income renters is unreasonable. (APGA, No. 387 at pp. 47–48) As discussed previously, DOE does not agree with comments asserting that furnace cost increases will pass through to low-income tenants. DOE is not aware of any evidence to suggest this is the case. Rental markets are a separate market and not dictated by the cost of furnace (especially low-income rental properties), particularly when all rental properties are subject to the same energy conservation standards for furnaces, and, thus, there is no differentiation between rental properties based on the installed furnace. Furthermore, even if some fraction of total installed costs were passed through to tenants through rent increases, the benefits of a higherefficiency furnace would still vastly outweigh the costs. Any increase in rent would be averaged over many months and years, such that increases in first cost for lower income households would be constrained with higher than average discount rates. DOE also notes that a program based on educating and incentivizing homeowners is highly unlikely to achieve the level of energy savings in this rule, as evaluated in the discussion of alternative programs to energy conservation standards, presented in chapter 17 of the final rule TSD. AGA claimed that the reported percentage impacts for low-income consumers only include the results of low-income renters that pay their gas bills. According to the commenter, the remainder of low-income households is substantial and includes owneroccupied units and renters that do not pay their bills. AGA stated that the inclusion of fuel switching in the overall LCC savings significantly impacts the total and average LCC savings for low-income and senior households. AGA also pointed out that low-income consumers in four separate regions have negative LCC savings under a no-switching scenario. (AGA, No. 405 at pp. 98–102) In response, DOE notes that the commenter’s assertions are incorrect. The low-income subgroup results include all low-income households that meet the definition, including renters (both renters who pay and who do not pay their energy bills) and owneroccupied households. A significant fraction of low-income households are renters, as shown in section IV.I of this document. For owner-occupied lowincome households, DOE acknowledges that some households will experience a VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 net savings and that some will experience a net cost, but the Department considers this distribution of impacts, including regional variability, in its evaluation of economic justification. DOE has also considered all of the product switching sensitivity scenarios as part of its evaluation. DOE acknowledges there is a range of potential impacts across these scenarios, but as discussed in section V.C of this document, they do not alter DOE’s conclusions. NCP pointed out that in DOE’s LCC analysis, savings were negative for housing types with more than five units, which are frequently occupied by consumers with lower incomes. (NCP, No. 370 at p. 2) In response and as noted previously, DOE has conducted its main LCC analysis to assume 100 percent of total installed costs of a standards-compliant furnace are passed through to renters. Again, this is likely to provide a very conservative estimate of the impacts to renters, including those who live in housing types with more than five units. However, when assuming that the landlord is likely to bear most if not all of these costs, those households disproportionately benefit from an energy conservation standard for consumer furnaces. Atmos Energy commented that the proposed rule burdens low-income households because of the physical differences that become more problematic in multifamily dwelling units and smaller or older homes. The commenter elaborated that when switching to a condensing furnace, there are physical design changes required in the house, such as larger cabinets, different venting/combustion air intake systems, and the addition of condensate drain systems. (Atmos Energy, No. 415 at p. 3) As discussed in more detail in section IV.F of this document, DOE accounts for a variety of factors in its analysis, including the need for different venting/ combustion air intake systems and possible alterations such as larger cabinets, and installation of condensate drain systems. These factors are considered for all households, including low-income households. Atmos Energy commented that the proposed rule burdens low-income households because eliminating more affordable classes of furnaces that can be accommodated without renovations would make furnace replacements out of reach for many households with modest incomes. The commenter added that this would advantage wealthier households that can afford to replace less-efficient furnaces with newer PO 00000 Frm 00107 Fmt 4701 Sfmt 4700 87607 models and reap the accompanying energy savings benefits. (Atmos Energy, No. 415 at p. 3) As discussed previously, DOE acknowledges that total installed costs for a standards-compliant furnace is expected to increase, but the commenter fails to acknowledge that operating costs will decrease. DOE evaluates the full impact on households, including both the initial total installed costs and operating costs, when evaluating economic justification. DOE acknowledges that some low-income households may have a particularly high discount rate, and this is reflected in the discount rate distribution for the lowest income bin (see section IV.F.7 of this document). DOE also has no evidence that the majority of lowincome households who are renters who will to be burdened with an increase in total installed costs, and, thus, DOE disagrees with the assertion that the rule is primarily advantageous to wealthier households. The Coalition commented that regulatory requirements, including the amended standards proposed in the July 2022 NOPR, collectively create a substantial financial burden for the development and rehabilitation of housing. The commenter pointed to studies suggesting that regulatory requirements account for almost 25 percent of the average cost of a new single-family home and account for an average of 40.6 percent of the total development costs of new multi-family communities. The Coalition argued that these proposed furnace standards would add to these regulatory burdens. (The Coalition, No. 378 at pp. 3–4) The Coalition further commented that the proposed furnace standards would have adverse impacts on housing providers, renters, and manufacturers by effectively eliminating non-condensing furnaces as an option for home heating. The Coalition added that these standards would increase the cost of a furnace, stating that condensing furnaces cost consumers approximately $1,300 more than non-condensing furnaces. The commenter predicted that this additional cost would need to be absorbed by new home buyers and would increase maintenance costs, arguing that these added costs would be significant for households with modest incomes and providers of affordable housing. (The Coalition, No. 378 at p. 4) In response, DOE notes that installation cost of a 95-percent AFUE furnace in new construction can be less expensive than the installation cost of an 80-percent AFUE furnace, as discussed in section IV.F.2 of this document. This is primarily due to E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 87608 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations lower costs to install venting systems in new construction, with shorter vent lengths and without the need to remove an existing venting system. Despite this, market data show that 80-percent AFUE furnaces continue to be installed in new construction. Therefore, DOE does not agree that an energy conservation standard will have an adverse impact on builders or housing providers, nor will it negatively impact the development of more affordable housing options. To the extent that an amended energy conservation standard for consumer furnaces adds to total construction costs, which are then absorbed by new home buyers, that is included in DOE’s analysis. Those new home buyers would then also benefit from reduced operating costs as part of the LCC analysis. Finally, other regulatory requirements on builders and developers would apply in both the no-new-standards case as well as the new-standards case, and, therefore, such requirements do not factor in DOE’s analysis. NGA of Georgia stated that the proposed rule would negatively impact Georgians and reduce competition. The commenter stated that the proposal disproportionately prioritizes uncertain CO2 emissions reductions over the broader negative impacts to consumers. NGA of Georgia argued that affordability, end-user utility, and resiliency cannot be deprioritized in favor of increased emissions reductions. (NGA of Georgia, No. 380 at p. 1) In response, DOE acknowledges that some fraction of consumers will experience net savings, whereas others will experience net costs. DOE’s analyses account for regional variation, and consumers in different States (as represented in the RECS and CBECS surveys) are represented in the LCC. Thus, DOE’s evaluation of economic justification considers a distribution showing the full range of consumer impacts. DOE further notes that its conclusions would be the same even without considering the monetized benefits of emissions reductions. Accordingly, DOE concludes that affordability, end-user utility, and resiliency will not be negatively impacted by the standards being adopted in this final rule. ACCA expressed concern that a landlord will not see a return on their cost for a more expensive but higher efficiency furnace. ACCA argued that landlords will likely turn to alternative heating options resulting in increased monthly utility bills for their tenants and additional safety concerns. (ACCA, No. 398 at p. 3) DOE notes that this comment is not specific to the lowincome subgroup. In the main LCC VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 results, the product switching analysis includes examples of households experiencing higher operating costs after switching to lower cost electric alternatives. The product switching analysis only considers alternative options that meet all safety requirements. Joint Efficiency Commenters stated that there are other energy efficiency programs that can help offset the costs of switching to a higher-efficiency gas furnace or electric heating system, adding that there are particular programs for low- and moderate-income households. These commenters further stated that these types of programs would reduce the number of lowincome consumers that may be disproportionately impacted by the proposed standard. (Joint Efficiency Commenters, No. 381 at p. 3) NCLC et al. commented that with passage of the Inflation Reduction Act, Public Law 117–169, there will be funding to help consumers install efficient heating products, as well as assistance from rebate and subsidy programs offered by many State agencies and utility companies. Furthermore, NCLC et al. agreed that there will often be programs available for mitigating the cost impact of purchasing and installing efficient furnaces, particularly for low-income households. (NCLC et al., No. 383 at p. 7) In response, DOE acknowledges that rebate and incentive programs may assist low-income owner households with the purchase of more-efficient consumer furnaces. However, as discussed in section IV.G of this document, the implementation details of such future programs remain unknown at the time of the analysis, and DOE did not include them in its analysis. However, DOE notes that if such programs were to be deployed after the compliance date of an amended standard, the consumer benefits of the amended standards would be even higher. If such programs were implemented prior to the compliance date of an amended standard, incentivizing low-income households to adopt more efficient furnaces, such households would no longer be impacted by the amended standard. NCLC et al. commented that the proposed TSL 8 standard will significantly reduce greenhouse gas and other emissions, adding that this reduction will benefit low-income households and racial minorities. (NCLC et al., No. 383 at p. 7) DOE agrees with this comment. PO 00000 Frm 00108 Fmt 4701 Sfmt 4700 J. Manufacturer Impact Analysis 1. Overview DOE performed an MIA to estimate the financial impacts of amended energy conservation standards on manufacturers of NWGFs and MHGFs and to estimate the potential impacts of such standards on domestic employment, manufacturing capacity, and cumulative regulatory burden for those manufacturers. The MIA has both quantitative and qualitative aspects. The quantitative part of the MIA includes analyses of projected industry cash flows, the INPV, additional investments in research and development (R&D) and manufacturing capital necessary to comply with amended standards, and the potential impact on domestic manufacturing employment. Additionally, the MIA seeks to qualitatively determine how amended energy conservation standards might affect manufacturing capacity and competition, as well as how standards contribute to manufacturers’ overall regulatory burden. Finally, the MIA serves to identify any disproportionate impacts on manufacturer subgroups, including small business manufacturers. The quantitative part of the MIA primarily relies on the Government Regulatory Impact Model (GRIM),254 an industry cash-flow model with inputs specific to this rulemaking. The key GRIM inputs include data on the industry cost structure, unit production costs, product shipments, manufacturer markups, and investments in R&D and manufacturing capital required to produce compliant products. The key GRIM outputs are the INPV, which is the sum of industry annual cash flows over the analysis period, discounted using the industry-weighted average cost of capital, and the impact on domestic manufacturing employment. The model uses standard accounting principles to estimate the impacts of amended energy conservation standards on the NWGF and MHGF manufacturing industry by comparing changes in INPV and domestic manufacturing employment between the no-newstandards case and the various standards cases (i.e., TSLs). To capture the uncertainty relating to manufacturer pricing strategies following amended standards, the GRIM estimates a range of possible impacts under different markup scenarios. The qualitative part of the MIA addresses manufacturer characteristics 254 A copy of the GRIM spreadsheet tool is available on the DOE website for this rulemaking: www1.eere.energy.gov/buildings/appliance_ standards/standards.aspx?productid= 59&action=viewlive. E:\FR\FM\18DER2.SGM 18DER2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 and market trends. Specifically, the MIA considers such factors as a potential standard’s impact on manufacturing capacity, competition within the industry, the cumulative regulatory burden impact of other DOE and nonDOE regulations, and impacts on manufacturer subgroups. The complete MIA is outlined in chapter 12 of the final rule TSD. DOE conducted the MIA for this rulemaking in three phases. In Phase 1 of the MIA, DOE prepared a profile of the NWGF and MHGF manufacturing industry based on the market and technology assessment, preliminary manufacturer interviews, and publiclyavailable information. This included a top-down cost analysis of NWGF and MHGF manufacturers that DOE used to derive preliminary financial inputs for the GRIM (e.g., revenues; materials, labor, overhead, and depreciation expenses; selling, general, and administrative expenses (SG&A); R&D expenses; and tax rates). DOE also used public sources of information to further calibrate its initial characterization of the NWGF and MHGF manufacturing industry, including company filings of form 10–K from the SEC,255 corporate annual reports, the U.S. Census Bureau’s Annual Survey of Manufactures (ASM),256 and prior NWGF and MHGF rulemakings, as well as subscription-based market research tools (i.e., reports from Dun & Bradstreet 257). In Phase 2 of the MIA, DOE prepared a framework industry cash-flow analysis to quantify the potential impacts of new or amended energy conservation standards. The GRIM uses several factors to determine a series of annual cash flows starting with the announcement of the standard and extending over a 30-year period following the compliance date of the standard. These factors include annual expected revenues, costs of sales, SG&A and R&D expenses, taxes, and capital expenditures. In general, energy conservation standards can affect manufacturer cash flow in three distinct ways: (1) creating a need for increased investment; (2) raising production costs per unit, and (3) altering revenue due to 255 U.S. Securities and Exchange Commission’s Electronic Data Gathering, Analysis, and Retrieval system (EDGAR) database (available at: www.sec.gov/edgar/search/) (last accessed August 1, 2023). 256 U.S. Census Bureau’s Annual Survey of Manufactures: 2018–2021 (available at: www.census.gov/programs-surveys/asm/data/ tables.html) (last accessed August 1, 2023). 257 The Dun & Bradstreet Hoovers subscription login is accessible online at: app.dnbhoovers.com/ login (last accessed August 1, 2023). VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 higher per-unit prices and changes in sales volumes. In addition, during Phase 2, DOE developed interview guides to distribute to manufacturers of NWGF and MHGF in order to develop other key GRIM inputs, including product and capital conversion costs, and to gather additional information on the anticipated effects of amended energy conservation standards on revenues, direct employment, capital assets, industry competitiveness, and manufacturer subgroup impacts. In Phase 3 of the MIA, DOE’s contractor conducted structured, detailed interviews with representative NWGF and MHGF manufacturers. These interviews discussed engineering, manufacturing, procurement, and financial topics to validate assumptions used in the GRIM. The interviews also solicited information about manufacturers’ views of the industry as a whole and their key concerns regarding this rulemaking. DOE’s contractor conducted manufacturer interviews for the withdrawn March 2015 NOPR. DOE’s contractor conducted additional abridged interviews in October 2021 for the purposes of updating analyses. As part of Phase 3, DOE also evaluated subgroups of manufacturers that may be disproportionately impacted by amended standards or that may not be accurately represented by the average cost assumptions used to develop the industry cash-flow analysis. Such manufacturer subgroups may include small business manufacturers, lowvolume manufacturers, niche players, and/or manufacturers exhibiting a cost structure that largely differs from the industry average, all of whom could be more negatively affected by amended energy conservation standards. DOE identified one subgroup for a separate impact analysis: small business manufacturers. The small business subgroup is discussed in section VI.B, ‘‘Review Under the Regulatory Flexibility Act,’’ of this document and in chapter 12 of the final rule TSD. 2. Government Regulatory Impact Model and Key Inputs DOE uses the GRIM to quantify the changes in cash flows over time due to amended energy conservation standards that result in a higher or lower INPV for the standards cases as compared to the no-new-standards case. The GRIM uses a standard, annual discounted cash-flow analysis that incorporates manufacturer costs, manufacturer markups, shipments, and industry financial information as inputs. The GRIM models changes in costs, distribution of PO 00000 Frm 00109 Fmt 4701 Sfmt 4700 87609 shipments, investments, and manufacturer margins that could result from an amended energy conservation standard. The GRIM spreadsheet uses the inputs to arrive at a series of annual cash flows, beginning in 2023 (the base year of the analysis) and continuing to 2058 (the terminal year of the analysis). DOE calculated INPVs by summing the stream of annual discounted cash flows during this period. For manufacturers of NWGFs and MHGFs, DOE used a real discount rate of 6.4 percent, which was derived from industry corporate annual reports and public filings to the Securities and Exchange Commission (SEC 10–Ks) and then modified according to feedback received during manufacturer interviews. Many GRIM inputs came from the engineering analysis, the NIA, manufacturer interviews, and other research conducted during the MIA. The major GRIM inputs are described in detail in the following sections. The GRIM results are presented in section V.B.2 of this document. Additional details about the GRIM, the discount rate, and other financial parameters can be found in chapter 12 of the final rule TSD. a. Manufacturer Production Costs Manufacturing more efficient products is typically more expensive than manufacturing baseline products due to the use of more complex components, which are typically more costly than baseline components. The changes in the MPCs of covered products can affect the shipments, revenue, gross margins, and cash flow of the industry. To calculate the MPCs for NWGFs and MHGFs at and above the baseline, DOE performed teardowns for representative units. The data generated from these analyses were then used to estimate the incremental materials, labor, depreciation, and overhead costs for products at each efficiency level. For a complete description of the MPCs, see section IV.C of this document or chapter 5 of the final rule TSD. b. Shipments Projections The GRIM estimates industry revenues based on total unit shipment projections and the distribution of those shipments by efficiency level and product class. Changes in sales volumes and efficiency mix over time can significantly affect manufacturer finances. For this analysis, the GRIM uses the NIA’s annual shipment projections derived from the shipments analysis from 2023 (the base year) to 2058 (the end year of the analysis period). In the shipments analysis, DOE estimates the distribution of efficiencies E:\FR\FM\18DER2.SGM 18DER2 87610 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 in the no-new-standards case and standards cases for all product classes. To account for a regional standard at TSL 4, shipment values in the GRIM are broken down by region, North and rest of country, for the NWGF and MHGF product classes. The NIA assumes that product efficiencies in the no-new-standards case that do not meet the energy conservation standard in the standards case either ‘‘roll up’’ to meet the amended standard or switch to another product, such as a heat pump or electric furnace. In other words, the market share of products that are below the energy conservation standard is added to the market share of products at the minimum energy efficiency level allowed under each standard case. The market share of products above the amended energy conservation standard is assumed to be unaffected by that standard in the compliance year. For a complete description of the shipments analysis, see section IV.G of this document and chapter 9 of the final rule TSD. c. Capital and Product Conversion Costs Amended energy conservation standards could cause manufacturers to incur one-time conversion costs to bring their production facilities and product designs into compliance. DOE evaluated the level of conversion-related expenditures that would be needed to comply with each considered efficiency level in each product class. For the MIA, DOE classified these conversion costs into two major groups: (1) capital conversion costs; and (2) product conversion costs. Capital conversion costs are one-time investments in property, plant, and equipment necessary to adapt or change existing production facilities such that new, compliant product designs can be fabricated and assembled. Product conversion costs are one-time investments in research, development, testing, marketing, and other noncapitalized costs necessary to make product designs comply with amended energy conservation standards. To evaluate the level of capital conversion costs manufacturers would likely incur to comply with amended energy conservation standards, DOE used manufacturer interviews to gather data on the anticipated level of capital investment that would be required at each efficiency level. Manufacturer data were aggregated to better reflect the industry as a whole and to protect confidential information. DOE then scaled up the capital conversion cost feedback from interviews to estimate total industry capital conversion costs. VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 DOE assessed the product conversion costs at each considered AFUE efficiency level by integrating data from quantitative and qualitative sources. DOE considered market-share weighted feedback regarding the potential costs at each efficiency level from multiple manufacturers to estimate product conversion costs. Once again, manufacturer data were aggregated to better reflect the industry as a whole and to protect confidential information. DOE adjusted the conversion cost estimates developed in support of the July 2022 NOPR to 2022$ for this analysis. Industry conversion costs for the adopted standard total $162.0 million. It consists of $117.3 million in capital conversion costs and $44.8 million in product conversion costs. In general, DOE assumes all conversion-related investments occur between the year of publication of the final rule and the year by which manufacturers must comply with the new standard. The conversion cost figures used in the GRIM can be found in section V.B.2 of this document. For additional information on the estimated capital and product conversion costs, see chapter 12 of the final rule TSD. d. Manufacturer Markup Scenarios MSPs include direct manufacturing production costs (i.e., labor, materials, and overhead estimated in DOE’s MPCs) and all non-production costs (i.e., SG&A, R&D, and interest), along with profit. To calculate the MSPs in the GRIM, DOE applied manufacturer markups to the MPCs estimated in the engineering analysis for each product class and efficiency level. Modifying these manufacturer markups in the standards case yields different sets of impacts on manufacturers. For the MIA, DOE modeled two standards-case scenarios to represent uncertainty regarding the potential impacts on prices and profitability for manufacturers following the implementation of amended energy conservation standards: (1) a preservation of gross margin percentage scenario; and (2) a tiered scenario.258 These scenarios lead to different manufacturer markup values that, when applied to the MPCs, result in varying revenue and cash flow impacts. The industry cash-flow analysis results in section V.B.2 of this document present 258 DOE analyzed the preservation of per-unit operating profit scenario for the proposed standby mode and off mode standards in the July 2022 NOPR. DOE is not analyzing the preservation of per-unit operating profit scenario for this final rule, as DOE is not adopting the standby mode/off mode power standards for NWGFs/MHGFs proposed in the July 2022 NOPR at this time. PO 00000 Frm 00110 Fmt 4701 Sfmt 4700 the impacts of the upper and lower bound manufacturer markup scenarios on INPV. For the proposed AFUE standards, the preservation of gross margin percentage scenario represents the upper bound scenario, and the tiered scenario represents the lower bound scenario for INPV impacts. Under the preservation of gross margin percentage scenario, DOE applied a single uniform ‘‘gross margin percentage’’ markup across all efficiency levels, which assumes that following amended standards, manufacturers would be able to maintain the same amount of profit as a percentage of revenues at all efficiency levels within a product class. As production costs increase with efficiency, this scenario implies that the per-unit dollar profit will increase. Based on publicly available financial information for NWGF and MHGF manufacturers, as well as comments from manufacturer interviews, DOE assumed average gross margin percentages of 25.3 percent for NWGFs and 21.3 percent for MHGF.259 Manufacturers noted that this scenario represents the upper bound of the NWGF and MHGF industry’s profitability in the standards case because manufacturers can fully pass on additional costs due to standards to consumers. DOE also modeled a tiered scenario, which reflects the industry’s ‘‘good, better, best’’ pricing structure. DOE implemented the tiered markup scenario because several manufacturers stated in interviews that they offer multiple tiers of product lines that are differentiated, in part, by efficiency level. Manufacturers further noted that tiered pricing encompasses additional differentiators such as comfort features, brand, and warranty. To account for this nuance in the GRIM, DOE’s tiered markup structure incorporates both AFUE and combustion systems (e.g., singlestage, two-stage, and modulating combustion systems) into its ‘‘good, better, best’’ markup analysis. Multiple manufacturers suggested that amended standards could lead to a compression of overall mark-ups and reduce the profitability of higherefficiency products. During interviews, manufacturers provided information on the range of typical manufacturer markups in the ‘‘good, better, best’’ tiers. DOE used this information to estimate manufacturer mark-ups for NWGFs and MHGFs under a tiered pricing strategy in the no-new-standards case. In the standards cases, DOE modeled the 259 The gross margin percentages correspond to manufacturer markups of 1.34 for NWGFs and 1.27 for MHGFs. E:\FR\FM\18DER2.SGM 18DER2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations situation in which amended standards result in a reduction of product differentiation, compression of the markup tiers, and an overall reduction in profitability. A comparison of industry financial impacts under the two scenarios is presented in section V.B.2.a of this document. khammond on DSKJM1Z7X2PROD with RULES2 K. Emissions Analysis The emissions analysis consists of two components. The first component estimates the effect of potential energy conservation standards on power sector and site (where applicable) combustion emissions of CO2, NOX, SO2, and Hg. The second component estimates the impacts of potential standards on emissions of two additional greenhouse gases, CH4 and N2O, as well as the reductions in emissions of other gases due to ‘‘upstream’’ activities in the fuel production chain. These upstream activities comprise extraction, processing, and transporting fuels to the site of combustion. The analysis of electric power sector emissions of CO2, NOX, SO2, and Hg uses emissions intended to represent the marginal impacts of the change in electricity consumption associated with amended or new standards. The methodology is based on results published for the AEO, including a set of side cases that implement a variety of efficiency-related policies. The methodology is described in appendix 13A in the final rule TSD. The analysis presented in this document uses projections from AEO2023. Power sector emissions of CH4 and N2O from fuel combustion are estimated using Emission Factors for Greenhouse Gas Inventories published by the Environmental Protection Agency (EPA).260 The on-site operation of the subject consumer furnaces requires combustion of fossil fuels and results in emissions of CO2, NOX, SO2, CH4, and N2O where these products are used. Site emissions of these gases were estimated using Emission Factors for Greenhouse Gas Inventories and, for NOX and SO2, emissions intensity factors from an EPA publication.261 FFC upstream emissions, which include emissions from fuel combustion 260 Available at: www.epa.gov/sites/production/ files/2021-04/documents/emission-factors_ apr2021.pdf (last accessed August 1, 2023). 261 U.S. Environmental Protection Agency. External Combustion Sources. In Compilation of Air Pollutant Emission Factors. AP–42. Fifth Edition. Volume I: Stationary Point and Area Sources. Chapter 1 (available at: www.epa.gov/air-emissionsfactors-and-quantification/ap-42-compilation-airemissions-factors#Proposed/) (last accessed August 1, 2023). VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 during extraction, processing, and transportation of fuels, and ‘‘fugitive’’ emissions (direct leakage to the atmosphere) of CH4 and CO2, are estimated based on the methodology described in chapter 15 of the final rule TSD. The emissions intensity factors are expressed in terms of physical units per MWh or MMBtu of site energy savings. For power sector emissions, specific emissions intensity factors are calculated by sector and end use. Total emissions reductions are estimated using the energy savings calculated in the national impact analysis. GHHI stated that the reductions in nitrous oxide emissions will create more than $21 billion in health benefits from reduced medical spending on treatment and improved economic productivity. (GHHI, No. 371 at p. 2) NCLC et al. commented that reducing the combustion of natural gas in furnaces would reduce emissions of CO2, nitrogen oxides, and methane, which in turn would yield health benefits. NCLC et al. further commented that these benefits are important for low-income communities and racial minorities, stating that these groups already experience higher rates of negative health outcomes, have limited healthcare access, and struggle with higher amounts of medical debt. These commenters added that the reduction of heating-energy bills would further benefit low-income households who are forced to cut back on other necessities to pay energy bills. (NCLC et al., No. 383 at p. 8) Climate and Health Coalition expressed support for the eventual elimination of gas use within the home, and during the transition, Climate and Health Coalition stated that DOE’s proposed rule would reduce pollutants that harm human health, reduce climate change emissions, and save all customers (including disadvantaged and low-income communities) money. (Climate and Health Coalition, No. 399 at p. 1) Climate and Health Coalition further commented that exposure to air pollutants caused by burning natural gas contributes to premature mortality and increased risk for illness, including ischemic heart disease, stroke, chronic obstructive pulmonary disease (COPD), lung cancer, heart attack, type-2 diabetes, headache, fatigue, unconsciousness, lower-respiratory infections, and even death. (Climate and Health Coalition, No. 399 at pp. 1–3) Additionally, these commenters stated that there is a growing body of evidence showing an association between longterm exposure to air pollution and adverse birth outcomes. (Climate and PO 00000 Frm 00111 Fmt 4701 Sfmt 4700 87611 Health Coalition, No. 399 at pp. 1–2) Furthermore, Climate and Health Coalition stated that air pollution can exacerbate asthma and cardiopulmonary symptoms, are associated with upper respiratory infections and cough, increase lower respiratory tract illnesses, and reduce lung function in children. (Climate and Health Coalition, No. 399 at pp. 2–3) In response, DOE acknowledges the potential health and climate benefits of reducing emissions and continues to estimate site and power plant emissions reductions for CO2, CH4, N2O, NOX, SO2, and Hg in this final rule. APGA expressed concerned that DOE’s assumed fuel sulfur content leads to overstatements of SO2 emissions from on-site operation of furnaces, especially as utilities across the country can have much less total sulfur in their gas and still meet odorant requirements. (APGA, No. 387 at pp. 29–30) DOE acknowledges that there is some uncertainty in the sulfur content of fuel. However, the resulting site emission reductions of SO2 are over an order of magnitude smaller than the corresponding increases in SO2 emissions due to increased electricity consumption in the amended standards case, and, therefore, any changes to the sulfur content assumptions would have very little impact on overall results and would not alter DOE’s evaluation of economic justification. APGA noted that EPA is in the process of promulgating regulations to impose a methane fee (i.e., a charge on methane emissions from the petroleum and natural gas sector, where methane emissions from an applicable facility (upstream of gas distribution) exceed a pre-determined waste emissions threshold). APGA argued that given that such a fee would reduce methane emissions, DOE’s estimates are likely overstated and must be recalculated to account for the impact of EPA’s new methane fee. (APGA, No. 387 at p. 30) In response, DOE notes that its estimates of emissions reductions, including methane, are based on various projections from the latest AEO. AEO’s methodology incorporates all regulations affecting the energy sector, if they are finalized. If a rule is proposed but not yet finalized, it will not be incorporated into the reference case of AEO, as it may ultimately differ from its proposed rule (or not be finalized). Should EPA finalize a regulation regarding a methane fee, it will be incorporated into future publications of AEO. AEO2023 does not incorporate this regulation. DOE notes that, even if methane emissions were lower than estimated in this final rule, the E:\FR\FM\18DER2.SGM 18DER2 87612 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations Department’s conclusions regarding economic justification and technological feasibility of the rule would be the same. Spencer and Dayaratna cited a report from the U.S. Environmental Protection Agency indicating that U.S. air quality has been improving for decades, suggesting that this weakens DOE’s finding that the air quality benefits associated with DOE’s proposal would outweigh the costs. (Spencer and Dayaratna, No. 390 at pp. 5–6) In response, DOE notes that this assertion is incorrect. DOE acknowledges that air quality is generally improving, but this would occur in the no-new-standards case as well as the new-standards-case. DOE’s analysis specifically considers the difference between the two cases (i.e., emissions reductions from an energy conservation standard on consumer furnaces only). This difference between the no-new-standards and newstandards cases is the same regardless of the background air quality. Furthermore, DOE incorporates projections from AEO with respect to the fuel mix of future electricity generation, which includes a greater fraction of renewable sources with no emissions. Therefore, improving emissions from the power sector are included in DOE’s analysis. Atmos Energy commented that DOE’s analysis should differentiate between the carbon dioxide emissions from natural gas-fueled and propane-fueled furnaces and evaluate them separately. (Atmos Energy, No. 415 at p. 7) DOE acknowledges that propane and natural gas have different carbon dioxide emissions. However, this difference is orders of magnitude smaller than the total emissions reductions estimated in the analysis. Furthermore, as discussed in section V.C of this document, DOE comes to the same conclusions with or without taking into consideration the impact of emissions reductions, and, therefore, any adjustments to the emissions analysis for propane would not change DOE’s conclusions. khammond on DSKJM1Z7X2PROD with RULES2 1. Air Quality Regulations Incorporated in DOE’s Analysis DOE’s no-new-standards case for the electric power sector reflects the AEO, which incorporates the projected impacts of existing air quality regulations on emissions. AEO2023 generally represents current legislation and environmental regulations, including recent government actions, that were in place at the time of preparation of AEO2023, including the VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 emissions control programs discussed in the following paragraphs.262 SO2 emissions from affected electric generating units (‘‘EGUs’’) are subject to nationwide and regional emissions capand-trade programs. Title IV of the Clean Air Act sets an annual emissions cap on SO2 for affected EGUs in the 48 contiguous States and the District of Columbia (DC). (42 U.S.C. 7651 et seq.) SO2 emissions from numerous States in the eastern half of the United States are also limited under the Cross-State Air Pollution Rule (CSAPR). 76 FR 48208 (August 8, 2011). CSAPR requires these States to reduce certain emissions, including annual SO2 emissions, and went into effect as of January 1, 2015.263 AEO2023 incorporates implementation of CSAPR, including the update to the CSAPR ozone season program emission budgets and target dates issued in 2016. 81 FR 74504 (Oct. 26, 2016). Compliance with CSAPR is flexible among EGUs and is enforced through the use of tradable emissions allowances. Under existing EPA regulations, for States subject to SO2 emissions limits under CSAPR, any excess SO2 emissions allowances resulting from the lower electricity demand caused by the adoption of an efficiency standard could be used to permit offsetting increases in SO2 emissions by another regulated EGU. However, beginning in 2016, SO2 emissions began to fall as a result of the Mercury and Air Toxics Standards (MATS) for power plants. 77 FR 9304 (Feb. 16, 2012). In the MATS final rule, EPA established a standard for hydrogen chloride as a surrogate for acid gas hazardous air pollutants (HAP), and also established a standard for SO2 (a nonHAP acid gas) as an alternative equivalent surrogate standard for acid gas HAP. The same controls are used to reduce HAP and non-HAP acid gas; thus, SO2 emissions are being reduced as a result of the control technologies 262 For further information, see the Assumptions to AEO2023 report that sets forth the major assumptions used to generate the projections in the Annual Energy Outlook (available at: www.eia.gov/ outlooks/aeo/assumptions/) (last accessed August 1, 2023). 263 CSAPR requires States to address annual emissions of SO2 and NOX, precursors to the formation of fine particulate matter (PM2.5) pollution, in order to address the interstate transport of pollution with respect to the 1997 and 2006 PM2.5 National Ambient Air Quality Standards (NAAQS). CSAPR also requires certain States to address the ozone season (May–September) emissions of NOX, a precursor to the formation of ozone pollution, in order to address the interstate transport of ozone pollution with respect to the 1997 ozone NAAQS. 76 FR 48208 (August 8, 2011). EPA subsequently published a supplemental rule in the Federal Register that included an additional five States in the CSAPR ozone season program, 76 FR 80760 (Dec. 27, 2011). PO 00000 Frm 00112 Fmt 4701 Sfmt 4700 installed on coal-fired power plants to comply with the MATS requirements for acid gas. In order to continue operating, coal plants must have either flue gas desulfurization or dry sorbent injection systems installed. Both technologies, which are used to reduce acid gas emissions, also reduce SO2 emissions. Because of the emissions reductions under the MATS, it is unlikely that excess SO2 emissions allowances resulting from the lower electricity demand would be needed or used to permit offsetting increases in SO2 emissions by another regulated EGU. Therefore, energy conservation standards that decrease electricity generation will generally reduce SO2 emissions. DOE estimated SO2 emissions reduction using emissions factors based on AEO2023. CSAPR also established limits on NOX emissions for numerous States in the eastern half of the United States. Energy conservation standards would have little effect on NOX emissions in those States covered by CSAPR emissions limits if excess NOX emissions allowances resulting from the lower electricity demand could be used to permit offsetting increases in NOX emissions from other EGUs. In such case, NOX emissions would remain near the limit even if electricity generation goes down. Depending on the configuration of the power sector in the different regions and the need for allowances, however, NOX emissions might not remain at the limit in the case of lower electricity demand. That would mean that standards might reduce NOX emissions in covered States. Despite this possibility, DOE has chosen to be conservative in its analysis and has maintained the assumption that standards will not reduce NOX emissions in States covered by CSAPR. Energy conservation standards would be expected to reduce NOX emissions in the States not covered by CSAPR.264 DOE used AEO2023 data to derive NOX emissions factors for the group of States not covered by CSAPR. The MATS limit mercury emissions from power plants, but they do not include emissions caps and, as such, DOE’s energy conservation standards would be expected to slightly reduce Hg emissions. DOE estimated mercury emissions reduction using emissions factors based on AEO2023, which incorporates the MATS. L. Monetizing Emissions Impacts As part of the development of this final rule, for the purpose of complying with the requirements of Executive 264 See E:\FR\FM\18DER2.SGM footnote 246. 18DER2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations Order 12866, DOE considered the estimated net monetary benefits from changes in emissions of CO2, CH4, N2O, NOX, and SO2 that are expected to result from each of the TSLs considered. In order to make this calculation analogous to the calculation of the NPV of consumer benefit, DOE considered the reduced emissions expected to result over the lifetime of products shipped in the projection period for each TSL. This section summarizes the basis for the values used for monetizing the emissions benefits and presents the values considered in this final rule. khammond on DSKJM1Z7X2PROD with RULES2 1. Monetization of Greenhouse Gas Emissions To monetize the benefits of reducing GHG emissions, this analysis uses the interim estimates presented in the Technical Support Document: Social Cost of Carbon, Methane, and Nitrous Oxide Interim Estimates Under Executive Order 13990 published in February 2021 by the IWG.265 DOE estimates the monetized benefits of the reductions in emissions of CO2, CH4, and N2O by using a measure of the social cost (SC) of each pollutant (e.g., SC–CO2). These estimates represent the monetary value of the net harm to society associated with a marginal increase in emissions of these pollutants in a given year, or the benefit of avoiding that increase. These estimates are intended to include (but are not limited to) climate-change-related changes in net agricultural productivity, human health, property damages from increased flood risk, disruption of energy systems, risk of conflict, environmental migration, and the value of ecosystem services. DOE exercises its own judgment in presenting monetized climate benefits as recommended by applicable Executive orders, and DOE would reach the same conclusion presented in this final rule in the absence of the social cost of greenhouse gases. That is, the social costs of greenhouse gases, whether measured using the February 2021 interim estimates presented by the Interagency Working Group on the Social Cost of Greenhouse Gases or by another means, did not affect the rule ultimately being adopted by DOE. DOE estimated the global social benefits of CO2, CH4, and N2O reductions (i.e., SC–GHGs) using SC– GHG values that were based on the interim values presented in the Technical Support Document: Social 265 See www.whitehouse.gov/wp-content/ uploads/2021/02/TechnicalSupportDocument_ SocialCostofCarbonMethaneNitrousOxide.pdf (last accessed August 1, 2023). VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 Cost of Carbon, Methane, and Nitrous Oxide Interim Estimates under Executive Order 13990, published in February 2021 by the IWG. The SC– GHGs is the monetary value of the net harm to society associated with a marginal increase in emissions in a given year, or the benefit of avoiding that increase. In principle, SC–GHGs includes the value of all climate change impacts, including (but not limited to) changes in net agricultural productivity, human health effects, property damage from increased flood risk and natural disasters, disruption of energy systems, risk of conflict, environmental migration, and the value of ecosystem services. The SC–GHGs, therefore, reflects the societal value of reducing emissions of the gas in question by one metric ton. The SC–GHGs is the theoretically appropriate value to use in conducting benefit-cost analyses of policies that affect CO2, N2O, and CH4 emissions. As a member of the IWG involved in the development of the February 2021 SC–GHG TSD, DOE agrees that the interim SC–GHG estimates represent the most appropriate estimate of the SC–GHG until revised estimates have been developed reflecting the latest, peer-reviewed science. The SC–GHGs estimates presented here were developed over many years, using a transparent process, peerreviewed methodologies, the best science available at the time of that process, and with input from the public. Specifically, in 2009, the IWG, which included DOE and other Executive Branch agencies and offices, was established to ensure that agencies were using the best available science and to promote consistency in the social cost of carbon (SC–CO2) values used across agencies. The IWG published SC–CO2 estimates in 2010 that were developed from an ensemble of three widely cited integrated assessment models (IAMs) that estimate global climate damages using highly aggregated representations of climate processes and the global economy combined into a single modeling framework. The three IAMs were run using a common set of input assumptions in each model for future population, economic, and CO2 emissions growth, as well as equilibrium climate sensitivity—a measure of the globally averaged temperature response to increased atmospheric CO2 concentrations. These estimates were updated in 2013 based on new versions of each IAM. In August 2016, the IWG published estimates of the social cost of methane (SC–CH4) and nitrous oxide (SC–N2O) using PO 00000 Frm 00113 Fmt 4701 Sfmt 4700 87613 methodologies that are consistent with the methodology underlying the SC– CO2 estimates. The modeling approach that extends the IWG SC–CO2 methodology to non-CO2 GHGs has undergone multiple stages of peer review. The SC–CH4 and SC–N2O estimates were developed by Marten et al.266 and underwent a standard doubleblind peer review process prior to journal publication. In 2015, as part of the response to public comments received to a 2013 solicitation for comments on the SC–CO2 estimates, the IWG announced a National Academies of Sciences, Engineering, and Medicine review of the SC–CO2 estimates to offer advice on how to approach future updates to ensure that the estimates continue to reflect the best available science and methodologies. In January 2017, the National Academies released their final report, ‘‘Valuing Climate Damages: Updating Estimation of the Social Cost of Carbon Dioxide,’’ and recommended specific criteria for future updates to the SC–CO2 estimates, a modeling framework to satisfy the specified criteria, and both near-term updates and longer-term research needs pertaining to various components of the estimation process (National Academies, 2017).267 Shortly thereafter, in March 2017, President Trump issued Executive Order 13783, which disbanded the IWG, withdrew the previous TSDs, and directed agencies to ensure SC–CO2 estimates used in regulatory analyses are consistent with the guidance contained in OMB’s Circular A–4, ‘‘including with respect to the consideration of domestic versus international impacts and the consideration of appropriate discount rates’’ (E.O. 13783, section 5(c)). Benefitcost analyses following E.O. 13783 used SC–GHG estimates that attempted to focus on the U.S.-specific share of climate change damages as estimated by the models and were calculated using two discount rates recommended by Circular A–4, 3 percent and 7 percent. All other methodological decisions and model versions used in SC–GHG calculations remained the same as those used by the IWG in 2010 and 2013, respectively. On January 20, 2021, President Biden issued Executive Order 13990, which re266 Marten, A.L., E.A. Kopits, C.W. Griffiths, S.C. Newbold, and A. Wolverton. Incremental CH4 and N2O mitigation benefits consistent with the U.S. Government’s SC–CO2 estimates. Climate Policy (2015) 15(2): pp. 272–298. 267 National Academies of Sciences, Engineering, and Medicine. Valuing Climate Damages: Updating Estimation of the Social Cost of Carbon Dioxide. 2017. The National Academies Press: Washington, DC. E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 87614 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations established the IWG and directed it to ensure that the U.S. Government’s estimates of the social cost of carbon and other greenhouse gases reflect the best available science and the recommendations of the National Academies (2017). The IWG was tasked with first reviewing the SC–GHG estimates currently used in Federal analyses and publishing interim estimates within 30 days of the E.O. that reflect the full impact of GHG emissions, including by taking global damages into account. The interim SC– GHG estimates published in February 2021 are used here to estimate the climate benefits for this rulemaking. The February 2021 SC–GHG TSD provides a complete discussion of the IWG’s initial review conducted under E.O. 13990. In particular, the IWG found that the SC– GHG estimates used under E.O. 13783 fail to reflect the full impact of GHG emissions in multiple ways. First, the IWG found that the SC–GHG estimates used under E.O. 13783 fail to fully capture many climate impacts that affect the welfare of U.S. citizens and residents, and those impacts are better reflected by global measures of the SC– GHG. Examples of omitted effects from the E.O. 13783 estimates include direct effects on U.S. citizens, assets, and investments located abroad, supply chains, U.S. military assets and interests abroad, and tourism, as well as spillover pathways such as economic and political destabilization and global migration that can lead to adverse impacts on U.S. national security, public health, and humanitarian concerns. In addition, assessing the benefits of U.S. GHG mitigation activities requires consideration of how those actions may affect mitigation activities by other countries, as those international mitigation actions will provide a benefit to U.S. citizens and residents by mitigating climate impacts that affect U.S. citizens and residents. A wide range of scientific and economic experts have emphasized the issue of reciprocity as support for considering global damages of GHG emissions. If the United States does not consider impacts on other countries, it is difficult to convince other countries to consider the impacts of their emissions on the United States. The only way to achieve an efficient allocation of resources for emissions reduction on a global basis— and so benefit the U.S. and its citizens— is for all countries to base their policies on global estimates of damages. As a member of the IWG involved in the development of the February 2021 SC– GHG TSD, DOE agrees with this assessment, and, therefore, in this final VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 rule DOE centers attention on a global measure of the SC–GHG. This approach is the same as that taken in DOE regulatory analyses from 2012 through 2016. A robust estimate of climate damages that accrue only to U.S. citizens and residents does not currently exist in the literature. As explained in the February 2021 TSD, existing estimates are both incomplete and an underestimate of total damages that accrue to the citizens and residents of the U.S. because they do not fully capture the regional interactions and spillovers discussed above, nor do they include all of the important physical, ecological, and economic impacts of climate change recognized in the climate change literature. As noted in the February 2021 SC–GHG TSD, the IWG will continue to review developments in the literature, including more robust methodologies for estimating a U.S.-specific SC–GHG value, and explore ways to better inform the public of the full range of carbon impacts. As a member of the IWG, DOE will continue to follow developments in the literature pertaining to this issue. Second, the IWG found that the use of the social rate of return on capital (7 percent under current OMB Circular A– 4 guidance) to discount the future benefits of reducing GHG emissions inappropriately underestimates the impacts of climate change for the purposes of estimating the SC–GHG. Consistent with the findings of the National Academies (2017) and the economic literature, the IWG continued to conclude that the consumption rate of interest is the theoretically appropriate discount rate in an intergenerational context,268 and recommended that 268 Interagency Working Group on Social Cost of Carbon. Social Cost of Carbon for Regulatory Impact Analysis under Executive Order 12866 (2010) United States Government (last accessed August 1, 2023) (available at: www.epa.gov/sites/default/files/ 2016-12/documents/scc_tsd_2010.pdf); Interagency Working Group on Social Cost of Carbon. Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866 (2013) (78 FR 70586) (last accessed August 1, 2023) (available at: www.federalregister.gov/documents/ 2013/11/26/2013-28242/technical-supportdocument-technical-update-of-the-social-cost-ofcarbon-for-regulatory-impact); Interagency Working Group on Social Cost of Greenhouse Gases, United States Government. Technical Support Document: Technical Update on the Social Cost of Carbon for Regulatory Impact Analysis-Under Executive Order 12866 (August 2016) (last accessed August 1, 2023) (available at: www.epa.gov/sites/default/files/201612/documents/sc_co2_tsd_august_2016.pdf); Interagency Working Group on Social Cost of Greenhouse Gases, United States Government. Addendum to Technical Support Document on Social Cost of Carbon for Regulatory Impact Analysis under Executive Order 12866: Application of the Methodology to Estimate the Social Cost of Methane and the Social Cost of Nitrous Oxide. August 2016 (last accessed August 1, 2023) PO 00000 Frm 00114 Fmt 4701 Sfmt 4700 discount rate uncertainty and relevant aspects of intergenerational ethical considerations be accounted for in selecting future discount rates. Furthermore, the damage estimates developed for use in the SC–GHG are estimated in consumption-equivalent terms, and so an application of OMB Circular A–4’s guidance for regulatory analysis would then use the consumption discount rate to calculate the SC–GHG. DOE agrees with this assessment and will continue to follow developments in the literature pertaining to this issue. DOE also notes that while OMB Circular A–4, as published in 2003, recommends using 3 percent and 7 percent discount rates as ‘‘default’’ values, Circular A–4 also reminds agencies that ‘‘different regulations may call for different emphases in the analysis, depending on the nature and complexity of the regulatory issues and the sensitivity of the benefit and cost estimates to the key assumptions.’’ On discounting, Circular A–4 recognizes that ‘‘special ethical considerations arise when comparing benefits and costs across generations,’’ and Circular A–4 acknowledges that analyses may appropriately ‘‘discount future costs and consumption benefits . . . at a lower rate than for intragenerational analysis.’’ In the 2015 ‘‘Response to Comments on the Social Cost of Carbon for Regulatory Impact Analysis,’’ OMB, DOE, and the other IWG members recognized that ‘‘Circular A–4 is a living document’’ and ‘‘the use of 7 percent is not considered appropriate for intergenerational discounting. There is wide support for this view in the academic literature, and it is recognized in Circular A–4 itself.’’ Thus, DOE concludes that a 7 percent discount rate is not appropriate to apply to value the social cost of greenhouse gases in the analysis presented in this analysis. To calculate the present and annualized values of climate benefits, DOE uses the same discount rate as the rate used to discount the value of damages from future GHG emissions, for internal consistency. That approach to discounting follows the same approach that the February 2021 TSD recommends ‘‘to ensure internal consistency—i.e., future damages from climate change using the SC–GHG at 2.5 percent should be discounted to the base year of the analysis using the same 2.5 percent rate.’’ DOE has also consulted the National Academies’ 2017 recommendations on how SC–GHG (available at: www.epa.gov/sites/default/files/201612/documents/addendum_to_sc-ghg_tsd_august_ 2016.pdf). E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations estimates can ‘‘be combined in RIAs with other cost and benefits estimates that may use different discount rates.’’ The National Academies reviewed several options, including ‘‘presenting all discount rate combinations of other costs and benefits with [SC–GHG] estimates.’’ As a member of the IWG involved in the development of the February 2021 SC–GHG TSD, DOE agrees with the above assessment and will continue to follow developments in the literature pertaining to this issue. While the IWG works to assess how best to incorporate the latest, peer-reviewed science to develop an updated set of SC–GHG estimates, it set the interim estimates to be the most recent estimates developed by the IWG prior to the group being disbanded in 2017. The estimates rely on the same models and harmonized inputs and are calculated using a range of discount rates. As explained in the February 2021 SC–GHG TSD, the IWG has recommended that agencies revert to the same set of four values drawn from the SC–GHG distributions based on three discount rates as were used in regulatory analyses between 2010 and 2016 and were subject to public comment. For each discount rate, the IWG combined the distributions across models and socioeconomic emissions scenarios (applying equal weight to each) and then selected a set of four values recommended for use in benefitcost analyses: an average value resulting from the model runs for each of three discount rates (2.5 percent, 3 percent, and 5 percent), plus a fourth value, selected as the 95th percentile of estimates based on a 3-percent discount rate. The fourth value was included to provide information on potentially higher-than-expected economic impacts from climate change. As explained in the February 2021 SC–GHG TSD, and DOE agrees, this update reflects the immediate need to have an operational SC–GHG for use in regulatory benefitcost analyses and other applications that was developed using a transparent process, peer-reviewed methodologies, and the science available at the time of that process. Those estimates were subject to public comment in the context of dozens of proposed rulemakings as well as in a dedicated public comment period in 2013. There are a number of limitations and uncertainties associated with the SC– GHG estimates. First, the current scientific and economic understanding of discounting approaches suggests discount rates appropriate for intergenerational analysis in the context of climate change are likely to be less than 3 percent, near 2 percent or VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 lower.269 Second, the IAMs used to produce these interim estimates do not include all of the important physical, ecological, and economic impacts of climate change recognized in the climate change literature and the science underlying their ‘‘damage functions’’ (i.e., the core parts of the IAMs that map global mean temperature changes and other physical impacts of climate change into economic—both market and nonmarket—damages) lags behind the most recent research. For example, limitations include the incomplete treatment of catastrophic and non-catastrophic impacts in the integrated assessment models, their incomplete treatment of adaptation and technological change, the incomplete way in which inter-regional and intersectoral linkages are modeled, uncertainty in the extrapolation of damages to high temperatures, and inadequate representation of the relationship between the discount rate and uncertainty in economic growth over long time horizons. Likewise, the socioeconomic and emissions scenarios used as inputs to the models do not reflect new information from the last decade of scenario generation or the full range of projections. The modeling limitations do not all work in the same direction in terms of their influence on the SC–CO2 estimates. However, as discussed in the February 2021 TSD, the IWG has recommended that, taken together, the limitations suggest that the interim SC–GHG estimates used in this final rule likely underestimate the damages from GHG emissions. DOE concurs with this assessment. DOE’s derivations of the SC–GHG (i.e., SC–CO2, SC–N2O, and SC–CH4) values used for this final rule are discussed in the following sections, and the results of DOE’s analyses estimating the benefits of the reductions in emissions of these GHGs are presented in section V.B of this document. A number of commenters expressed concern over DOE’s estimates of the SC– GHG, as discussed in the paragraphs that follow. The Joint Market and Consumer Organizations argued that climate change considerations do not play a role under EPCA and that DOE should not use the IWG SC–GHGs analysis to calculate net regulatory benefits. The 269 Interagency Working Group on Social Cost of Greenhouse Gases (IWG) (2021) Technical Support Document: Social Cost of Carbon, Methane, and Nitrous Oxide Interim Estimates under Executive Order 13990. February. United States Government (available at: www.whitehouse.gov/briefing-room/ blog/2021/02/26/a-return-to-science-evidencebased-estimates-of-the-benefits-of-reducing-climatepollution/) (last accessed August 1, 2023). PO 00000 Frm 00115 Fmt 4701 Sfmt 4700 87615 commenters claimed that climate change is mentioned nowhere in EPCA’s detailed instructions to DOE on how to set and amend appliance efficiency standards. They suggest that DOE acted extra-statutorily by relying on Executive Order 13990 to account for greenhouse gas emissions in their net benefit analysis. (Joint Market and Consumer Organizations, No. 373 at p. 6) The commenters also question how DOE attempted to calculate the net benefits, claiming the SC–GHG is too speculative and subjective, and that it is too easily manipulated to be weighed in the same scales with the near-term consumer costs of the proposed standards. They claimed the IWG estimates are biased due to reliance on overheated climate models, inflated emission scenarios, and pessimistic adaptation assumptions. These commenters concluded that using biased SC–GHG estimates to estimate net benefits is arbitrary and capricious. (Id. at pp. 3, 7–10) They also claimed, even if the IWG’s methodology were not biased in multiple ways, that DOE’s finding that the furnace efficiency standards will deliver the estimated climate benefits would be unlikely. (Id. at p. 11) APGA asserted that flaws in the interim SC–GHG values could lead to miscalculations in monetary benefits from the proposed rule for NWGFs and MHGFs. APGA claimed that the process used by the IWG to develop the estimates was inconsistent with the Administrative Procedure Act, failed to fully consider recommendations from a related National Academies of Sciences, Engineering, and Medicine review, and did not follow current Office of Management and Budget bulletins and circulars, each of which is intended to ensure the underlying data used to develop the SC–GHGs are based on the best available science and economics. Accordingly, APGA asserted that failure to ensure that these procedural shortcomings are fully addressed before applying any SC–GHG estimates in a final rule will result in inappropriately calculated and, thus, misapplied values. APGA argued that DOE’s speculative projections regarding emission reductions benefits should not be part of any final rule. (APGA, No. 387 at pp. 31–32) Spencer and Dayaratna stated that the SC–GHGs obscures regulatory costs. These commenters referenced studies exploring the sensitivity of assessment models to changes in assumptions, which they said could make such models prone to user manipulation. Additionally, Spencer and Dayaratna stated that accurately accounting for costs and benefits, even those that do E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 87616 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations not impact DOE’s final decision (such as the SC–GHGs), is important for providing transparency. The commenters also suggested that DOE’s use of the SC–GHGs creates bias and is misleading. (Spencer and Dayaratna, No. 390 at pp. 6–8) The Associations urged DOE to reconsider the use of the SC–GHGs estimates in this rulemaking based on three core concerns. First, these commenters argued that before DOE considers applying the SC–GHG estimates to the proposed rule (and, likewise, to any final rule resulting from this rulemaking), the SC–GHG estimates should be subject to a proper administrative process, including a full and fair public comment process, as well as a robust independent peer review. Second, these commenters argued that there are statutory limitations on using the SC–GHG estimates, and the Associations urged DOE to fully consider the applicable limits before applying those estimates. Third, the Associations urged DOE to carefully consider whether the ‘‘major questions’’ doctrine precludes the application of the SC–GHG estimates in the proposed rule, given the political and economic significance of the estimates. (The Associations, No. 392 at p. 2) In response, DOE first notes that it would reach the same conclusion presented in this final rule in the absence of the social cost of greenhouse gases. DOE notes that, as stated in section III.F.1.f of this document, DOE maintains that environmental and public health benefits associated with the more efficient use of energy, including those connected to global climate change, are important to take into account when considering the ‘‘need for national energy . . . conservation,’’ which is one of the factors that EPCA requires DOE to evaluate in determining whether a potential energy conservation standard is economically justified. (42 U.S.C. 6295(o)(2)(B)(i)(VI)); Zero Zone, Inc. v. United States DOE, 832 F.3d 654, 677 (7th Cir. 2016) (pointing to 42 U.S.C. 6295(o)(2)(B)(i)(VI) in concluding that ‘‘[w]e have no doubt that Congress intended that DOE have the authority under the EPCA to consider the reduction in SCC.’’) DOE has been analyzing the monetized emissions impacts from its rules, for over 10 years. In addition, Executive Order 13563, ‘‘Improving Regulation and Regulatory Review,’’ which was re-affirmed on January 20, 2021, states that each agency, among other things, must, to the extent permitted by law: ‘‘select, in choosing among alternative regulatory VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 approaches, those approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity).’’ E.O. 13563, section 1(b). Furthermore, as noted previously, E.O. 13990, ‘‘Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis,’’ reestablished the IWG and directed it to ensure that the U.S. Government’s estimates of the social cost of carbon and other greenhouse gases reflect the best available science and the recommendations of the National Academies. As a member of the IWG involved in the development of the February 2021 SC–GHG TSD, DOE agrees that the interim SC–GHG estimates represent the most appropriate estimate of the SC–GHG until revised estimates have been developed reflecting the latest, peer-reviewed science. For these reasons, DOE includes monetized emissions reductions in its evaluation of potential standard levels. Finally, DOE notes that the ‘‘major questions’’ doctrine raised by the Associations applies only in ‘‘extraordinary cases’’ concerning Federal agencies claiming highly consequential regulatory authority beyond what Congress could reasonably be understood to have granted. West Virginia v. EPA, 142 S. Ct. 2587, 2609 (2022); N.C. Coastal Fisheries Reform Grp. v. Capt. Gaston LLC, 2023 U.S. App. LEXIS 20325, *6–8 (4th Cir., Aug. 7, 2023) (listing the hallmarks courts have recognized to invoke the major questions doctrine, such as a hesitancy ‘‘to recognize new-found powers in old statutes against a backdrop of an agency failing to invoke them previously,’’ ‘‘when the asserted power raises federalism concerns,’’ or ‘‘when the asserted authority falls outside the agency’s traditional expertise, . . . or is found in an ‘ancillary provision.’ ’’). DOE has clear authorization under EPCA to regulate the energy efficiency or energy use of a variety of consumer products, including the subject furnaces. Although DOE routinely conducts an analysis of the anticipated emissions impacts of potential energy conservation standards under consideration, see, e.g., Zero Zone, 832 F.3d at 677, DOE does not purport to regulate such emissions, and as stated elsewhere in this document, DOE’s selection of standards would be the same without consideration of emissions. Where DOE applied the factors it was tasked to consider under EPCA and the rule is justified even PO 00000 Frm 00116 Fmt 4701 Sfmt 4700 absent use of the SC–GHG analysis, the major questions doctrine has no bearing. In contrast to the commenters on this topic discussed previously, The Climate Commenters stated that DOE appropriately applies the social cost estimates developed by the IWG on the SC–GHGs to its analysis of emissions reduction benefits generated by the proposed rule for NWGFs and MHGFs. These commenters stated that DOE should expand upon its rationale for adopting a global damages valuation and for the range of discount rates it applies to climate effects, as there are additional legal, economic, and policy reasons for such methodological decisions that can further bolster and support DOE’s rationale for these choices. These commenters added that DOE should consider conducting sensitivity analysis using a sound domestic-only social cost estimate as a backstop, and the Department should explicitly conclude that the rule is costbenefit justified even using a domesticonly valuation that may still undercount climate benefits. These commenters also urged DOE to consider providing additional sensitivity analysis using discount rates lower than two percent for climate impacts. (The Climate Commenters, No. 388 at pp. 1–3) In response, DOE maintains that the reasons for using global measures of the SC–GHG previously discussed are sufficient for the purposes of this rulemaking. DOE notes that further discussion of this topic is contained in the February 2021 SC–GHG TSD, and DOE agrees with the assessment therein. Regarding conducting sensitivity analysis using a domestic-only social cost estimate, climate change harms U.S. interests both domestically and abroad through (1) impacts within U.S. borders; (2) impacts outside U.S. borders that affect the welfare of U.S. citizens and residents; and (3) spillover impacts of climate actions elsewhere on U.S. interests. Focusing on climate impacts occurring solely within U.S. borders, as commenters suggest, would ‘‘underestimate’’ benefits of greenhousegas mitigation for U.S. citizens and residents and ignore the reality that a Nation’s interests extend beyond its borders. See Zero Zone, Inc. v. U.S. Dep’t of Energy, 832 F.3d 654, 678–79 (7th Cir. 2016) (upholding consideration of global impacts in climate analysis). DOE also agrees with the assessment in the February 2021 SC–GHG TSD that the only currently available quantitative characterization of domestic damages from GHG emissions is both incomplete and an underestimate of the share of total damages that accrue to the citizens and residents of the United States. E:\FR\FM\18DER2.SGM 18DER2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations Therefore, it would be of questionable value to conduct the suggested sensitivity analysis at this time. DOE considered performing sensitivity analysis using discount rates lower than two percent for climate impacts, as suggested by the IWG, but it concluded that such analysis would not add meaningful information or impact the rationale in the context of this rulemaking. The Climate Commenters further stated that DOE should provide additional justification for combining climate effects discounted at an appropriate consumption-based discount rate, with other costs and benefits discounted at a capital-based rate (i.e., 7 percent). (The Climate Commenters, No. 388 at p. 2) In response, DOE notes that the reasons for using consumption-based discount rates for future climate effects were discussed previously and are further elaborated in the February 2021 SC–GHG TSD. Combining climate benefits with health benefits and consumer economic benefits is in keeping with the guidance of OMB Circular A–4 to count all significant costs and benefits. DOE is aware that there are different approaches to combining climate benefits with other cost and benefits estimates that may use different discount rates, and the approach applied in this document (as well as in numerous other past DOE rulemaking notices) is among those discussed in the National Academies 2017 report (p. 182).270 Finally, The Climate Commenters recommend that DOE should clearly state that any criticisms of the social cost of greenhouse gases are moot in this rulemaking, because the proposed rule is easily cost-justified without any climate benefits. (The Climate Commenters, No. 388 at p. 3) In response, DOE acknowledges that its conclusions regarding economic justification and technological feasibility would be the same without including climate benefits. When those benefits are accounted for, the justification becomes stronger still. PHCC commented that it is a mistake to include the estimated social and health cost in the rulemaking because they are currently under litigation, which could affect the rule’s viability. (PHCC, No. 403 at p. 5) In response, DOE notes that on April 5, 2023, the Fifth Circuit Court of Appeals (No. 22–30087) ruled that the plaintiffs lacked standing, dismissed the case for lack of jurisdiction, and vacated the February 11, 2022, preliminary injunction issued by the District Court in Louisiana v. Biden, No. 21–cv–1074– JDC–KK (W.D. La.). As reflected in this rule, DOE has reverted to its approach prior to the injunction and presents monetized greenhouse gas abatement benefits where appropriate and permissible under law. Furthermore, DOE bases its factors on the best available estimates for both 87617 climate and health benefits. The commenter did not provide any alternative data sources for DOE’s consideration, and, therefore, DOE has maintained its current approach from the NOPR for this final rule. a. Social Cost of Carbon The SC–CO2 values used for this final rule were based on the values developed for the IWG’s February 2021 TSD, which are shown in Table IV.14 in five-year increments from 2020 to 2050. DOE notes that it has exercised its discretion in adopting the IWG’s estimates, and as previously stated, DOE finds that the interim SC–GHG estimates represent the most appropriate estimate of the SC– GHG until revised estimates have been developed reflecting the latest, peerreviewed science. The set of annual values that DOE used, which was adapted from estimates published by EPA,271 is presented in appendix 14A of the final rule TSD. These estimates are based on methods, assumptions, and parameters identical to the estimates published by the IWG (which were based on EPA modeling), and include values for 2051 to 2070. DOE expects additional climate benefits to accrue for products still operating after 2070, but a lack of available SC– CO2 estimates for emissions years beyond 2070 prevents DOE from monetizing these potential benefits in this analysis. TABLE IV.14—ANNUAL SC–CO2 VALUES FROM 2021 INTERAGENCY UPDATE, 2020–2050 [2020$ per metric ton CO2] Discount rate and statistic Year khammond on DSKJM1Z7X2PROD with RULES2 2020 2025 2030 2035 2040 2045 2050 5% Average ................................................................................................................. ................................................................................................................. ................................................................................................................. ................................................................................................................. ................................................................................................................. ................................................................................................................. ................................................................................................................. 3% Average 14 17 19 22 25 28 32 2.5% Average 51 56 62 67 73 79 85 76 83 89 96 103 110 116 3% 95th percentile 152 169 187 206 225 242 260 DOE multiplied the CO2 emissions reduction estimated for each year by the SC–CO2 value for that year in each of the four cases. DOE adjusted the values to 2022$ using the implicit price deflator for gross domestic product (GDP) from the Bureau of Economic Analysis. To calculate a present value of the stream of monetary values, DOE discounted the values in each of the four cases using the specific discount rate that had been used to obtain the SC–CO2 values in each case. See chapter 13 of the final rule TSD for the annual emissions reduction and see also appendix 14A of the final rule TSD for the annual SC–CO2 values. 270 National Academies of Sciences, Engineering, and Medicine. Valuing Climate Damages: Updating Estimation of the Social Cost of Carbon Dioxide. 2017. The National Academies Press: Washington, DC. (Available at: https:// nap.nationalacademies.org/catalog/24651/valuingclimate-damages-updating-estimation-of-the-socialcost-of) (last accessed August 1, 2023). 271 See EPA, Revised 2023 and Later Model Year Light-Duty Vehicle GHG Emissions Standards: Regulatory Impact Analysis, Washington, DC, December 2021. Available at nepis.epa.gov/Exe/ ZyPDF.cgi?Dockey=P1013ORN.pdf (last accessed August 1, 2023). VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 PO 00000 Frm 00117 Fmt 4701 Sfmt 4700 E:\FR\FM\18DER2.SGM 18DER2 87618 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations b. Social Cost of Methane and Nitrous Oxide The SC–CH4 and SC–N2O values used for this final rule were based on the values developed for the February 2021 TSD. DOE notes that it has exercised its discretion in adopting the IWG’s estimates, and as previously stated, DOE finds that the interim SC–GHG estimates represent the most appropriate estimate of the SC–GHG until revised estimates have been developed reflecting the latest, peer-reviewed science. Table IV.16 shows the updated sets of SC–CH4 and SC–N2O estimates from the latest interagency update in five-year increments from 2020 to 2050. The full set of annual values used is presented in appendix 14A of the final rule TSD. To capture the uncertainties involved in regulatory impact analysis, DOE has determined it is appropriate to include all four sets of SC–CH4 and SC–N2O values, as recommended by the IWG. DOE derived values after 2050 using the approach described previously for the SC–CO2. TABLE IV.16—ANNUAL SC–CH4 AND SC–N2O VALUES FROM 2021 INTERAGENCY UPDATE, 2020–2050 [2020$ per metric ton] SC–CH4 SC–N2O Discount rate and statistic Discount rate and statistic Year 5% Average 2020 2025 2030 2035 2040 2045 2050 ......................................................... ......................................................... ......................................................... ......................................................... ......................................................... ......................................................... ......................................................... 670 800 940 1,100 1,300 1,500 1,700 khammond on DSKJM1Z7X2PROD with RULES2 DOE multiplied the CH4 and N2O emissions reduction estimated for each year by the SC–CH4 and SC–N2O estimates for that year in each of the cases. DOE adjusted the values to 2022$ using the implicit price deflator for gross domestic product (GDP) from the Bureau of Economic Analysis. To calculate a present value of the stream of monetary values, DOE discounted the values in each of the cases using the specific discount rate that had been used to obtain the SC–CH4 and SC–N2O estimates in each case. See chapter 13 of the final rule TSD for the annual emissions reduction, and see also appendix 14A of the final rule TSD for the annual SC–CH4 and SC–N2O values. 2. Monetization of Other Emissions Impacts For the final rule, DOE estimated the monetized value of NOX and SO2 emissions reductions from electricity generation using benefit-per-ton estimates for that sector from the EPA’s Benefits Mapping and Analysis Program.272 DOE used EPA’s values for PM2.5-related benefits associated with NOX and SO2 and for ozone-related benefits associated with NOX for 2025, 2030, and 2040, calculated with discount rates of 3 percent and 7 percent. DOE used linear interpolation to define values for the years not given 272 Estimating the Benefit per Ton of Reducing PM2.5 Precursors from 21 Sectors (available at: www.epa.gov/benmap/estimating-benefit-tonreducing-pm25-precursors-21-sectors) (last accessed August 1, 2023). VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 3% Average 2.5% Average 1,500 1,700 2,000 2,200 2,500 2,800 3,100 3% 95th percentile 2,000 2,200 2,500 2,800 3,100 3,500 3,800 3,900 4,500 5,200 6,000 6,700 7,500 8,200 in the 2025 to 2040 range; for years beyond 2040, the values are held constant. DOE combined the EPA regional benefit-per-ton estimates with regional information on electricity consumption and emissions from AEO2023 to define weighted-average national values for NOX and SO2 (see appendix 14B of the final rule TSD). DOE also estimated the monetized value of NOX and SO2 emissions reductions from site use of natural gas in NWGFs and MHGFs using benefitper-ton estimates from the EPA’s Benefits Mapping and Analysis Program. Although none of the sectors covered by EPA refers specifically to residential and commercial buildings, the sector called ‘‘area sources’’ would be a reasonable proxy for residential and commercial buildings.273 The EPA document provides high and low estimates for 2025 and 2030 at 3- and 7percent discount rates.274 DOE used the same linear interpolation and extrapolation as it did with the values for electricity generation. 273 ‘‘Area sources’’ represents all emission sources for which States do not have exact (point) locations in their emissions inventories. Because exact locations would tend to be associated with larger sources, ‘‘area sources’’ would be fairly representative of small, dispersed sources like homes and businesses. 274 ‘‘Area sources’’ are a category in the 2018 document from EPA, but are not used in the 2021 document cited previously. See: www.epa.gov/sites/ default/files/2018-02/documents/ sourceapportionmentbpttsd_2018.pdf (last accessed August 1, 2023). PO 00000 Frm 00118 Fmt 4701 Sfmt 4700 5% Average 5,800 6,800 7,800 9,000 10,000 12,000 13,000 3% Average 18,000 21,000 23,000 25,000 28,000 30,000 33,000 2.5% Average 27,000 30,000 33,000 36,000 39,000 42,000 45,000 3% 95th percentile 48,000 54,000 60,000 67,000 74,000 81,000 88,000 DOE multiplied the site emissions reduction (in tons) in each year by the associated $/ton values, and then discounted each series using discount rates of 3 percent and 7 percent as appropriate. GHHI stated that increasing furnace efficiency will have direct health benefits for American families, particularly in low-income and vulnerable communities. GHHI explained that fossil fuel burning furnaces release pollutants that can affect indoor air quality, including nitrogen oxides, carbon monoxide, PM2.5, and formaldehyde, all of which are associated with asthma, cardiovascular disease, birth defects, and even death. (GHHI, No. 371 at p. 1) In addition, GHHI stated that hazardous air conditions in dense cities have led to disproportionately higher rates of chronic conditions such as heart disease and respiratory disease in low-income and Black and Brown communities. (Id.) GHHI also commented that older unsafe systems can lead to carbon monoxide leaks. GHHI stated that 450 Americans are killed annually from these leaks, disproportionately effecting Hispanic and black populations. (GHHI, Public Meeting Webinar Transcript, No. 363 at pp. 15–16) GHHI commented that low-income homes are twice as likely to use a gas stove or oven for heating, which results in higher indoor pollution and increased rick of fire-related death and injury. (Id.) According to GHHI, access to more-efficient furnaces may help to prevent these hazards, and that E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations increasing furnace standards will directly benefit low-income communities and people of color. (Id.) The Pennsylvania Groups stated that inefficient and faulty furnaces expose household members to unsafe levels of indoor air pollution. These commenters further stated that families living in homes with polluted air frequently experience more hospital visits, with causes ranging from cardiovascular disease, heart attacks, asthma attacks, and premature death, among others. Moreover, the Pennsylvania Groups stated, that individuals exposed to indoor air pollution have increased COVID–19 infection incidences, hospitalizations, and deaths. (The Pennsylvania Groups, No. 396 at p. 3) Climate and Health Coalition commented that although gas furnaces are vented outside, that does not prevent back drafting of these pollutants back into the home when indoor air pressure is reduced due to kitchen exhaust hoods or bathroom ventilation fans. Additionally, Climate and Health Coalition stated that venting pollutants outdoors can cause community-wide harm, particularly among low-income communities and communities of color who are already saddled with increased levels of ambient air pollution. (Climate and Health Coalition, No. 399 at p. 1) Climate and Health Coalition stated that gas heating appliances account for about two-thirds of household gas use and related emissions. The commenter added that nearly half of U.S. homes are heated with gas or propane furnaces. Additionally, Climate and Health Coalition commented that many homes use inefficient furnaces, which cause excess methane, carbon dioxide, and nitrogen dioxide emissions into the indoor and outdoor environment. (Climate and Health Coalition, No. 399 at p. 1) Climate and Health Coalition further mentioned that uncombusted methane gas, which can leak into homes, was found to contain varying levels of at least 21 different hazardous pollutants that are undetectable by smell. Additionally, Climate and Health Coalition stated that methane is a potent greenhouse gas that drives health harms related to climate change. (Climate and Health Coalition, No. 399 at p. 2) In response, DOE has not quantitatively assessed the health benefits of reducing in-home exposure to particulate matter, nitrogen dioxide, and other hazardous air pollutants. DOE acknowledges that in-home emissions may carry different health risks than the risks assumed in the monetized health benefits calculations. Such in-home emissions may be associated with a variety of serious respiratory and VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 cardiovascular conditions and other health risks. Not all the public health and environmental benefits from the reduction of greenhouse gases, NOX, and SO2 are captured in the values reflected in DOE’s analysis, and there may be additional unquantified benefits from the reductions of those pollutants, as well as from the reduction of Hg, direct PM, and other co-pollutants. However, DOE assumes in its analysis that furnaces will be installed by licensed professionals and that all appropriate safety standards will be met, including indoor air pollutant exposure. DOE further assumes that a properly ventilated furnace will not result in any significant in-home emissions and, therefore, does not estimate any additional health benefits from reducing in-home emissions. Furnaces are not simple appliances that are purchased in stores and installed by average consumers. They require licensed gas plumbers and experienced contractors to properly size and install a system, especially in new construction. It is highly unlikely that an unlicensed individual, with little knowledge of gas plumbing, would install a furnace. However, DOE does account for site emissions that are vented outdoors and includes those emissions in its analysis. GHHI stated that the improved furnace efficiency standards would reduce use of dangerous heating methods. The commenter stated that low-income, energy insecure homes are twice as likely to use a gas stove or oven as a supplemental method to generate heat when money is short. Furthermore, GHHI stated that these practices often lead to levels of indoor pollution that are above what is recommended by public health guidelines, and accordingly, are a main risk factor for pediatric asthma. The commenter continued that children under age 6 in homes that use a gas stove or oven for heat are 80 percent more likely to have asthma than children in other homes. Additionally, GHHI commented that families that use a gas stove or oven as supplementary heat are also at an increased risk of fire-related death and injury. (GHHI, No. 371 at p. 2) In response, DOE is not aware of any data supporting the claim that the amended standards would increase the use of gas stoves being used to supplement heating from a furnace, and accordingly, the Department has not included any emissions impact of supplemental heating in the analysis for this rule. PO 00000 Frm 00119 Fmt 4701 Sfmt 4700 87619 M. Utility Impact Analysis The utility impact analysis estimates the changes in installed electrical capacity and generation projected to result for each considered TSL. The analysis is based on published output from the NEMS associated with AEO2023. NEMS produces the AEO Reference case, as well as a number of side cases that estimate the economywide impacts of changes to energy supply and demand. For the current analysis, impacts are quantified by comparing the levels of electricity sector generation, installed capacity, fuel consumption, and emissions in the AEO2023 Reference case and various side cases. Details of the methodology are provided in the appendices to chapters 13 and 15 of the final rule TSD. The output of this analysis is a set of time-dependent coefficients that capture the change in electricity generation, primary fuel consumption, installed capacity, and power sector emissions due to a unit reduction in demand for a given end use. These coefficients are multiplied by the stream of electricity savings calculated in the NIA to provide estimates of selected utility impacts of potential new or amended energy conservation standards. The utility analysis also estimates the impact on gas utilities in terms of projected changes in natural gas deliveries to consumers for each TSL. APGA commented that DOE’s procedures state: ‘‘The analysis of utility impacts will include estimated marginal impacts on electric and gas utility costs and revenues.’’ According to APGA, DOE contends that ‘‘rate decoupling’’ insulates gas utilities’ revenues from change resulting from the actions by the Department in this proceeding. APGA pointed out that rate decoupling is not a factor in most States and that few of its over 730 members employ rate decoupling. Furthermore, APGA argued that rate decoupling does not insulate retail customers from higher rates, as fixed costs are spread across reduced volumes due to fuel switching that would be caused by the elimination of non-condensing furnaces. The commenter recommended that DOE should conduct better sensitivity analyses based on the fuel switching that its own analysis shows will occur, as well as the fuel switching that will occur if the DOE analysis is corrected as APGA has suggested. (APGA, No. 387 at p. 58) AGA similarly asserted that DOE’s Process Rule requires the Department’s utility impact analysis to ‘‘include estimated marginal impacts on electric and gas utility costs and revenues.’’ E:\FR\FM\18DER2.SGM 18DER2 87620 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 According to AGA, the analysis presented in the NOPR is insufficient. Consequently, AGA argued that DOE should conduct a complete impact analysis that quantifies and evaluates the marginal impacts to gas utility costs and revenues of a reduction in gas deliveries due to fuel switching driven by the proposed rule. In addition, AGA stated that DOE should evaluate whether the loss of demand for natural gas local distribution companies could lead to higher rates on remaining consumers in order to cover fixed distribution costs. (AGA, No. 405 at pp. 107–108) In response, DOE acknowledges that rate decoupling does not apply to all utilities, but for those utilities that are subject to rate decoupling, changes in natural gas deliveries will not impact revenues. Analysis of the impact of standards on rates is very difficult, given the diversity of regulatory structures in the U.S. and the many factors that go into setting utility rates. DOE notes that the Process Rule is nonbinding and is intended to guide DOE in the consideration and promulgation of new or revised appliance energy conservation standards and test procedures. The analyses it describes are not necessarily those that are needed to meet EPCA’s requirements for evaluating the economic justification of potential new or amended standards. (42 U.S.C. 6295(o)(2)(B)(i)(I)–(VII)) Nevertheless, DOE includes an estimate of impacts on gas utility deliveries as part of the utility impact analysis in chapter 15 of the final rule TSD, in addition to estimates of impacts to installed capacity and generation for electric utilities. DOE notes that the impacts on gas deliveries does include the effects of product switching. N. Employment Impact Analysis DOE considers employment impacts in the domestic economy as one factor in selecting a standard. Employment impacts from new or amended energy conservation standards include both direct and indirect impacts. Direct employment impacts are any changes in the number of employees of manufacturers of the products subject to standards. The MIA addresses those impacts. Indirect employment impacts are changes in national employment that occur due to the shift in expenditures and capital investment caused by the purchase and operation of more-efficient appliances. Indirect employment impacts from standards consist of the net jobs created or eliminated in the national economy, other than in the manufacturing sector being regulated, caused by: (1) reduced VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 spending by consumers on energy, (2) reduced spending on new energy supply by the utility industry, (3) increased consumer spending on the products to which the new standards apply and other goods and services, and (4) the effects of those three factors throughout the economy. One method for assessing the possible effects on the demand for labor of such shifts in economic activity is to compare sector employment statistics developed by the Labor Department’s Bureau of Labor Statistics (BLS). BLS regularly publishes its estimates of the number of jobs per million dollars of economic activity in different sectors of the economy, as well as the jobs created elsewhere in the economy by this same economic activity. Data from BLS indicate that expenditures in the utility sector generally create fewer jobs (both directly and indirectly) than expenditures in other sectors of the economy.275 There are many reasons for these differences, including wage differences and the fact that the utility sector is more capital-intensive and less labor-intensive than other sectors. Energy conservation standards have the effect of reducing consumer utility bills. Because reduced consumer expenditures for energy likely lead to increased expenditures in other sectors of the economy, the general effect of efficiency standards is to shift economic activity from a less labor-intensive sector (i.e., the utility sector) to more labor-intensive sectors (e.g., the retail and service sectors). Thus, the BLS data suggest that net national employment may increase due to shifts in economic activity resulting from energy conservation standards. DOE estimated indirect national employment impacts for the standard levels considered in this final rule using an input/output model of the U.S. economy called Impact of Sector Energy Technologies version 4 (ImSET).276 ImSET is a special-purpose version of the ‘‘U.S. Benchmark National InputOutput’’ (I–O) model, which was designed to estimate the national employment and income effects of energy-saving technologies. The ImSET software includes a computer- based I– O model having structural coefficients 275 See U.S. Department of Commerce–Bureau of Economic Analysis. Regional Multipliers: A User Handbook for the Regional Input-Output Modeling System (RIMS II) (1997) U.S. Government Printing Office: Washington, DC. (Available at: https:// www.bea.gov/resources/methodologies/RIMSII-userguide) (last accessed August 1, 2023). 276 Livingston, O.V., S.R. Bender, M.J. Scott, and R.W. Schultz. ImSET 4.0: Impact of Sector Energy Technologies Model Description and User’s Guide (2015), Pacific Northwest National Laboratory: Richland, WA. PNNL–24563. PO 00000 Frm 00120 Fmt 4701 Sfmt 4700 that characterize economic flows among 187 sectors most relevant to industrial, commercial, and residential building energy use. DOE notes that ImSET is not a general equilibrium forecasting model, and that there are uncertainties involved in projecting employment impacts, especially changes in the later years of the analysis. Because ImSET does not incorporate price changes, the employment effects predicted by ImSET may over-estimate actual job impacts over the long run for this rule. Therefore, DOE used ImSET only to generate results for near-term timeframes (2029–2034), where these uncertainties are reduced. For more details on the employment impact analysis, see chapter 16 of the final rule TSD. V. Analytical Results and Conclusions The following section addresses the results from DOE’s analyses with respect to the considered energy conservation standards for NWGFs and MHGFs. It addresses the TSLs examined by DOE, the projected impacts of each of these levels if adopted as energy conservation standards for NWGFs and MHGFs, and the standards levels that DOE is adopting in this final rule. Additional details regarding DOE’s analyses are contained in the TSD supporting this final rule. A. Trial Standard Levels In general, DOE typically evaluates potential amended standards for products and equipment at the product class level and by grouping select individual efficiency levels for each class into TSLs. Use of TSLs allows DOE to identify and consider industry-level manufacturer cost interactions between the product classes, to the extent that there are such interactions, and national-level market cross-elasticity from consumer purchasing decisions that may change when different standard levels are set. For the subject consumer furnaces, it is particularly important to look at the aggregated impacts as characterized by TSLs due to the changes in consumer purchasing decisions as a result of the increased product and installation costs that impact the shipments model. The changes to the shipments model will drive differential national impacts both on the consumer and manufacturer side that are more realistic of how the market may change in response to amended DOE standards. For this final rule, DOE analyzed the consumer impacts of four efficiency levels for NWGFs, four efficiency levels for MHGFs, and the national impacts of E:\FR\FM\18DER2.SGM 18DER2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations nine TSLs for NWGFs and MHGFs. Table V.1 presents the TSLs and the corresponding efficiency levels that DOE has identified for potential amended energy conservation standards for NWGFs and MHGFs. It is noted that because the impact of a potential standard on different consumers can depend on the input capacity of the NWGF or MHGF, DOE considered certain TSLs (six cases) with an input capacity threshold, below which the amended standard would remain at the current efficiency level of 80-percent AFUE. Because the impact of a potential standard on different consumers can depend on the region of the country, for one of these six cases, DOE considered a regional TSL such that the amended standard would remain at an efficiency level of 80-percent AFUE outside the Northern region. For other TSLs (three cases), DOE examined a national standard level for NWGFs and MHGFs not differentiated by input capacity. DOE presents the results for the TSLs in this document, while the results for all efficiency levels that DOE analyzed are in the final rule TSD. The following provides a brief overview of the TSLs considered. Each TSL consists of similar efficiency levels for both NWGFs and MHGFs. TSL 9 represents the maximum technologically feasible (‘‘max-tech’’) energy efficiency for both NWGFs (98percent AFUE) and MHGFs (96-percent AFUE) and represents the maximum energy savings possible among the specific efficiency levels analyzed by DOE (see section IV.C.1 of this final rule). TSL 8 consists of a national standard at an efficiency level of 95percent AFUE for both NWGFs and MHGFs, which reflects a high degree of energy savings second only to the maxtech efficiency levels. TSL 7 consists of an efficiency level at 80-percent AFUE for small NWGFs and MHGFs at or below an input capacity of 55 kBtu/h and an efficiency level at 95-percent AFUE for large NWGFs and MHGFs. The threshold of 55 kBtu/h generally separates the market into larger capacity furnaces typically installed in larger single-family detached homes versus smaller capacity furnaces more likely to be installed in multi-family buildings and other households with higher potential installation costs. TSL 6 consists of the next highest efficiency levels, which would set a national standard at 92-percent AFUE for both NWGFs and MHGFs, regardless of input capacity. Similar to TSL 7, TSL 5 is constructed with an input capacity threshold. TSL 5 consists of an efficiency level at 80-percent AFUE for 87621 small NWGFs and MHGFs at or below an input capacity of 55 kBtu/h and an efficiency level at 92-percent AFUE for large NWGFs and MHGFs. TSL 4 consists of the efficiency levels that represent 95-percent AFUE for the Northern region for both NWGFs and MHGFs, but retains the baseline efficiency level (80-percent AFUE) for the rest of country. TSLs 3, 2, and 1 are similar to TSL 5, except with an increasingly higher input capacity threshold (and a correspondingly smaller fraction of the market subject to more-stringent standards). TSL 3 consists of the efficiency level that represents 80-percent AFUE for small NWGFs and MHGFs at or below an input capacity of 60 kBtu/h and the efficiency level that represents 92percent AFUE for large NWGFs and MHGFs. TSL 2 consists of the efficiency level that represents 80-percent AFUE for small NWGFs and MHGFs at or below an input capacity of 70 kBtu/h and the efficiency level that represents 92-percent AFUE for large NWGFs and MHGFs. TSL 1 consists of the efficiency level that represents 80-percent AFUE for small NWGFs and MHGFs at or below an input capacity of 80 kBtu/h and the efficiency level that represents 92-percent AFUE for large NWGFs and MHGFs. TABLE V.1—TRIAL STANDARD LEVELS FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES AFUE (percent) TSL Non-weatherized gas furnace 1 ............................................................................................................... 2 ............................................................................................................... 3 ............................................................................................................... 4 ............................................................................................................... 5 ............................................................................................................... 6 ............................................................................................................... 7 ............................................................................................................... khammond on DSKJM1Z7X2PROD with RULES2 8 ............................................................................................................... 9 ............................................................................................................... 92% 80% 92% 80% 92% 80% 95% 80% 92% 80% 92% 95% 80% 95% 98% (>80 kBtu/h) .......................... (≤80 kBtu/h) .......................... (>70 kBtu/h) .......................... (≤70 kBtu/h) .......................... (>60 kBtu/h) .......................... (≤60 kBtu/h) .......................... (North) ................................... (Rest of Country) .................. (>55 kBtu/h) .......................... (≤55 kBtu/h) .......................... ............................................... (>55 kBtu/h) .......................... (≤55 kBtu/h) .......................... ............................................... ............................................... B. Economic Justification and Energy Savings subgroups. These analyses are discussed in the following sections. 1. Economic Impacts on Individual Consumers a. Life-Cycle Cost and Payback Period DOE analyzed the economic impacts on NWGF and MHGF consumers by looking at the effects that potential new and amended standards at each TSL would have on the LCC and PBP. DOE also examined the impacts of potential standards on selected consumer VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 In general, higher-efficiency products affect consumers in two ways: (1) purchase price increases and (2) annual operating costs decrease. In addition, for NWGFs, some consumers may choose to switch to an alternative heating system rather than purchase and install a NWGF if they judge the economics to be PO 00000 Frm 00121 Fmt 4701 Mobile home gas furnace Sfmt 4700 92% (>80 kBtu/h). 80% (≤80 kBtu/h). 92% (>70 kBtu/h). 80% (≤70 kBtu/h). 92% (>60 kBtu/h). 80% (≤60 kBtu/h). 95% (North). 80% (Rest of Country). 92% (>55 kBtu/h). 80% (≤55 kBtu/h). 92%. 95% (>55 kBtu/h). 80% (≤55 kBtu/h). 95%. 96%. favorable. DOE estimated the extent of switching at each TSL using the consumer choice model discussed in section IV.F.10 of this document. Inputs used for calculating the LCC and PBP include total costs (i.e., product price plus installation costs), and operating costs (i.e., annual energy use, energy prices, energy price trends, repair costs, and maintenance costs). The LCC calculation also uses product lifetime and a discount rate. In cases E:\FR\FM\18DER2.SGM 18DER2 87622 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations where consumers are predicted to switch, the inputs include the total installed costs, operating costs, and product lifetime for the chosen heating system. Chapter 8 of the final rule TSD provides detailed information on the LCC and PBP analyses. For NWGFs, the LCC and PBP results at each efficiency level include consumers that would purchase and install a NWGF at that level, and also consumers that would choose to switch to an alternative heating product rather than purchase and install a NWGF at that level. The impacts for consumers that switch depend on the product that they choose (heat pump or electric furnace) and the NWGF that they would purchase in the no-new-standards case. The extent of projected product/fuel switching (in 2029) is shown in Tables V.2 and V.3 for each TSL for NWGFs and MHGFs, respectively. The degree of switching increases at higher-efficiency TSLs where the installed cost of a NWGF is very high for some consumers, making the alternative option competitive. As discussed in section IV.F.10 of this document, DOE also conducted sensitivity analyses using noswitching, high, and low switching estimates. See appendix 8J of the final rule TSD for more details. For the adopted standards (TSL 8), the total switching and repair vs. replace is 6.8 percent for NWGFs and 4.8 percent for MHGFs. TABLE V.2—RESULTS OF FUEL-SWITCHING ANALYSIS FOR NON-WEATHERIZED GAS FURNACES IN 2029 Trial standard level Consumer option 1 2 3 4 5 6 7 8 9 % of consumers Purchase NWGF at Standard Level ................................ Switch to Heat Pump * ..................................................... Switch to Electric Furnace * ............................................. Repair vs. Replacing ........................................................ 99.4 0.1 0.1 0.4 99.2 0.2 0.1 0.5 98.5 0.7 0.2 0.6 98.4 0.8 0.1 0.8 98.1 1.0 0.2 0.7 93.2 4.1 0.8 1.9 98.1 1.0 0.2 0.7 93.2 4.2 0.8 1.8 89.2 7.3 1.2 2.3 Total .......................................................................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 * Includes switching from a gas water heater to an electric water heater. Note: Components may not sum due to rounding. TABLE V.3—RESULTS OF FUEL-SWITCHING ANALYSIS FOR MOBILE HOME GAS FURNACES IN 2029 Trial standard level Consumer option 1 2 3 4 5 6 7 8 9 % of consumers Purchase MHGF at Standard Level ................................. Switch to Heat Pump ....................................................... Switch to Electric Furnace ............................................... Repair vs. Replacing ........................................................ 100.0 0.0 0.0 0.0 99.9 0.0 0.0 0.0 99.7 0.1 0.1 0.1 99.0 0.6 0.1 0.4 99.6 0.2 0.1 0.1 95.4 2.4 1.4 0.7 99.6 0.2 0.1 0.1 95.2 2.6 1.5 0.7 90.2 2.3 1.5 6.0 Total .......................................................................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Note: Components may not sum due to rounding. Tables V.4 through V.7 show the LCC and PBP results for the TSLs considered for each product class. In the first of each pair of tables, the simple payback is measured relative to the baseline product. In the second table, the impacts are measured relative to the efficiency distribution in the in the nonew-standards case in the compliance year (see section IV.F.8 of this document). The LCC and PBP results for NWGFs include both residential and commercial users. The LCC and PBP results are shipment-weighted and averaged over all capacities and regions. Results for all efficiency levels are reported in chapter 8 of the final rule TSD. LCC Results for the alternative product switching scenarios are reported in appendix 8J of the final rule TSD. Because some consumers purchase products with higher efficiency in the no-new-standards case, the average savings are less than the difference between the average LCC of the baseline product and the average LCC at each TSL. The savings refer only to consumers who are affected by a standard at a given TSL. Those who already purchase a product with efficiency at or above a given TSL are not affected. Consumers for whom the LCC increases at a given TSL experience a net cost. khammond on DSKJM1Z7X2PROD with RULES2 TABLE V.4—AVERAGE LCC AND PBP RESULTS FOR NON-WEATHERIZED GAS FURNACES Average costs (2022$) AFUE (%) TSL 1 .................. 2 .................. 3 .................. VerDate Sep<11>2014 Installed cost 92/80 * ................................................................ 92/80 * ................................................................ 92/80 * ................................................................ 17:57 Dec 15, 2023 Jkt 262001 PO 00000 Frm 00122 3,733 3,786 3,810 Fmt 4701 Sfmt 4700 First year’s operating cost Lifetime operating cost 578 571 568 E:\FR\FM\18DER2.SGM 9,300 9,173 9,114 18DER2 LCC 13,033 12,959 12,924 Simple payback (years) 6.4 6.6 6.7 Average lifetime (years) 21.5 21.5 21.5 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations 87623 TABLE V.4—AVERAGE LCC AND PBP RESULTS FOR NON-WEATHERIZED GAS FURNACES—Continued Average costs (2022$) AFUE (%) TSL 4 5 6 7 8 9 .................. .................. .................. .................. .................. .................. Installed cost 95/80 ** ............................................................... 92/80 * ................................................................ 92 † ..................................................................... 95/80 * ................................................................ 95 † ..................................................................... 98 (Max-Tech) † ................................................. 3,832 3,835 3,947 3,845 3,962 4,156 First year’s operating cost Lifetime operating cost 566 566 563 556 552 545 LCC 9,075 9,077 8,958 8,924 8,788 8,620 Simple payback (years) 12,907 12,912 12,905 12,769 12,750 12,776 Average lifetime (years) 7.0 7.0 9.4 5.8 7.6 10.1 21.5 21.5 21.5 21.5 21.5 21.5 * The first number refers to the standard for large NWGFs; the second refers to the standard for small NWGFs. The input capacity threshold definitions for small NWGFs are as follows: TSL 1: 80 kBtu/h TSL 2: 70 kBtu/h TSL 3: 60 kBtu/h TSL 5: 55 kBtu/h TSL 7: 55 kBtu/h. ** The first number refers to the efficiency level for the North; the second number refers to the efficiency level for the rest of country. † Refers to national standards. Note: The results for each TSL are calculated assuming that all consumers use products at that efficiency level. The PBP is measured relative to the baseline product. TABLE V.5—AVERAGE LCC SAVINGS RELATIVE TO THE NO-NEW-STANDARDS CASE FOR NON-WEATHERIZED GAS FURNACES Life-cycle cost savings AFUE (%) TSL 1 2 3 4 5 6 7 8 9 .................. .................. .................. .................. .................. .................. .................. .................. .................. Average LCC savings (2022$) 92/80 * ............................................................................................ 92/80 * ............................................................................................ 92/80 * ............................................................................................ 95/80 ** ........................................................................................... 92/80 * ............................................................................................ 92 † ................................................................................................. 95/80 * ............................................................................................ 95 † ................................................................................................. 98 (Max-Tech) † ............................................................................. Percentage of consumers that experience net cost (%) 577 571 580 390 551 320 479 350 169 3.2 4.7 5.8 5.6 6.8 19.2 6.8 18.7 62.3 * The first number refers to the standard for large NWGFs; the second refers to the standard for small NWGFs. The input capacity threshold definitions for small NWGFs are as follows: TSL 1: 80 kBtu/h TSL 2: 70 kBtu/h TSL 3: 60 kBtu/h TSL 5: 55 kBtu/h TSL 7: 55 kBtu/h ** The first number refers to the efficiency level for the North; the second number refers to the efficiency level for the rest of country. † Refers to national standards. Note: The savings represent the average LCC for affected consumers. TABLE V.6—AVERAGE LCC AND PBP RESULTS FOR MOBILE HOME GAS FURNACES Average costs (2022$) AFUE (%) khammond on DSKJM1Z7X2PROD with RULES2 TSL 1 2 3 4 5 6 7 8 9 .................. .................. .................. .................. .................. .................. .................. .................. .................. Installed cost 92/80 * ................................................................ 92/80 * ................................................................ 92/80 * ................................................................ 95/80 ** ............................................................... 92/80 * ................................................................ 92 † ..................................................................... 95/80 * ................................................................ 95 † ..................................................................... 96 (Max-Tech) † ................................................. 2,429 2,484 2,499 2,510 2,514 2,564 2,528 2,583 2,592 First year’s operating cost Lifetime operating cost 545 525 518 513 515 511 505 500 517 9,126 8,804 8,709 8,577 8,647 8,547 8,492 8,374 8,312 LCC 11,556 11,288 11,209 11,087 11,161 11,111 11,020 10,956 10,904 Simple payback (years) 2.2 2.5 2.5 2.4 2.6 3.6 2.4 3.2 4.8 Average lifetime (years) 21.5 21.5 21.5 21.5 21.5 21.5 21.5 21.5 21.5 * The first number refers to the standard for large MHGFs; the second refers to the standard for small MHGFs. The input capacity threshold definitions for small MHGFs are as follows: TSL 1: 80 kBtu/h VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 PO 00000 Frm 00123 Fmt 4701 Sfmt 4700 E:\FR\FM\18DER2.SGM 18DER2 87624 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations TSL 2: 70 kBtu/h TSL 3: 60 kBtu/h TSL 5: 55 kBtu/h TSL 7: 55 kBtu/h. ** The first number refers to the efficiency level for the North; the second number refers to the efficiency level for the rest of country. † Refers to national standards. Note: The results for each TSL are calculated assuming that all consumers use products at that efficiency level. The PBP is measured relative to the baseline product. TABLE V.7—AVERAGE LCC SAVINGS RELATIVE TO THE NO-NEW-STANDARDS CASE FOR MOBILE HOME GAS FURNACES Life-cycle cost savings AFUE (%) TSL 1 2 3 4 5 6 7 8 9 .................. .................. .................. .................. .................. .................. .................. .................. .................. Percentage of consumers that experience net cost (%) Average LCC savings (2022$) 92/80 * ............................................................................................ 92/80 * ............................................................................................ 92/80 * ............................................................................................ 95/80 ** ........................................................................................... 92/80 * ............................................................................................ 92 † ................................................................................................. 95/80 * ............................................................................................ 95 † ................................................................................................. 96 (Max-Tech) † ............................................................................. 846 805 736 908 675 532 760 616 529 0.6 2.5 3.7 3.9 5.0 16.2 5.0 15.3 18.6 * The first number refers to the standard for large MHGFs; the second refers to the standard for small MHGFs. The input capacity threshold definitions for small MHGFs are as follows: TSL 1: 80 kBtu/h TSL 2: 70 kBtu/h TSL 3: 60 kBtu/h TSL 5: 55 kBtu/h TSL 7: 55 kBtu/h ** The first number refers to the efficiency level for the North; the second number refers to the efficiency level for the rest of country. † Refers to national standards. Note: The savings represent the average LCC for affected consumers. b. Consumer Subgroup Analysis In the consumer subgroup analysis, DOE estimated the impact of the considered TSLs on low-income households, senior-only households, and small businesses (for NWGF only). Tables V.8 and V.9 compare the average LCC savings and PBP at each efficiency level for the consumer subgroups, along MHGF consumers experiencing a net cost is smaller than the full LCC sample in all cases, largely due to the high proportion of renter households. The percentage of senior-only NWGF and MHGF households experiencing a net cost is either very similar to or smaller than the full LCC sample. Chapter 11 of the final rule TSD presents the complete LCC and PBP results for the subgroups. with the average LCC savings for the entire consumer sample. Because the small NWGF and MHGF efficiency levels at TSLs 1, 2, 3, 5, and 7 and the rest of country efficiency level at TSL 4 are at the baseline (i.e., the current standard), these tables only include results for large NWGFs and MHGFs or the Northern region for these TSLs. The percentage of low-income NWGF and TABLE V.8—COMPARISON OF LCC SAVINGS AND PBP FOR CONSUMER SUBGROUPS AND ALL HOUSEHOLDS FOR NONWEATHERIZED GAS FURNACES Average LCC savings (2022$) Simple payback period (years) % of consumers experiencing net cost (%) TSL Lowincome khammond on DSKJM1Z7X2PROD with RULES2 1 * ..................... 2 * ..................... 3 * ..................... 4 ** .................... 5 * ..................... 6 † .................... 7 * ..................... 8 † .................... 9 † .................... Senioronly 332 384 383 277 392 207 372 254 153 Small business 354 394 402 160 387 321 250 254 412 767 457 689 298 630 402 626 460 269 Lowincome All 577 571 580 390 551 320 479 350 169 2.9 2.6 2.4 1.7 2.5 3.0 2.0 2.5 3.4 Senioronly Small business 6.2 5.8 5.8 6.2 6.0 7.1 5.0 6.0 7.6 1.0 2.2 2.3 1.5 2.2 2.4 1.9 2.1 3.1 All 6.4 6.6 6.7 7.0 7.0 9.4 5.8 7.6 10.1 LowIncome 2.0 2.6 3.4 4.0 4.8 15.4 5.7 15.9 39.7 Senioronly Small business 2.6 3.6 4.3 4.7 5.7 16.5 5.5 15.5 54.0 * Refers to TSLs with separate standards for small and large NWGFs. The input capacity threshold definitions for small NWGFs are as follows: TSL 1: 80 kBtu/h TSL 2: 70 kBtu/h TSL 3: 60 kBtu/h TSL 5: 55 kBtu/h TSL 7: 55 kBtu/h ** Regional standards. † Refers to national standards. Note: The savings represent the average LCC for affected consumers. The PBP is measured relative to the baseline product. VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 PO 00000 Frm 00124 Fmt 4701 Sfmt 4700 E:\FR\FM\18DER2.SGM 18DER2 3.5 8.2 8.9 2.5 10.4 16.1 8.7 13.7 58.0 All 3.2 4.7 5.8 5.6 6.8 19.2 6.8 18.7 62.3 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations 87625 TABLE V.9—COMPARISON OF LCC SAVINGS AND PBP FOR CONSUMER SUBGROUPS AND ALL HOUSEHOLDS FOR MOBILE HOME GAS FURNACES Average LCC savings (2022$) Simple payback period (years) % of consumers experiencing net cost (%) TSL Lowincome 1 * ................................................ 2 * ................................................ 3 * ................................................ 4 ** ............................................... 5 * ................................................ 6 † ............................................... 7 * ................................................ 8 † ............................................... 9 † ............................................... Senioronly 1,175 1055 888 931 699 472 775 552 476 697 865 820 764 702 546 648 537 1,493 Lowincome All 846 805 736 908 675 532 760 616 529 1.2 1.4 1.4 1.0 1.5 2.0 1.3 1.8 2.7 Senioronly All 2.0 2.0 2.0 1.1 2.2 3.0 2.1 2.7 3.7 Lowincome 2.2 2.5 2.5 2.4 2.6 3.6 2.4 3.2 4.8 Senioronly 0.1 1.0 2.2 3.6 4.6 15.9 4.7 15.3 18.0 All 0.4 3.2 3.9 3.4 6.7 19.1 6.9 19.2 21.7 0.6 2.5 3.7 3.9 5.0 16.2 5.0 15.3 18.6 * Refers to TSLs with separate standards for small and large MHGFs. The input capacity threshold definitions for small MHGFs are as follows: TSL 1: 80 kBtu/h TSL 2: 70 kBtu/h TSL 3: 60 kBtu/h TSL 5: 55 kBtu/h TSL 7: 55 kBtu/h ** Regional standards. † Refers to national standards. Note: The savings represent the average LCC for affected consumers. The PBP is measured relative to the baseline product. c. Rebuttable Presumption Payback As discussed in section III.F.2 of this document, EPCA establishes a rebuttable presumption that an energy conservation standard is economically justified if the increased purchase cost for a product that meets the standard is less than three times the value of the first-year energy savings resulting from the standard. In calculating a rebuttable presumption payback period for each of the considered TSLs, DOE used discrete values, and, as required by EPCA, based the energy use calculation on the DOE test procedures for residential furnaces and boilers. In contrast, the PBPs presented in section V.B.1.a of this document were calculated using distributions that reflect the range of energy use in the field. Table V.10 present the rebuttablepresumption payback periods for the considered TSLs for NWGFs and MHGFs. The payback periods for most NWGF and MHGF TSLs do not meet the rebuttable-presumption criterion. While DOE examined the rebuttablepresumption criterion, it determined whether the standard levels considered for this rule are economically justified through a more detailed analysis of the economic impacts of those levels, pursuant to 42 U.S.C. 6295(o)(2)(B)(i), that considers the full range of impacts to the consumer, manufacturer, Nation, and environment. The results of that analysis serve as the basis for DOE to definitively evaluate the economic justification for a potential standard level, thereby supporting or rebutting the results of any preliminary determination of economic justification. TABLE V.10—REBUTTABLE-PRESUMPTION PAYBACK PERIODS (YEARS) FOR NON-WEATHERIZED GAS FURNACE AND MOBILE HOME GAS FURNACES Non-weatherized gas furnaces TSL khammond on DSKJM1Z7X2PROD with RULES2 1 * ................................................................................................................................................................. 2 * ................................................................................................................................................................. 3 * ................................................................................................................................................................. 4 ** ................................................................................................................................................................ 5 * ................................................................................................................................................................. 6 † ................................................................................................................................................................ 7 * ................................................................................................................................................................. 8 † ................................................................................................................................................................ 9 † ................................................................................................................................................................ 2.64 2.86 2.94 1.03 3.06 3.20 2.92 3.05 3.67 Mobile home gas furnaces 1.52 1.62 1.68 0.54 1.69 1.80 1.56 1.63 1.67 * Refers to TSLs with separate standards for small and large NWGFs and MHGFs. The input capacity threshold definitions for small NWGFs and MHGFs are as follows: TSL 1: 80 kBtu/h TSL 2: 70 kBtu/h TSL 3: 60 kBtu/h TSL 5: 55 kBtu/h TSL 7: 55 kBtu/h ** Regional standards. † Refers to national standards. VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 PO 00000 Frm 00125 Fmt 4701 Sfmt 4700 E:\FR\FM\18DER2.SGM 18DER2 87626 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations 2. Economic Impacts on Manufacturers DOE performed an MIA to estimate the impact of amended energy conservation standards on manufacturers of NWGFs and MHGFs. The next section describes the expected impacts on manufacturers at each considered TSL. Chapter 12 of the final rule TSD explains the analysis in further detail. a. Industry Cash-Flow Analysis Results In this section, DOE provides GRIM results from the analysis, which examines changes in the industry that could result from a standard. Table V.11 presents the financial impacts of analyzed standards on NWGF and MHGF manufacturers represented by changes in INPV and free cash flow in the year before the standard would take effect, as well by the conversion costs that DOE estimates NWGF and MHGF manufacturers would incur at each TSL. To evaluate the range of cash-flow impacts on the NWGF and MHGF industry, DOE modeled two manufacturer markup scenarios that correspond to the range of anticipated market responses to amended standards. DOE modeled a preservation of gross margin percentage markup scenario and a tiered markup scenario. Each scenario results in a unique set of cash flows and corresponding industry values at each TSL. In the following discussion, the INPV results refer to the difference in INPV between the no-new-standards case and the standards cases, calculated by summing discounted cash flows from the reference year (2023) through the end of the analysis period (2058). Changes in INPV reflect the potential impacts on the value of the industry over the course of the analysis period as a result of implementing a particular TSL. The results also discuss the difference in cash flows between the nonew-standards case and the standards cases in the year before the compliance date for analyzed standards (2028). This difference in cash flow represents the size of the required conversion costs relative to the cash flow generated by the NWGF and MHGF industry in the absence of amended energy conservation standards. To assess the upper (less severe) bound of the range of potential impacts on NWGF and MHGF manufacturers, DOE modeled a preservation of gross margin percentage scenario. This scenario assumes industry would be able to maintain its average no-newstandards case gross margin percentage in the standard case, even as MPCs increase and companies make upfront investments to bring products into compliance with amended standards. DOE assumed gross margin percentages of 25.3 percent for NWGFs and 21.3 percent for MHGFs.277 Manufacturers noted in interviews that it is optimistic to assume that, as their production costs increase in response to an amended energy conservation standard, they will be able to maintain the same gross margin percentage. DOE has determined this scenario to be an upper bound to industry profitability under an energy conservation standard. To assess the lower (more severe) bound of the range of potential impacts of AFUE standards on NWGF and MHGF manufacturers, DOE modeled a tiered scenario. DOE implemented the tiered scenario because multiple manufacturers stated in interviews that they offer multiple tiers of product lines that are differentiated, in part, by efficiency level. Manufacturers further noted that pricing tiers encompass additional differentiators, such as the combustion system (e.g., single-stage, two-stage, and modulating combustion systems). To account for this nuance, the tiered markup in the GRIM incorporates both efficiency and combustion system technology into the ‘‘good, better, best’’ manufacturer markup scenario. Several manufacturers suggested that amended standards would lead to a reduction in premium markups and would reduce the profitability of higherefficiency products. During the manufacturer interviews, manufacturers provided information on the range of typical efficiency levels in those tiers and the change in profitability at each level. DOE used this information to estimate manufacturer markups for NWGFs and MHGFs under a tiered pricing strategy in the no-new-standards case. In the standards cases, DOE modeled the situation in which standards result in less product differentiation, compression of the markup tiers, and an overall reduction in profitability. Table V.11 presents the financial impacts of the analyzed standards on NWGF and MHGF manufacturers. These impacts are represented by changes in INPV summed over the analysis period and free cash flow in the year before the standard (2028), as well as by the conversion costs that DOE estimates NWGF and MHGF manufacturers would incur at each TSL. The range of results reflect the two manufacturer markup scenarios that were modeled. TABLE V.11—MANUFACTURER IMPACT ANALYSIS RESULTS FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES INPV ............................... Change in INPV .............. khammond on DSKJM1Z7X2PROD with RULES2 Free Cash Flow (2028) ... Change in Free Cash Flow (2028). Product Conversion Costs. Capital Conversion Costs Total Investment Required. INPV ............................... Change in INPV .............. Free Cash Flow (2028) ... Units No-new-standards case TSL 1 TSL 2 TSL 3 2022$ millions ... 2022$ millions ... % ....................... 2022$ millions ... % ....................... 1,371.8 ..................... ................................... ................................... 84.6 .......................... ................................... 1,263.7 to 1,351.3 .... (107.8) to (20.5) ....... (7.9) to (1.5) ............. 60.3 .......................... (28.8) ........................ 1,226.3 to 1,345.3 .... (145.3) to (26.5) ....... (10.6) to (1.9) ........... 53.8 .......................... (36.4) ........................ 1,207.2 to 1,337.0 .... (164.3) to (34.9) ....... (12.0) to (2.5) ........... 50.7 .......................... (40.1) ........................ 1,088.7 to 1,342.5 (282.8) to (29.4) (20.6) to (2.1) 38.4 (54.6) 2022$ millions ... ................................... 28.8 .......................... 28.8 .......................... 28.8 .......................... 44.8 2022$ millions ... 2022$ millions ... ................................... ................................... 31.6 .......................... 60.4 .......................... 46.0 .......................... 74.8 .......................... 52.9 .......................... 81.7 .......................... 67.7 112.5 Units TSL 5 TSL 6 TSL 7 TSL 8 2022$ millions ... 2022$ millions ... % ....................... 2022$ millions ... 1,199.6 to 1,341.4 .... (172.0) to (30.4) ....... (12.5) to (2.2) ........... 47.9 .......................... 1,201.0 to 1,337.9 .... (170.5) to (34.0) ....... (12.4) to (2.5) ........... 40.1 .......................... 1,014.8 to 1,339.1 .... (356.8) to (32.7) ....... (26.0) to (2.4) ........... 28.0 .......................... 1,004.2 to 1,338.0 .... (367.3) to (33.8) ....... (26.8) to (2.5) ........... 16.1 .......................... 277 The gross margin percentage values correspond to manufacturer markups of 1.34 for NWGFs and 1.27 for MHGFs. VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 PO 00000 Frm 00126 Fmt 4701 Sfmt 4700 E:\FR\FM\18DER2.SGM 18DER2 TSL 4 TSL 9 702.8 to 1,352.7 (668.7) to (19.1) (48.7) to (1.4) (54.4) 87627 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations TABLE V.11—MANUFACTURER IMPACT ANALYSIS RESULTS FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES—Continued Change in Free Cash Flow (2028). Product Conversion Costs. Capital Conversion Costs Total Investment Required. Units No-new-standards case TSL 1 TSL 2 TSL 3 Units % ....................... TSL 5 (43.4) ........................ TSL 6 (52.6) ........................ TSL 7 (66.9) ........................ TSL 8 (81.0) ........................ (164.3) 2022$ millions ... 28.8 .......................... 28.8 .......................... 44.8 .......................... 44.8 .......................... 86.8 2022$ millions ... 2022$ millions ... 59.2 .......................... 87.9 .......................... 76.4 .......................... 105.2 ........................ 90.8 .......................... 135.6 ........................ 117.3 ........................ 162.0 ........................ 241.1 328.0 TSL 4 TSL 9 Note: Parentheses indicate negative values. The following cash flow results discussion refers to the AFUE efficiency levels and capacity threshold cutoffs detailed in section V.A of this document. Tables V.12 and V.13 present the percentage of NWGF and MHGF shipments in 2028 that are considered to be large or small, based on the input capacity threshold for each TSL. See section IV.G of this document for additional details on the shipments analysis. TABLE V.12—SHIPMENTS BREAKDOWNS (2028) REPRESENTING LARGE AND SMALL NON-WEATHERIZED GAS FURNACES AT EACH TRIAL STANDARD LEVEL Trial standard level and capacity threshold Size Large ................................................................................ Small ................................................................................ TSL 1 80 kBtu/h (%) TSL 2 70 kBtu/h (%) TSL 3 60 kBtu/h (%) 45.4 54.6 69.5 30.5 81.1 18.9 TSL 4 No cutoff (%) 100.0 0.0 TSL 5 55 kBtu/h (%) 92.5 7.5 TSL 6 No cutoff (%) 100.0 0.0 TSL 7 55 kBtu/h (%) 92.5 7.5 TSL 8 No cutoff (%) 100.0 0.0 TSL 9 No cutoff (%) 100.0 0.0 TABLE V.13—SHIPMENTS BREAKDOWNS (2028) REPRESENTING LARGE AND SMALL MOBILE HOME GAS FURNACES AT EACH TRIAL STANDARD LEVEL Trial standard level and capacity threshold Size khammond on DSKJM1Z7X2PROD with RULES2 Large ................................................................................ Small ................................................................................ TSL 1, TSL 2, TSL 3, and TSL 5 all represent national standards set at 92percent AFUE for large furnaces, while small furnaces remain at the current Federal minimum of 80-percent AFUE. However, the capacity threshold used to classify small furnaces is different at each TSL. Small NWGFs and MHGFs are defined as units having an input capacity of 80 kBtu/h or less at TSL 1, 70 kBtu/h or less at TSL 2, 60 kBtu/h or less at TSL 3, and 55 kBtu/h or less at TSL 5. As the capacity threshold decreases from 80 kBtu/h at TSL 1 down to 55 kBtu/h at TSL 5, the number of furnace shipments classified as large gas-fired consumer furnaces—and subsequently the portion of shipments that must be condensing after the standard year—increases. Capital conversion costs increase as manufacturers add additional capacity VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 TSL 1 80 kBtu/h (%) TSL 2 70 kBtu/h (%) TSL 3 60 kBtu/h (%) 18.9 81.1 61.1 38.9 76.0 24.0 TSL 4 No cutoff (%) 100.0 0.0 to their secondary heat exchanger production lines. Manufacturers would also incur product conversion costs as they invest resources to develop costoptimized 92-percent AFUE models that are competitive at lower price points. Manufacturers are expected to incur $28.8 million in product conversion costs to develop such models at each of TSL 1, TSL 2, TSL 3, and TSL 5. In addition to conversion costs, a national standard of 92-percent AFUE for large NWGFs and MHGFs could lead to a slight compression of manufacturer markups. In its manufacturer markup scenarios, DOE includes a scenario which models the industry maintaining three tiers of markups, with efficiency as one differentiating attribute. In a market where the national standard is 92-percent AFUE, DOE characterizes these markups as ‘‘good,’’ ‘‘better,’’ and PO 00000 Frm 00127 Fmt 4701 Sfmt 4700 TSL 5 55 kBtu/h (%) 89.4 10.6 TSL 6 No cutoff (%) 100.0 0.0 TSL 7 55 kBtu/h (%) 89.4 10.6 TSL 8 No cutoff (%) 100.0 0.0 TSL 9 No cutoff (%) 100.0 0.0 ‘‘best,’’ and they correspond to 92percent AFUE, 95-percent AFUE, and max-tech levels (98-percent AFUE for NWGFs and 96-percent AFUE for MHGFs), respectively. TSL 1 represents a national standard set at 92-percent AFUE for large NWGFs and MHGFs, while small NWGFs and MHGFs remain at the current Federal minimum of 80-percent AFUE. At TSL 1, small furnaces are defined as NWGFs and MHGFs with input capacities of 80 kBtu/h or less. DOE estimates the change in INPV to range from ¥$107.8 million to ¥$20.5 million, or a change of ¥7.9 percent to ¥1.5 percent. At this level, industry free cash flow in 2028 (the year before the compliance date) is estimated to decrease to $60.3 million, or a decrease of 28.8 percent compared to the no-new-standards case value of $84.6 million. E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 87628 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations Small furnaces with input capacities of 80 kBtu/h or less account for approximately 54.6 percent of NWGF shipments and 81.1 percent of MHGF shipments in 2028, a year before the standard goes into effect. In the no-newstandards case, approximately 60.6 percent of NWGF shipments and 33.3 percent of MHGF shipments are expected to be sold at condensing levels in the year before the standard goes into effect. At TSL 1, once the standard goes into effect, DOE expects 70.0 percent of NWGF shipments and 44.2 percent of MHGF shipments to be sold at condensing levels, requiring the industry to expand its production of secondary heat exchangers. Manufacturers will incur an estimated $31.6 million in capital conversion costs as manufacturers increase secondary heat exchanger production line capacity. Manufacturers would also incur product conversion costs driven by the development necessary to create compliant, cost-competitive products. Total industry conversion costs are expected to reach $60.4 million at TSL 1. TSL 2 represents a national standard at 92-percent AFUE for large furnaces, while small furnaces remain at the current Federal minimum of 80-percent AFUE. Small furnaces are defined as NWGFs and MHGFS with input capacities of 70 kBtu/h or less. At TSL 2, DOE estimates the change in INPV to range from ¥$145.3 million to ¥$26.5 million, or a change in INPV of ¥10.6 percent to ¥1.9 percent. At this level, free cash flow in 2028 is estimated to decrease to $53.8 million, or a decrease of 36.4 percent compared to the no-newstandards-case value of $84.6 million in the year 2028. Small furnaces with input capacities of 70 kBtu/h or less account for approximately 30.5 percent of NWGF shipments and 38.9 percent of MHGF shipments in the year before standards go into effect. At TSL 2, once the standard goes into effect, DOE expects 75.2 percent of NWGF shipments and 66.1 percent of MHGF shipments to be sold at condensing levels, requiring the industry to expand its production of secondary heat exchangers. Capital conversion costs increase from $31.6 million at TSL 1 to $46.0 million at TSL 2. Manufacturers would also incur product conversion costs driven by the development necessary to create compliant, cost-competitive products. Total industry conversion costs are expected to reach $74.8 million at TSL 2. TSL 3 represents a national standard at 92-percent AFUE for large furnaces, while small furnaces remain at the VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 current Federal minimum of 80-percent AFUE. Small furnaces are defined as NWGFs and MHGFs with input capacities of 60 kBtu/h or less. At TSL 3, DOE estimates the change in INPV to range from ¥$164.3 million to ¥$34.9 million, or a change in INPV of ¥12.0 percent to ¥2.5 percent. At this level, free cash flow is estimated to decrease to $50.7 million, or a decrease of 40.1 percent compared to the no-newstandards case value of $84.6 million in the year 2028. Small furnaces with input capacities of 60 kBtu/h or less account for approximately 18.9 percent of NWGF shipments and 24.0 percent of MHGF shipments in the year before standards take effect. At TSL 3, once standards go into effect, DOE expects 78.6 percent of NWGF shipments and 75.3 percent of MHGF shipments to be sold at condensing levels, requiring the industry to expand its production of secondary heat exchangers. Capital conversion costs would increase from $46.0 million at TSL 2 to $52.9 million at TSL 3 as manufacturers increase secondary heat exchanger production line capacity. Manufacturers would also incur product conversion costs driven by the development necessary to create compliant, cost-competitive products. Total industry conversion costs could reach $81.7 million at TSL 3. TSL 4 represents a regional standard set at 95-percent AFUE for products sold in the North and 80-percent AFUE for products sold in the rest of country. TSL 4 does not have a small furnace capacity threshold. At TSL 4, DOE estimates the change in INPV to range from ¥$282.8 million to ¥$29.4 million, or a change in INPV of ¥20.6 percent to ¥2.1 percent. At this level, free cash flow is estimated to decrease to $38.4 million, or a decrease of 54.6 percent compared to the no-newstandards case value of $84.6 million in the year 2028. In the year before the standard goes into effect, DOE expects that the North region will account for approximately 58.8 percent of consumer furnace shipments, with the remaining shipments attributable to the rest of country region. Once the standard goes into effect, consumer furnaces sold in the North must achieve 95-percent AFUE. At TSL 4, DOE expects 74.7 percent of NWGFs and 74.5 percent of MHGFs would be sold at condensing levels in 2029. Capital conversion costs are expected to reach $67.7 million as manufacturers increase secondary heat exchanger production line capacity. Product conversion costs reach $44.8 million, as manufacturers develop costoptimized 95-percent AFUE furnaces PO 00000 Frm 00128 Fmt 4701 Sfmt 4700 that are competitive at reduced markups. Total industry conversion costs would be expected to reach $112.5 million at TSL 4. For products sold in the North that must achieve 95-percent AFUE, the industry faces a noticeable compression of markups. In the no-new-standards case, 95-percent AFUE products garner a higher markup than baseline products. At TSL 4, 95-percent AFUE products become the minimum AFUE efficiency offering and would no longer command the same premium manufacturer markup in the North. However, at this level, manufacturers can still differentiate products and offer multiple markup tiers based on ‘‘comfort’’ features, such as two-stage or modulating combustion technology. DOE models the industry maintaining three manufacturer markup tiers (‘‘good, better, best’’) but at a compressed range of manufacturer markup values. This approach accounts for manufacturers’ continued ability to differentiate products based on combustion system technology while recognizing that manufacturer markups (and profitability) for high-efficiency products in the North may be reduced due to the higher AFUE standard. TSL 5 represents a standard set at 92percent AFUE for large furnaces, while small furnaces remain at the current Federal minimum of 80-percent AFUE. Small furnaces are defined as NWGFs and MHGFs with input capacities of 55 kBtu/h or less. At TSL 5, DOE estimates the change in INPV to range from ¥$172.0 million to ¥$30.4 million, or a change in INPV of ¥12.5 percent to ¥2.2 percent. At this level, free cash flow is estimated to decrease to $47.9 million, or a decrease of 43.4 percent compared to the no-new-standards case value of $84.6 million in the year 2028. Small furnaces with input capacities of 55 kBtu/h or less account for approximately 7.5 percent of NWGFs and 10.6 percent of MHGFs in the year before the standard goes into effect. At TSL 5, 81.5 percent of NWGF shipments and 82.4 percent of MHGF shipments would be sold at condensing levels when the standard goes into effect, requiring the industry to expand its production of secondary heat exchangers. Capital conversion costs would increase from $52.9 million at TSL 3, the previous TSL with a separate standard level for small furnaces, to $59.2 million at TSL 5. Manufacturers will also incur product conversion costs driven by the development necessary to create compliant, cost-competitive products. DOE estimates total industry conversion costs could reach $87.9 million at TSL 5. E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations TSL 6, TSL 8, and TSL 9 represent national standards for all covered NWGFs and MHGFs. At these TSLs, there is no separate standard level based on furnace input capacity. As the TSL increases from TSL 6 to TSL 8 to TSL 9, the national standard increases, and DOE models a compression of markups in the tiered markup scenario. Compressed markups are a significant driver of negative impacts to INPV in the tiered markup scenario, particularly at TSL 9 for NWGFs, when neither efficiency nor combustion system technology (e.g., single-stage, two-stage, or modulating combustion) is a means for product differentiation. TSL 6 represents a national 92percent AFUE standard for all covered NWGFs and MHGFs. As previously noted, TSL 6 does not have a small furnace capacity threshold. At this level, DOE estimates the change in INPV to range from ¥$170.5 million to ¥$34.0 million, or a change in INPV of ¥12.4 percent to ¥2.5 percent. At this level, free cash flow is estimated to decrease to $40.1 million, or a decrease of 52.6 percent compared to the no-newstandards case value of $84.6 million in the year 2028. At TSL 6, all shipments of the covered product would be at a condensing level once the standard goes into effect. Manufacturer markups at TSL 6 are slightly reduced, but the industry is still able to maintain three tiers of markups. Manufacturers would incur product conversion costs of $28.8 million at TSL 6, as manufacturers develop 92-percent AFUE furnaces that are competitive at reduced markups. Capital conversion costs would total $76.4 million, as manufacturers add production capacity to have secondary heat exchangers for all NWGF and MHGF shipments sold into the domestic market. Total conversion costs could reach $105.2 million for the industry. TSL 7 represents a 95-percent AFUE standard for large furnaces, while small furnaces remain at the current Federal minimum of 80-percent AFUE. At TSL 7, small furnaces are defined as NWGFs and MHGFs with input capacities of 55 kBtu/h or less. DOE estimates the change in INPV to range from ¥$356.8 million to ¥$32.7 million, or a change in INPV of ¥26.0 percent to ¥2.4 percent. At this level, free cash flow is estimated to decrease to $28.0 million, or a decrease of 66.9 percent compared to the no-new-standards case value of $84.6 million in the year 2028. Small furnaces with input capacities of 55 kBtu/h or less account for approximately 7.5 percent of NWGF shipments and 10.6 percent of MHGF shipments before the standard goes into VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 effect. At this level, 81.5 percent of NWGF shipments and 82.4 percent of MHGF shipments would be sold at condensing levels when the standard goes into effect, requiring the industry to expand its production of secondary heat exchangers. Capital conversion costs would total $90.8 million, as manufacturers add production capacity to have secondary heat exchangers for the majority of NWGF and MHGF shipments sold into the domestic market. Manufacturers would also incur product conversion costs of an estimated $44.8 million, driven by the development necessary to create compliant, cost-competitive products. Total conversion costs could reach $135.6 million. For large NWGFs and MHGFs, industry faces a noticeable compression of markups due to their limited ability to differentiate products purely based on AFUE. However, as with TSL 4, manufacturers can still differentiate products subject to the 95-percent standard based on ‘‘comfort’’ features, such as two-stage or modulating combustion technology. DOE models the industry as maintaining three markup tiers (‘‘good, better, best’’) but at a compressed range of tiers where maxtech products do not command the same premium as they did in the no-newstandards case. This approach accounts for manufacturers’ continued ability to differentiate large NWGFs and MHGFs based on combustion systems while recognizing that markups (and profitability) for high-efficiency products may be reduced for large furnaces due to the 95-percent AFUE standard. While manufacturers would not experience a compression of markups for small capacity products, most shipments qualify as large furnaces at this capacity cutoff. The reduction in premium product offerings and deterioration of markups for the majority of furnace shipments, coupled with increased conversion costs, are expected to result in a negative change in INPV at TSL 7. TSL 8 represents a national 95percent AFUE standard for all covered NWGFs and MHGFs. TSL 8 does not have a small capacity threshold. At TSL 8, DOE estimates the change in INPV to range from ¥$367.3 million to ¥$33.8 million, or a change in INPV of ¥26.8 percent to ¥2.5 percent. At this level, free cash flow is estimated to decrease to $16.1 million, or a decrease of 81.0 percent compared to the no-newstandards case value of $84.6 million in the year 2028. DOE estimates that approximately 41.6 percent of the annual NWGF shipments and approximately 19.5 PO 00000 Frm 00129 Fmt 4701 Sfmt 4700 87629 percent of the annual MHGF shipments currently meet or exceed the efficiencies required at TSL 8. At TSL 8, all covered furnaces would be condensing after the standard goes into effect. DOE estimates capital conversion costs would increase to $117.3 million at TSL 8, as manufacturers add production capacity to have secondary heat exchangers for all NWGF and MHGF shipments sold into the domestic market. Product conversion costs would total $44.8 million, as manufacturers develop a cost-optimized 95-percent AFUE for NWGF and MHGF models that are competitive at reduced markups. Total industry conversion costs could reach $162.0 million. With a national standard of 95percent AFUE, industry faces a noticeable compression of markups due to their limited ability to differentiate products purely based on AFUE. As with TSL 4 and TSL 7, manufacturers can still differentiate products based on ‘‘comfort’’ features such as the combustion systems. At TSL 8, DOE models the industry as maintaining three markup tiers (‘‘good, better, best’’) but at a compressed range of manufacturer markup values where max-tech products do not command the same premium as they did in the nonew-standards case. This approach accounts for manufacturers’ continued ability to differentiate NWGFs and MHGFs based on combustion systems while recognizing that markups (and profitability) for high-efficiency products may be reduced due to the 95percent AFUE standard. The compression of markups and a reduction in product offerings, coupled with increased conversion costs are expected to result in INPV losses at TSL 8. TSL 9 represents a national max-tech standard, where NWGF products must achieve 98-percent AFUE and MHGF products must achieve 96-percent AFUE. At TSL 9, DOE estimates the change in INPV to range from ¥$668.7 million to ¥$19.1 million, or a change in INPV of ¥48.7 percent to ¥1.4 percent. At this level, the large conversion costs result in a free cash flow dropping below zero in the years before the standard year. The negative free cash flow calculation indicates manufacturers may need to access cash reserves or outside capital to finance conversion efforts. At TSL 9, approximately 1.4 percent of NWGFs and 0.9 percent of MHGFs are sold at this level today. Manufacturers would incur $86.8 million in product conversion costs as they develop cost-optimized, highefficiency NWGF models that can E:\FR\FM\18DER2.SGM 18DER2 87630 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations compete in a market where efficiency and combustion systems are no longer viable options for product differentiation and MHGF models that can compete in a market where efficiency is no longer a means for product differentiation. More than half of all NWGF and MHGF OEMs do not currently offer any models that meet the efficiency levels required by TSL 9. Manufacturers would also incur capital conversion costs of $241.1 million as manufacturers add the production capacity necessary to produce all NWGFs and MHGFs sold into the domestic market at 98-percent and 96percent AFUE, respectively. Total conversion costs would be expected to reach $328.0 million for the industry. Some manufacturers expressed great concern about the state of technology at max-tech. Specifically, those manufacturers noted uncertainty about the ability to deliver cost-effective products for their customers. They also cited high conversion costs and large investments in R&D to produce all products at this level. Many OEMs do not currently manufacture any models that meet these efficiency levels. These OEMs would likely have more technical challenges in designing new models that meet max-tech levels. Furthermore, NWGF manufacturers would lose efficiency and combustion systems as differentiators between baseline and premium product offerings. The extent of conversion costs, the compression of markups, and the reduced ability to differentiate products would likely alter the consumer furnace competitive landscape. b. Direct Impacts on Employment To quantitatively assess the potential impacts of amended energy conservation standards on direct employment in the NWGF and MHGF industry, DOE used the GRIM to estimate the domestic labor expenditures and number of direct employees in the no-new-standards case and in each of the standards cases during the analysis period. DOE calculated these values using the most up-to-date statistical data from the U.S. Census Bureau’s 2021 ASM,278 the U.S. Bureau of Labor Statistics’ (‘‘BLS’’) employee compensation data,279 results of the engineering analysis, and manufacturer interviews. Labor expenditures related to product manufacturing depend on the labor intensity of the product, the sales volume, and an assumption that wages remain fixed in real terms over time. The total labor expenditures in each year are calculated by multiplying the total MPCs by the labor percentage of MPCs. The total labor expenditures in the GRIM were then converted to domestic production employment levels by dividing production labor expenditures by the average fully burdened wage multiplied by the average number of hours worked per year per production worker. To do this, DOE relied on the ASM inputs: Production Workers Annual Wages, Production Workers Annual Hours, Production Workers for Pay Period, and Number of Employees. DOE also relied on the BLS employee compensation data to determine the fully burdened wage ratio. The fully burdened wage ratio factors in paid leave, supplemental pay, insurance, retirement and savings, and legally required benefits. The number of production employees is then multiplied by the U.S. labor percentage to convert total production employment to total domestic production employment. The U.S. labor percentage represents the industry fraction of domestic manufacturing production capacity for the covered product. This value is derived from manufacturer interviews, product database analysis, and publiclyavailable information. Consistent with the July 2022 NOPR, DOE estimates that 45 percent of gas-fired consumer furnaces are produced domestically. The domestic production employees estimate covers production line workers, including line supervisors, who are directly involved in fabricating, processing, or assembling products within the OEM facility. Workers performing services that are closely associated with production operations, such as handling materials using forklifts, are also included as production labor.280 DOE’s estimates only account for production workers who manufacture the specific products covered by this rulemaking. Non-production workers account for the remainder of the direct employment figure. The non-production employees cover domestic workers who are not directly involved in the production process, such as sales, engineering, human resources, management, etc. Using the amount of domestic production workers calculated above, non-production domestic employees are extrapolated by multiplying the ratio of non-production workers in the industry compared to production employees. DOE assumes that this employee distribution ratio remains constant between the no-new-standards case and standards cases. Using the GRIM, DOE estimates that in the absence of new energy conservation standards, there would be 1,470 domestic production and nonproduction workers for NWGFs and MHGFs in 2029. Table V.14 shows the range of the impacts of potential amended energy conservation standards on U.S. manufacturing employment in the NWGF and MHGF industry. The discussion below provides a qualitative evaluation of the range of potential impacts presented in the table. TABLE V.14—POTENTIAL CHANGES IN THE TOTAL NUMBER OF NON-WEATHERIZED GAS FURNACE AND MOBILE HOME GAS FURNACE PRODUCTION AND NON-PRODUCTION WORKERS IN 2029 khammond on DSKJM1Z7X2PROD with RULES2 Trial standard level Direct Employment in 2029 (Production Workers + Non-Production Workers). Potential Changes in Direct Employment Workers in 2029 *. 278 U.S. Census Bureau’s Annual Survey of Manufactures: 2018–2021 (available at www.census.gov/programs-surveys/asm/data/ tables.html) (last accessed March 21, 2023). 279 U.S. Bureau of Labor Statistics, Employer Costs for Employee Compensation (March 17, 2023) VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 No-newstandards case TSL 1 TSL 2 TSL 3 1,470 .................. 435 to 1,514 ....... 453 to 1,532 ....... 451 to 1,530 ....... 487 to 1,566. ............................ (1,079) to 44 ...... (1,079) to 62 ...... (1,079) to 60 ...... (1,079) to 96. (available at: www.bls.gov/news.release/pdf/ ecec.pdf) (last accessed March 21, 2023). 280 The comprehensive description of production and non-production workers is available online at: www2.census.gov/programs-surveys/asm/technicaldocumentation/questionnaire/2021/instructions/ PO 00000 Frm 00130 Fmt 4701 Sfmt 4700 TSL 4 MA_10000_Instructions.pdf, ‘‘Definitions and Instructions for the Annual Survey of Manufacturers, MA–10000’’ (pp. 13–14). (Last accessed June 1, 2023). E:\FR\FM\18DER2.SGM 18DER2 87631 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations TABLE V.14—POTENTIAL CHANGES IN THE TOTAL NUMBER OF NON-WEATHERIZED GAS FURNACE AND MOBILE HOME GAS FURNACE PRODUCTION AND NON-PRODUCTION WORKERS IN 2029—Continued Trial standard level Direct employment in 2029 (Production Workers + Non-Production Workers). Potential Changes in Direct Employment Workers in 2029 *. No-newstandards case TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7 TSL 8 TSL 9 473 to 1,552 ....... 470 to 1,549 ....... 547 to 1,626 ....... 571 to 1,650 ....... 549 to 1,628. (1,079) to 82 ...... (1,079) to 79 ...... (1,079) to 156 ..... (1,079) to 180 .... (1,079) to 158. * DOE presents a range of potential employment impacts. Numbers in parentheses indicate negative values. khammond on DSKJM1Z7X2PROD with RULES2 The direct employment impacts shown in Table V.14 represent the potential domestic employment changes that could result following the compliance date of the amended standards for NWGFs and MHGFs. The upper end of the range estimates an increase in the number of domestic workers producing NWGFs and MHGFs after implementation of an amended energy conservation standard at each TSL. This upper bound assumes manufacturers would continue to produce the same scope of covered products within the United States and would require additional labor to produce more-efficient products. The lower bound of the range represents the estimated maximum decrease in the total number of U.S. domestic workers if all production moved to lower laborcost countries or if domestic manufacturers left the market. Some large manufacturers are currently producing covered products in countries with lower labor costs, and an amended standard that necessitates large increases in labor content or large expenditures to re-tool facilities could cause manufacturers to re-evaluate domestic production siting options. Additional detail on the analysis of direct employment can be found in chapter 12 of the final rule TSD. Additionally, the employment impacts discussed in this section are independent of the employment impacts from the broader U.S. economy, which are documented in chapter 15 of the final rule TSD. c. Impacts on Manufacturing Capacity According to manufacturer feedback, production facilities are not currently equipped to supply the entire NWGF and MHGF market with condensing products. However, most manufacturers would be able to add capacity and adjust product designs in the five-year period between the announcement year of the standard and the compliance year of the standard. DOE interviewed VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 manufacturers representing over 65 percent of industry shipments. None of the interviewed manufacturers expressed concern over the industry’s ability to increase the capacity of production lines that meet required efficiency levels at TSL 1 through TSL 8 to meet consumer demand. At TSL 9, technical uncertainty was expressed by manufacturers that do not offer maxtech efficiency products today, as they were unsure of what production lines changes would be needed to meet an amended standard set at max-tech. However, because TSL 8 (the adopted level) would not require max-tech efficiencies, DOE does not expect manufacturers to face long-term capacity constraints due to the standard levels detailed in this final rule. d. Impacts on Subgroups of Manufacturers Using average cost assumptions to develop an industry cash-flow estimate is not adequate for assessing differential impacts among subgroups of manufacturers. Small manufacturers, niche players, or manufacturers exhibiting a cost structure that differs substantially from the industry average could be affected disproportionately. DOE used the results of the industry characterization to group manufacturers exhibiting similar characteristics. Specifically, DOE identified small businesses as a manufacturer subgroup that it believes could be disproportionally impacted by energy conservation standards and would require a separate analysis in the MIA. DOE did not identify any other adversely impacted manufacturer subgroups for this rulemaking based on the results of the industry characterization. DOE analyzes the impacts on small businesses in a separate analysis in section VI.B of this final rule as part of the Regulatory Flexibility Analysis. In summary, the Small Business Administration (SBA) defines a ‘‘small PO 00000 Frm 00131 Fmt 4701 Sfmt 4700 business’’ as having 1,250 employees or less for North American Industry Classification System (‘‘NAICS’’) code 333415, ‘‘Air-Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing.’’ Based on this classification, DOE identified four domestic OEMs that certify NWGFs and/or MHGFs that qualify as a small business. For a discussion of the impacts on the small business manufacturer subgroup, see the Regulatory Flexibility Analysis in section VI.B of this final rule and chapter 12 of the final rule TSD. e. Cumulative Regulatory Burden One aspect of assessing manufacturer burden involves examining the cumulative impact of multiple DOE standards and the product-specific regulatory actions of other Federal agencies that affect the manufacturers of a covered product or equipment. While any one regulation may not impose a significant burden on manufacturers, the combined effects of several recent or impending regulations may have serious consequences for some manufacturers, groups of manufacturers, or an entire industry. Assessing the impact of a single regulation may overlook this cumulative regulatory burden. In addition to energy conservation standards, other regulations can significantly affect manufacturers’ financial operations. For these reasons, DOE conducts an analysis of cumulative regulatory burden as part of its rulemakings pertaining to appliance efficiency. For the cumulative regulatory burden analysis, DOE examines Federal, product-specific regulations that could affect NWGF and MHGF manufacturers that take effect approximately three years before or after the 2029 compliance date. Table V.15 presents the DOE energy conservation standards that would impact manufacturers of E:\FR\FM\18DER2.SGM 18DER2 87632 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations NWGF and MHGF products in the 2026 to 2032 timeframe. TABLE V.15—COMPLIANCE DATES AND EXPECTED CONVERSION EXPENSES OF FEDERAL ENERGY CONSERVATION STANDARDS AFFECTING GAS-FIRED CONSUMER FURNACE ORIGINAL EQUIPMENT MANUFACTURERS Federal energy conservation standard Industry conversion costs/product revenue *** (%) Number of OEMs * Number of OEMs affected by this rule ** Approx. standards compliance year Industry conversion costs (millions) 15 19 1 1 2027 2027 $149.7 (2020$) $690.8 (2021$) 1.8 5.2 49 8 1 2 2027 2026 $1,323.6 (2021$) $24.8 (2021$) 3.8 0.4 38 22 22 20 15 24 1 1 3 1 3 4 2029 2027 2030 2028 2026 2030 79 18 4 1 2027 2026 Consumer Clothes Dryers † 87 FR 51734 (August 23, 2022) ........ Residential Clothes Washers † 88 FR 13520 (March 3, 2023) ....... Refrigerators, Freezers, and Refrigerator-Freezers † 88 FR 12452 (February 27, 2023) ..................................................................... Room Air Conditioners 88 FR 34298 (May 26, 2023) .................... Miscellaneous Refrigeration Products † 88 FR 19382 (March 31, 2023) ............................................................................................ Dishwashers † 88 FR 32514 (May 19, 2023) .................................. Consumer Water Heaters † 88 FR 49058 (July 28, 2023) .............. Consumer Pool Heaters 88 FR 34624 (May 30, 2023) .................. Commercial Water Heating Equipment ‡ ......................................... Consumer Boilers † 88 FR 55128 (August 14, 2023) ..................... Walk-in Coolers and Freezers † 88 FR 60746 (September 5, 2023) ............................................................................................ Microwave Ovens 88 FR 39912 (June 20, 2023) ........................... $126.9 $125.6 $228.1 $48.4 $42.7 $98.0 (2021$) (2021$) (2022$) (2021$) (2022$) (2022$) 3.1 2.1 1.3 1.5 5.3 3.6 $89.0 (2022$) $46.1 (2021$) 0.8 0.7 * This column presents the total number of OEMs identified in the energy conservation standard rule that is contributing to cumulative regulatory burden. ** This column presents the number of OEMs producing consumer furnaces that are also listed as OEMs in the identified energy conservation standard that is contributing to cumulative regulatory burden. *** This column presents industry conversion costs as a percentage of product revenue during the conversion period. Industry conversion costs are the upfront investments manufacturers must make to sell compliant products/equipment. The revenue used for this calculation is the revenue from just the covered product/equipment associated with each row. The conversion period is the time frame over which conversion costs are made and lasts from the publication year of the final rule to the compliance year of the energy conservation standard. The conversion period typically ranges from three to five years, depending on the rulemaking. † These rulemakings are at the NOPR stage, and all values are subject to change until finalized through publication of a final rule. ‡ At the time of issuance of this consumer furnaces final rule, the commercial water heating equipment energy conservation standards final rule has been issued but not yet published in the Federal Register. Once published, the commercial water heating equipment final rule will be available at: www.regulations.gov/docket/EERE-2021-BT-STD-0027. 3. National Impact Analysis a. Significance of Energy Savings This section presents DOE’s estimates of the national energy savings and the NPV of consumer benefits that would result from each of the TSLs considered as potential amended standards. To estimate the energy savings attributable to potential amended standards for NWGFs and MHGFs, DOE compared their energy consumption under the no-new-standards case to their anticipated energy consumption under each TSL. The savings are measured over the entire lifetime of products purchased in the 30-year period that begins in the year of anticipated compliance with amended standards (2029–2058). Table V.16 presents DOE’s projections of the national energy savings for each TSL considered for NWGFs and MHGFs. The savings were calculated using the approach described in section IV.H.2 of this document. TABLE V.16—CUMULATIVE NATIONAL ENERGY SAVINGS FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES; 30 YEARS OF SHIPMENTS (2029–2058) Trial standard level Product class Energy savings 1 2 3 4 5 6 7 8 9 (quads) Primary Energy ........................................ khammond on DSKJM1Z7X2PROD with RULES2 FFC Energy ............................................. NWGF ........ MHGF ......... 1.33 0.02 1.81 0.07 2.06 0.08 2.60 0.11 2.24 0.09 3.00 0.10 3.09 0.12 3.98 0.13 5.17 0.15 Total .... NWGF ........ MHGF ......... 1.35 1.49 0.03 1.88 2.04 0.08 2.14 2.33 0.09 2.72 2.97 0.13 2.34 2.54 0.10 3.10 3.51 0.12 3.21 3.50 0.14 4.11 4.62 0.15 5.32 6.10 0.17 Total .... 1.52 2.11 2.42 3.10 2.65 3.63 3.63 4.77 6.26 For the adopted standards (TSL 8), the FFC energy savings of 4.77 quads are the VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 FFC natural gas savings minus the increase in FFC energy use associated PO 00000 Frm 00132 Fmt 4701 Sfmt 4700 with higher electricity use due primarily E:\FR\FM\18DER2.SGM 18DER2 87633 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations including separate schedules of the monetized benefits and costs that show the type and timing of benefits and costs. Circular A–4 also directs agencies to consider the variability of key elements underlying the estimates of benefits and costs. For this rulemaking, DOE undertook a sensitivity analysis using 9 years, rather than 30 years, of product shipments. The choice of a 9year period is a proxy for the timeline in EPCA for the review of certain energy conservation standards and potential revision of and compliance with such revised standards.282 The review to some consumers switching to electric heating. The results reflect the use of the reference product switching scenario and repair vs. replace trend for NWGFs and MHGFs (as described in sections IV.F.10 and IV.F.11 of this document). DOE also conducted a sensitivity analysis that considered scenarios with lower and higher rates of product switching, as compared to the default case. The results of these alternative cases are presented in appendix 10E of the final rule TSD. OMB Circular A–4 281 requires agencies to present analytical results, timeframe established in EPCA is generally not synchronized with the product lifetime, product manufacturing cycles, or other factors specific to NWGFs and MHGFs. Thus, such results are presented for informational purposes only and are not indicative of any change in DOE’s analytical methodology. The NES sensitivity analysis results based on a 9-year analytical period are presented in for standards. The impacts are counted over the lifetime of NWGFs and MHGFs purchased in 2029–2037. TABLE V.17—CUMULATIVE NATIONAL ENERGY SAVINGS FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES; 9 YEARS OF SHIPMENTS (2029–2037) Trial standard level Product class Energy savings 1 2 3 4 5 6 7 8 9 (quads) Primary Energy ........................................ FFC Energy ............................................. NWGF ........ MHGF ......... 0.35 0.01 0.50 0.02 0.57 0.03 0.69 0.04 0.62 0.03 0.85 0.04 0.87 0.04 1.14 0.05 1.56 0.05 Total .... NWGF ........ MHGF ......... 0.36 0.40 0.01 0.52 0.56 0.03 0.60 0.64 0.03 0.73 0.79 0.05 0.65 0.70 0.04 0.89 1.00 0.04 0.91 0.98 0.05 1.19 1.33 0.05 1.62 1.85 0.06 Total .... 0.41 0.58 0.68 0.84 0.74 1.04 1.03 1.38 1.91 b. Net Present Value of Consumer Costs and Benefits DOE estimated the cumulative NPV of the total costs and savings for percent and a 3-percent real discount rate. Table V.18 shows the consumer NPV results for standards with impacts counted over the lifetime of products purchased in 2029–2058. consumers that would result from the TSLs considered for NWGFs and MHGFs. In accordance with OMB’s guidelines on regulatory analysis,283 DOE calculated NPV using both a 7- TABLE V.18—CUMULATIVE NET PRESENT VALUE OF CONSUMER BENEFITS FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES; 30 YEARS OF SHIPMENTS (2029–2058) Trial standard level Product class Energy savings 1 2 3 4 5 6 7 8 9 (billion 2022$) 7 percent ................................................. khammond on DSKJM1Z7X2PROD with RULES2 3 percent ................................................. NWGF ........ MHGF ......... 1.25 0.06 1.85 0.19 2.14 0.24 2.76 0.35 2.43 0.27 2.90 0.29 3.70 0.36 4.41 0.40 3.60 0.44 Total .... NWGF ........ MHGF ......... 1.31 4.31 0.17 2.04 6.21 0.50 2.38 7.20 0.63 3.11 9.05 0.92 2.70 8.18 0.71 3.20 11.06 0.78 4.06 11.76 0.94 4.81 15.28 1.06 4.04 16.03 1.17 Total .... 4.48 6.71 7.83 9.97 8.88 11.84 12.70 16.34 17.21 These results reflect the use of the default product switching trend for NWGFs (as described in section IV.F.10 of this document). As previously discussed, DOE conducted a sensitivity analysis assuming higher and lower levels of product switching for NWGFs. The results of these alternative cases are 281 U.S. Office of Management and Budget, Circular A–4: Regulatory Analysis (Sept. 17, 2003) (available at: obamawhitehouse.archives.gov/omb/ circulars_a004_a-4/) (last accessed August 1, 2023). 282 Section 325(m) of EPCA requires DOE to review its standards at least once every 6 years, and requires, for certain products, a 3-year period after any new standard is promulgated before compliance is required, except that in no case may any new standards be required within 6 years of the compliance date of the previous standards. While adding a 6-year review to the 3-year compliance period adds up to 9 years, DOE notes that it may undertake reviews at any time within the 6 year period and that the 3-year compliance date may yield to the 6-year backstop. A 9-year analysis period may not be appropriate given the variability that occurs in the timing of standards reviews and the fact that for some products, the compliance period is 5 years rather than 3 years. 283 U.S. Office of Management and Budget, Circular A–4: Regulatory Analysis (Sept. 17, 2003) (available at: obamawhitehouse.archives.gov/omb/ circulars_a004_a-4/) (last accessed August 1, 2023). VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 PO 00000 Frm 00133 Fmt 4701 Sfmt 4700 E:\FR\FM\18DER2.SGM 18DER2 87634 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations presented in appendix 10 E of the final rule TSD. The NPV results for standards based on the aforementioned 9-year analytical period are presented in Table V.19. The impacts are counted over the lifetime of products purchased in 2029–2037. As mentioned previously, such results are presented for informational purposes only and are not indicative of any change in DOE’s analytical methodology or decision criteria. TABLE V.19—CUMULATIVE NET PRESENT VALUE OF CONSUMER BENEFITS FOR NON-WEATHERIZED GAS FURNACE AND MOBILE HOME GAS FURNACE STANDARDS; 9 YEARS OF SHIPMENTS (2029–2037) Trial standard level Product class Energy savings 1 2 3 4 5 6 7 8 9 (billion 2022$) 7 percent ................................................. 3 percent ................................................. NWGF ........ MHGF ......... 0.57 0.04 0.90 0.11 1.06 0.15 1.48 0.21 1.19 0.16 1.43 0.18 1.99 0.22 2.41 0.24 2.01 0.27 Total .... NWGF ........ MHGF ......... 0.61 1.46 0.08 1.01 2.21 0.24 1.21 2.62 0.30 1.69 3.49 0.44 1.36 2.94 0.34 1.62 3.93 0.38 2.20 4.60 0.45 2.65 5.97 0.50 2.28 6.37 0.56 Total .... 1.53 2.45 2.92 3.92 3.28 4.31 5.05 6.47 6.92 The previous results reflect the use of a default trend to estimate the change in price for NWGFs and MHGFs over the analysis period (see section IV.F.1 of this document). DOE also conducted a sensitivity analysis that considered one scenario with a lower rate of price decline than the reference case and one scenario with a higher rate of price decline than the reference case. The results of these alternative cases are presented in appendix 10C of the final rule TSD. In the high-price-decline case, the NPV of consumer benefits is higher than in the default case. In the lowprice-decline case, the NPV of consumer benefits is lower than in the default case. khammond on DSKJM1Z7X2PROD with RULES2 c. Indirect Impacts on Employment It is estimated that amended energy conservation standards for NWGFs and MHGFs will reduce energy expenditures for consumers of those products, with the resulting net savings being redirected to other forms of economic activity. These expected shifts in spending and economic activity could affect the demand for labor. As described in section IV.N of this document, DOE used an input/output model of the U.S. economy to estimate indirect employment impacts of the TSLs that DOE considered. There are uncertainties involved in projecting employment impacts, especially changes in the later years of the analysis. Therefore, DOE generated results for near-term timeframes (2029– 2034), where these uncertainties are reduced. VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 The results suggest that the adopted standards are likely to have a negligible impact on the net demand for labor in the economy. The net change in jobs is so small that it would be imperceptible in national labor statistics and might be offset by other, unanticipated effects on employment. Chapter 16 of the final rule TSD presents detailed results regarding anticipated indirect employment impacts. 4. Impact on Utility or Performance of Products As discussed in section III.F.1.d of this document, DOE has concluded that the standards adopted in this final rule would not lessen the utility or performance of the NWGFs and MHGFs under consideration in this rulemaking. Manufacturers of these products currently offer units that meet or exceed the adopted standards. 5. Impact of Any Lessening of Competition DOE considered any lessening of competition that would be likely to result from new or amended standards. As discussed in section III.F.1.e of this document, EPCA directs the Attorney General of the United States (Attorney General) to determine the impact, if any, of any lessening of competition likely to result from a proposed standard and to transmit such determination in writing to the Secretary within 60 days of the publication of a proposed rule, together with an analysis of the nature and extent of the impact. DOE has provided DOJ with copies of the proposed rule PO 00000 Frm 00134 Fmt 4701 Sfmt 4700 and the accompanying TSD for review. DOE considered DOJ’s comments on the proposed rule in determining whether to proceed to a final rule. DOE is publishing and responds to DOJ’s comments in this final rule. 6. Need of the Nation To Conserve Energy Enhanced energy efficiency, where economically justified, improves the Nation’s energy security, strengthens the economy, and reduces the environmental impacts (costs) of energy production. Chapter 15 in the final rule TSD presents the estimated impacts on electricity generating capacity, relative to the no-new-standards case, for the TSLs that DOE considered in this rulemaking. Energy conservation resulting from potential energy conservation standards for NWGFs and MHGFs is expected to yield environmental benefits in the form of reduced emissions of certain air pollutants and greenhouse gases. Table V.20 provides DOE’s estimate of cumulative emissions reductions expected to result from the TSLs considered in this rulemaking. The increase in emissions of SO2 and Hg is due to a fraction of NWGF consumers that are projected to switch from gas furnaces to electric heat pumps and electric furnaces in response to the potential standards. The emissions were calculated using the multipliers discussed in section IV.K of this document. DOE reports annual emissions reductions for each TSL in chapter 13 of the final rule TSD. E:\FR\FM\18DER2.SGM 18DER2 87635 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations TABLE V.20—CUMULATIVE EMISSIONS REDUCTION FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES SHIPPED IN 2029–2058 Trial standard level 1 2 3 4 5 6 7 8 9 Power Sector and Site Emissions CO2 (million metric tons) .................................................. CH4 (thousand tons) ........................................................ N2O (thousand tons) ........................................................ NOX (thousand tons) ........................................................ SO2 (thousand tons) ........................................................ Hg (tons) .......................................................................... 75 1.5 0.1 67 (0) (0.00) 106 2.0 0.2 95 (1) (0.01) 125 2.3 0.2 112 (1) (0.01) 173 2.9 0.2 157 (4) (0.03) 139 2.5 0.2 124 (2) (0.02) 234 3.1 0.2 218 (10) (0.08) 189 3.4 0.3 169 (2) (0.02) 290 4.2 0.3 268 (10) (0.08) 413 5.2 0.3 385 (19) (0.15) 25 2,519 0.0 389 0.04 (0.00) 20 2,005 0.0 310 0.05 (0.00) 34 3,473 0.1 534 (0.01) (0.00) 27 2,725 0.0 422 0.08 (0.00) 42 4,282 0.1 660 0.02 (0.00) 59 6,139 0.1 944 (0.04) (0.00) 197 2,522 0.3 546 (4) (0.03) 158 2,007 0.3 435 (2) (0.02) 268 3,476 0.3 752 (10) (0.08) 215 2,728 0.4 591 (2) (0.02) 332 4,286 0.4 928 (10) (0.08) 472 6,144 0.4 1329 (19) (0.15) Upstream Emissions CO2 (million metric tons) .................................................. CH4 (thousand tons) ........................................................ N2O (thousand tons) ........................................................ NOX (thousand tons) ........................................................ SO2 (thousand tons) ........................................................ Hg (tons) .......................................................................... 11 1,080 0.0 167 0.04 (0.00) 15 1,528 0.0 237 0.05 (0.00) 18 1,801 0.0 279 0.05 (0.00) Total FFC Emissions CO2 (million metric tons) .................................................. CH4 (thousand tons) ........................................................ N2O (thousand tons) ........................................................ NOX (thousand tons) ........................................................ SO2 (thousand tons) ........................................................ Hg (tons) .......................................................................... 86 1,082 0.2 234 (0) (0.00) 121 1,531 0.2 331 (1) (0.01) 142 1,803 0.2 390 (1) (0.01) Note: Negative values (shown in parentheses) refer to an increase in emissions. As part of the analysis for this rulemaking, DOE estimated monetary benefits likely to result from the reduced emissions of CO2 that DOE estimated for each of the considered TSLs for NWGFs and MHGFs. Section IV.L.1.a of this document discusses the SC–CO2 values used. Table V.21 presents the present value of the CO2 emissions reduction at each TSL. TABLE V.21—PRESENT VALUE OF CO2 EMISSIONS REDUCTION FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES SHIPPED IN 2029–2058 SC–CO2 case TSL Discount rate and statistics 5%, Average 3%, Average 2.5%, Average 3%, 95th-percentile (million 2022$) khammond on DSKJM1Z7X2PROD with RULES2 1 2 3 4 5 6 7 8 9 ............................................................................................... ............................................................................................... ............................................................................................... ............................................................................................... ............................................................................................... ............................................................................................... ............................................................................................... ............................................................................................... ............................................................................................... As discussed in section IV.L.1.b of this document, DOE estimated monetary benefits likely to result from the reduced emissions of methane (CH4) VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 676 965 1,137 1,543 1,266 2,165 1,721 2,684 3,857 3,059 4,357 5,130 6,989 5,709 9,735 7,767 12,076 17,311 and N2O that DOE estimated for each of the considered TSLs for furnaces. Table V.22 presents the value of the CH4 emissions reduction at each TSL, and PO 00000 Frm 00135 Fmt 4701 Sfmt 4700 4,860 6,917 8,142 11,104 9,060 15,433 12,327 19,149 27,429 9,253 13,181 15,522 21,139 17,274 29,464 23,500 36,550 52,406 Table V.23 presents the value of the N2O emissions reduction at each TSL. E:\FR\FM\18DER2.SGM 18DER2 87636 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations TABLE V.22—PRESENT VALUE OF METHANE EMISSIONS REDUCTION FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES SHIPPED IN 2029–2058 SC–CH4 case TSL Discount rate and statistics 5%, Average 3%, Average 2.5%, Average 3%, 95th-percentile (million 2022$) 1 2 3 4 5 6 7 8 9 ............................................................................................... ............................................................................................... ............................................................................................... ............................................................................................... ............................................................................................... ............................................................................................... ............................................................................................... ............................................................................................... ............................................................................................... 403 576 681 935 760 1,333 1,032 1,641 2,378 1,284 1,829 2,160 2,976 2,408 4,199 3,271 5,177 7,473 1,817 2,588 3,054 4,213 3,405 5,930 4,626 7,314 10,549 3,395 4,838 5,712 7,872 6,370 11,108 8,652 13,695 19,771 TABLE V.23—PRESENT VALUE OF NITROUS OXIDE EMISSIONS REDUCTION FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES SHIPPED IN 2029–2058 SC–N2O case TSL Discount rate and statistics 5%, Average 3%, Average 2.5%, Average 3%, 95th-percentile (million 2022$) 1 2 3 4 5 6 7 8 9 ............................................................................................... ............................................................................................... ............................................................................................... ............................................................................................... ............................................................................................... ............................................................................................... ............................................................................................... ............................................................................................... ............................................................................................... DOE is well aware that scientific and economic knowledge about the contribution of CO2 and other GHG emissions to changes in the future global climate and the potential resulting damages to the world economy continues to evolve rapidly. Thus, any value placed on reduced GHG emissions in this rulemaking is subject to change. That said, because of omitted damages, DOE agrees with the IWG that these estimates most likely underestimate the climate benefits of greenhouse gas reductions. DOE, together with other 0.5 0.7 0.7 0.8 0.8 0.8 1.1 1.1 1.3 2.0 2.8 3.1 3.6 3.4 3.3 4.7 4.9 5.5 Federal agencies, will continue to review various methodologies for estimating the monetary value of reductions in CO2 and other GHG emissions. This ongoing review will consider the comments on this subject that are part of the public record for this and other rulemakings, as well as other methodological assumptions and issues. DOE notes that the adopted standards are economically justified even without inclusion of monetized benefits of reduced GHG emissions. 3.2 4.4 4.9 5.7 5.3 5.2 7.4 7.7 8.7 5.4 7.5 8.4 9.7 9.0 8.8 12.6 13.1 14.7 DOE also estimated the monetary value of the economic benefits associated with NOX emissions reductions anticipated to result from the considered TSLs for NWGFs and MHGFs. The dollar-per-ton values that DOE used are discussed in section IV.L of this document. Table V.24 shows the present value for NOX emissions reduction for each TSL calculated using 7-percent and 3-percent discount rates. This table presents results that use the low benefit-per-ton values, which reflect DOE’s primary estimate. TABLE V.24—PRESENT VALUE OF NOX EMISSIONS REDUCTION FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES SHIPPED IN 2029–2058 TSL 7% Discount rate 3% Discount rate khammond on DSKJM1Z7X2PROD with RULES2 (million 2022$) 1 2 3 4 5 6 7 8 ............................................................................................................................................................... ............................................................................................................................................................... ............................................................................................................................................................... ............................................................................................................................................................... ............................................................................................................................................................... ............................................................................................................................................................... ............................................................................................................................................................... ............................................................................................................................................................... VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 PO 00000 Frm 00136 Fmt 4701 Sfmt 4700 E:\FR\FM\18DER2.SGM 2,195 3,157 3,735 5,031 4,164 7,251 5,651 8,950 18DER2 6,868 9,777 11,520 15,773 12,822 21,994 17,432 27,227 87637 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations TABLE V.24—PRESENT VALUE OF NOX EMISSIONS REDUCTION FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES SHIPPED IN 2029–2058—Continued TSL I 7% Discount rate 3% Discount rate (million 2022$) 9 ............................................................................................................................................................... 12,980 I 39,089 Note: Results are based on the low benefit-per-ton values. DOE also estimated the monetary value of the economic impacts associated with changes in SO2 emissions anticipated to result from the considered TSLs for NWGFs and MHGFs. The dollar-per-ton values that DOE used are discussed in section IV.L.2 of this document. Table V.25 presents the present value of SO2 emission changes for each TSL calculated using 7-percent and 3percent discount rates. This table presents results that use the low benefitper-ton values, which reflect DOE’s primary estimate. TABLE V.25—PRESENT VALUE OF SO2 EMISSION CHANGES FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES SHIPPED IN 2029–2058 TSL 7% Discount rate 3% Discount rate (million 2022$) 1 2 3 4 5 6 7 8 9 ............................................................................................................................................................... ............................................................................................................................................................... ............................................................................................................................................................... ............................................................................................................................................................... ............................................................................................................................................................... ............................................................................................................................................................... ............................................................................................................................................................... ............................................................................................................................................................... ............................................................................................................................................................... (7) (15) (28) (76) (39) (214) (43) (214) (401) (20) (44) (81) (226) (112) (608) (131) (616) (1,142) Note: Parentheses indicate negative (¥) values. The benefits of reduced CO2, CH4, and N2O emissions are collectively referred to as ‘‘climate benefits.’’ The effects of SO2 and NOX emission changes are collectively referred to as ‘‘health benefits.’’ For the time series of estimated monetary values of reduced emissions, see chapter 14 of the final rule TSD. 7. Other Factors The Secretary of Energy, in determining whether a standard is economically justified, may consider any other factors that the Secretary deems to be relevant. (42 U.S.C. 6295(o)(2)(B)(i)(VII)) No other factors were considered in this analysis. 8. Summary of National Economic Impacts Table V.26 presents the NPV values that result from adding the monetized estimates of the potential economic, climate, and health net benefits resulting from GHG, NOX, and SO2 emission changes to the NPV of consumer savings calculated for each TSL considered in this rulemaking. The consumer benefits are domestic U.S. monetary savings that occur as a result of purchasing the covered NWGFs and MHGFs, and are measured for the lifetime of products shipped in 2029– 2058. The climate benefits associated with reduced GHG emissions resulting from the adopted standards are global benefits and are also calculated based on the lifetime of consumer furnaces shipped in 2029–2058. The climate benefits associated with four SC–GHG estimates are shown. DOE does not have a single central SC–GHG point estimate, and it emphasizes the importance and value of considering the benefits calculated using all four SC–GHG estimates. TABLE V.26—NPV OF CONSUMER BENEFITS COMBINED WITH MONETIZED CLIMATE AND HEALTH BENEFITS FROM EMISSIONS REDUCTIONS Category TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7 TSL 8 TSL 9 khammond on DSKJM1Z7X2PROD with RULES2 3% discount rate for NPV of Consumer and Health Benefits (billion 2022$) 5% d.r., Average SC–GHG case ...................................................................... 3% d.r., Average SC–GHG case ...................................................................... 2.5% d.r., Average SC–GHG case ................................................................... 3% d.r., 95th-percentile SC–GHG case ............................................................ I 12.4 15.7 18.0 24.0 I 18.0 22.6 26.0 34.5 I 21.1 26.6 30.5 40.5 28.0 35.5 40.8 54.5 23.6 29.7 34.1 45.2 36.7 47.2 54.6 73.8 I 32.8 41.0 47.0 62.2 I 47.3 60.2 69.4 93.2 I 61.4 79.9 93.1 127.3 7% discount rate for NPV of Consumer and Health Benefits (billion 2022$) 5% d.r., Average SC–GHG case ...................................................................... 3% d.r., Average SC–GHG case ...................................................................... 2.5% d.r., Average SC–GHG case ................................................................... 3% d.r., 95th-percentile SC–GHG case ............................................................ Note: ‘‘d.r.’’ means discount rate. VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 PO 00000 Frm 00137 I 4.6 7.8 10.2 16.2 Fmt 4701 I 6.7 11.4 14.7 23.2 Sfmt 4700 I 7.9 13.4 17.3 27.3 10.5 18.0 23.4 37.1 E:\FR\FM\18DER2.SGM 8.8 14.9 19.3 30.5 18DER2 13.7 24.2 31.6 50.8 I 12.4 20.7 26.6 41.8 I 17.9 30.8 40.0 63.8 I 22.9 41.4 54.6 88.8 87638 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations C. Conclusion When considering new or amended energy conservation standards, the standards that DOE adopts for any type (or class) of covered product must be designed to achieve the maximum improvement in energy efficiency that the Secretary determines is technologically feasible and economically justified. (42 U.S.C. 6295(o)(2)(A)) In determining whether a standard is economically justified, the Secretary must determine whether the benefits of the standard exceed its burdens by, to the greatest extent practicable, considering the seven statutory factors discussed previously. (42 U.S.C. 6295(o)(2)(B)(i)) The new or amended standard must also result in significant conservation of energy. (42 U.S.C. 6295(o)(3)(B)) In this final rule, DOE considered the impacts of amended standards for NWGFs and MHGFs at each TSL, beginning with the maximum technologically feasible level, to determine whether that level was economically justified. Where the maxtech level was not justified, DOE then considered the next most efficient level and undertook the same evaluation until it reached the highest efficiency level that is both technologically feasible and economically justified and saves a significant amount of energy. To aid the reader as DOE discusses the benefits and/or burdens of each TSL, tables in this section present a summary of the results of DOE’s quantitative analysis for each TSL. In addition to the quantitative results presented in the tables, DOE also considers other burdens and benefits that affect economic justification. These include the impacts on identifiable subgroups of consumers who may be disproportionately affected by a national standard and impacts on employment. DOE also notes that the economics literature provides a wide-ranging discussion of how consumers trade off upfront costs and energy savings in the absence of government intervention. Much of this literature attempts to explain why consumers appear to undervalue energy efficiency improvements. There is evidence that consumers undervalue future energy savings as a result of: (1) a lack of information; (2) a lack of sufficient salience of the long-term or aggregate benefits; (3) a lack of sufficient savings to warrant delaying or altering purchases; (4) excessive focus on the short term, in the form of inconsistent weighting of future energy cost savings relative to available returns on other investments; (5) computational or other difficulties associated with the evaluation of relevant tradeoffs; and (6) a divergence in incentives (for example, between renters and owners, or builders and purchasers). Having less than perfect foresight and a high degree of uncertainty about the future, consumers may trade off these types of investments at a higher than expected rate between current consumption and uncertain future energy cost savings. In DOE’s current regulatory analysis, potential changes in the benefits and costs of a regulation due to changes in consumer purchase decisions are included in two ways. First, if consumers forgo the purchase of a product in the standards case, this decreases sales for product manufacturers, and the impact on manufacturers attributed to lost revenue is included in the MIA. Second, DOE accounts for energy savings attributable only to products actually used by consumers in the standards case; if a standard decreases the number of products purchased by consumers or increases consumer use of energy, such as through a rebound rate, this decreases the potential energy savings from an energy conservation standard. DOE provides estimates of shipments and changes in the volume of product purchases in chapter 9 of the final rule TSD. However, DOE’s current analysis does not explicitly control for heterogeneity in consumer preferences, preferences across subcategories of products or specific features, or consumer price sensitivity variation according to household income.284 1. Benefits and Burdens of TSLs Considered for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces Tables V.27 and V.28 summarize the quantitative impacts estimated for each TSL for NWGFs and MHGFs. The national impacts are measured over the lifetime of NWGFs and MHGFs purchased in the 30-year period that begins in the anticipated year of compliance with amended standards (2029–2058). The energy savings and emissions reductions refer to full-fuelcycle results. The efficiency levels contained in each TSL are described further in section V.A of this document. TABLE V.27—SUMMARY OF ANALYTICAL RESULTS FOR NON-WEATHERIZED GAS FURNACE AND MOBILE HOME GAS FURNACE TSLS: NATIONAL IMPACTS Category TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7 TSL 8 TSL 9 Cumulative FFC National Energy Savings (quads) Quads ................................................................................................................ 1.52 2.11 2.42 3.10 2.65 3.63 3.63 4.77 6.26 158 2,007 0.26 435 (2) (0.02) 268 3,476 0.26 752 (10) (0.08) 215 2,728 0.36 591 (2) (0.02) 332 4,286 0.38 928 (10) (0.08) 472 6,144 0.43 1,329 (19) (0.15) 12.4 8.1 12.7 33.2 3.5 8.9 29.7 18.8 13.9 21.4 54.1 7.0 11.8 47.2 Cumulative FFC Emissions Reduction (total FFC emission) CO2 (million metric tons) ................................................................................... CH4 (thousand tons) ......................................................................................... N2O (thousand tons) ......................................................................................... NOX (thousand tons) ......................................................................................... SO2 (thousand tons) ......................................................................................... Hg (tons) ........................................................................................................... I 86 1,082 0.16 234 (0) (0.00) I 121 1,531 0.22 331 (1) (0.01) I 142 1,803 0.24 390 (1) (0.01) 197 2,522 0.28 546 (4) (0.03) I I I khammond on DSKJM1Z7X2PROD with RULES2 Present Value of Benefits and Costs (3% discount rate, billion 2022$) Consumer Operating Cost Savings .................................................................. Climate Benefits * .............................................................................................. Health Benefits ** .............................................................................................. Total Benefits † .................................................................................................. Consumer Incremental Product Costs ‡ ........................................................... Consumer Net Benefits ..................................................................................... Total Net Benefits ............................................................................................. 284 P.C. Reiss and M.W. White (2005), Household Electricity Demand, Revisited. The Review of VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 6.3 4.3 6.8 17.4 1.8 4.5 15.7 9.3 6.2 9.7 25.2 2.5 6.7 22.6 10.9 7.3 11.4 29.7 3.1 7.8 26.6 Economic Studies, 72 (3), 853–883 (available at: PO 00000 Frm 00138 Fmt 4701 Sfmt 4700 13.9 10.0 15.5 39.4 3.9 10.0 35.5 17.3 11.0 17.3 45.6 4.6 12.7 41.0 24.8 17.3 26.6 68.7 8.5 16.3 60.2 academic.oup.com/restud/article/72/3/853/ 1557538) (last accessed August 1, 2023). E:\FR\FM\18DER2.SGM 18DER2 32.8 24.8 37.9 95.5 15.6 17.2 79.9 87639 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations TABLE V.27—SUMMARY OF ANALYTICAL RESULTS FOR NON-WEATHERIZED GAS FURNACE AND MOBILE HOME GAS FURNACE TSLS: NATIONAL IMPACTS—Continued Category TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7 TSL 8 TSL 9 Present Value of Benefits and Costs (7% discount rate, billions 2022$) Consumer Operating Cost Savings .................................................................. Climate Benefits * .............................................................................................. Health Benefits ** .............................................................................................. Total Benefits † .................................................................................................. Consumer Incremental Product Costs ‡ ........................................................... Consumer Net Benefits ..................................................................................... Total Net Benefits ............................................................................................. 2.3 4.3 2.2 8.8 1.0 1.3 7.8 3.4 6.2 3.1 12.7 1.4 2.0 11.4 4.1 7.3 3.7 15.1 1.7 2.4 13.4 5.1 10.0 5.0 20.1 2.0 3.1 18.0 4.6 8.1 4.1 16.8 1.9 2.7 14.9 7.0 13.9 7.0 28.0 3.8 3.2 24.2 6.4 11.0 5.6 23.1 2.4 4.1 20.7 9.3 17.3 8.7 35.3 4.5 4.8 30.8 12.5 24.8 12.6 49.8 8.4 4.0 41.4 Note: This table presents the costs and benefits associated with consumer furnaces shipped in 2029–2058. These results include benefits to consumers which accrue after 2058 from the products shipped in 2029–2058. Parentheses indicate negative (¥) values. * Climate benefits are calculated using four different estimates of the social cost of carbon (SC–CO2), methane (SC–CH4), and nitrous oxide (SC–N2O) (model average at 2.5-percent, 3-percent, and 5-percent discount rates; 95th-percentile at 3-percent discount rate). Together these represent the global social cost of greenhouse gases (SC–GHG). For presentational purposes of this table, the climate benefits associated with the average SC–GHG at a 3-percent discount rate are shown, but the Department does not have a single, central SC–GHG point estimate. DOE emphasizes the importance and value of considering the benefits calculated using all four sets of SC–GHG estimates. To monetize the benefits of reducing GHG emissions, this analysis uses the interim estimates presented in the Technical Support Document: Social Cost of Carbon, Methane, and Nitrous Oxide Interim Estimates Under Executive Order 13990 published in February 2021 by the IWG. ** Net health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only monetizing (for SO2 and NOX) PM2.5 precursor health benefits and (for NOX) ozone precursor health benefits, but will continue to assess the ability to monetize other effects such as health benefits from reductions in direct PM2.5 emissions. See section IV.L of this document for more details. † Total and net benefits include those consumer, climate, and health benefits that can be monetized. For presentation purposes, total and net benefits for both the 3-percent and 7-percent cases are presented using the average SC–GHG with 3-percent discount rate. ‡ Costs include incremental equipment costs as well as installation costs. TABLE V.28—SUMMARY OF ANALYTICAL RESULTS FOR NON-WEATHERIZED GAS FURNACE AND MOBILE HOME GAS FURNACE TSLS: MANUFACTURER AND CONSUMER IMPACTS Category TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7 TSL 8 TSL 9 Manufacturer Impacts Industry NPV (million 2022$) (No-new-standards case INPV = 1,371.8). Industry NPV (% change) 1,264.0 to 1,351.3. (7.9) to (1.5) I 1,226.7 to 1,345.3. 1,207.5 to 1,337.0. (10.6) to (1.9). (12.0) to (2.5). I I 1,089.0 to 1,342.5. 1,199.9 to 1,341.4. (20.6) to (2.1). (12.5) to (2.2). I I 1,201.3 to 1,337.9. (12.4) to (2.5) I 1,015.1 to 1,339.1. (26.0) to (2.4). I 1,004.6 to 1,338.0. (26.8) to (2.5). I 703.1 to 1,352.7 (48.7) to (1.4) I Consumer Average LCC Savings (2022$) NWGF .............................. MHGF ............................... Shipment-Weighted Average *. 577 ............. 846 ............. 583 ............. I 571 ............. 805 ............. 580 ............. I 580 ............. 736 ............. 587 ............. I 390 ............. 908 ............. 406 ............. I 551 ............. 675 ............. 557 ............. I 320 ................. 532 ................. 327 ................. I 479 ............. 760 ............. 487 ............. I 350 ............. 616 ............. 357 ............. I 169 529 176 I Consumer Simple PBP (years) NWGF .............................. MHGF ............................... Shipment-Weighted Average *. 6.4 .............. 2.2 .............. 6.4 .............. I 6.6 .............. 2.5 .............. 6.5 .............. 6.7 .............. 2.5 .............. 6.6 .............. I 7.0 .............. 2.4 .............. 6.9 .............. 7.0 .............. 2.6 .............. 7.0 .............. I 9.4 .................. 3.6 .................. 9.2 .................. I 5.8 .............. 2.4 .............. 5.7 .............. 7.6 .............. 3.2 .............. 7.5 .............. 6.8 .............. 5.0 .............. 6.8 .............. 18.7 ............ 15.3 ............ 18.7 ............ I 10.1 4.8 10.0 I Percentage of Consumers That Experience a Net Cost NWGF .............................. MHGF ............................... Shipment-Weighted Average *. 3.2 .............. 0.6 .............. 3.1 .............. I 4.7 .............. 2.5 .............. 4.6 .............. I 5.8 .............. 3.7 .............. 5.8 .............. I 5.6 .............. 3.9 .............. 5.6 .............. I khammond on DSKJM1Z7X2PROD with RULES2 Note: Parentheses indicate negative (¥) values. * Weighted by shares of each product class in total projected shipments in 2029. DOE first considered the standards at TSL 9, which represents the max-tech efficiency levels and which includes the highest efficiency commercially available for both non-weatherized gas furnaces and mobile furnaces (i.e., 98percent AFUE for NWGFs and 96percent AFUE for MHGFs). TSL 9 would save 6.26 quads of energy, an amount DOE considers significant. Under TSL 9, the NPV of consumer benefit would be $4.0 billion using a discount rate of 7 percent, and $17.2 billion using a discount rate of 3 percent. VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 6.8 .............. 5.0 .............. 6.8 .............. I 19.2 ................ 16.2 ................ 19.2 ................ I The cumulative emissions reductions at TSL 9 are 472 Mt of CO2, 6.1 million tons of CH4, 0.4 thousand tons of N2O, and 1.3 million tons of NOX. Projected emissions show an increase of 19 thousand tons of SO2 and 0.15 tons of Hg. The increase is due to projected switching from gas furnaces to electric heat pumps and electric furnaces by some consumers under standards at TSL 9. The estimated monetary value of the climate benefits from reduced GHG emissions (associated with the average SC–GHG at a 3-percent discount rate) at PO 00000 Frm 00139 Fmt 4701 Sfmt 4700 I I 62.3 18.6 61.4 I TSL 9 is $24.8 billion. The estimated monetary value of the net health benefits from changes to NOX and SO2 emissions at TSL 9 is $12.6 billion using a 7-percent discount rate and $37.9 billion using a 3-percent discount rate. Using a 7-percent discount rate for consumer benefits and costs, net health benefits from SO2 and NOX emission changes, and the 3-percent discount rate case for climate benefits from reduced GHG emissions, the estimated total NPV at TSL 9 is $41.4 billion. Using a 3percent discount rate for all benefits and E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 87640 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations costs, the estimated total NPV at TSL 9 is $79.9 billion. At TSL 9, the average LCC impact on affected consumers is a savings of $169 for NWGFs and $529 for MHGFs. The simple payback period is 10.1 years for NWGFs and 4.8 years for MHGFs. The fraction of consumers experiencing a net LCC cost is 62.3 percent for NWGFs and 18.3 percent for MHGFs. The fraction of low-income consumers experiencing a net LCC cost is 39.7 percent for NWGFs and 18.0 percent for MHGFs. At TSL 9, the projected changes in INPV range from a decrease of $668.7 million to a decrease of $19.1 million. If the more severe end of this range is realized, TSL 9 could result in a net loss of 48.7 percent in INPV. Industry conversion costs could reach $328.0 million at this TSL. At TSL 9, manufacturers would need to significantly restructure their product offerings. Currently, less than half of consumer furnace manufacturers offer a product that meets the max-tech efficiencies. The models available at these efficiencies are not produced in high volumes. DOE estimates that approximately 1.4 percent of NWGF shipments and 0.9 percent of MHGF shipments are currently sold (2023) at the max-tech levels, 98-percent AFUE and 96-percent AFUE, respectively. The NWGF industry would incur significant product conversion costs to develop cost-optimized NWGF models for a marketplace where efficiency and combustion system technology are no longer viable options for product differentiation. Similarly, the MHGF industry would incur significant product conversion costs to develop cost-optimized models for a marketplace where efficiency is no longer a means for product differentiation. As noted in section IV.J.2.d of this document, manufacturers currently maintain multiple tiers of product lines, which have varying levels of profitability. DOE models the industry operating with three manufacturer markup tiers (‘‘good, better, best’’) that are primarily differentiated on AFUE and combustion system technology (e.g., single-stage, two-stage, and modulating combustion systems). Generally, higher-efficiency models and those with more advanced combustion system technology command a higher manufacturer markup than lower efficiency models. At max-tech, NWGF and MHGF manufacturers would lose the ability to charge a premium markup based on AFUE, which would lead to an overall reduction in profitability. At the NWGF max-tech level, manufacturers would also lose the ability to differentiate products based on combustion system VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 technology, as all models would need to integrate modulating combustion. Without these differentiators, manufacturers would have a more difficult time maintaining premium product lines that command higher manufacturer markups. The reduction in product differentiation leads to a reduction in profitability, which is a key driver of loss in INPV. Even as profitability of products is expected to decline, NWGF and MHGF manufacturers would need to invest in significant capital conversion costs to update manufacturing lines to produce max-tech designs at high volume. The reduced profitability due to limited product differentiation, large upfront investments to remain in the market, and negative impacts on INPV could alter the consumer furnaces competitive landscape. Manufacturers that have lower cash reserves, more difficulty raising capital, a greater portion of products that require redesign, or fewer technical resources would experience more business risk than their competitors in the industry. Based upon the above considerations, the Secretary concludes that at TSL 9 for NWGFs and MHGFs, the benefits of energy savings, positive NPV of consumer benefits, emission reductions, and the estimated monetary value of the net health benefits of emissions reductions would be outweighed by the economic burden on many consumers, especially low-income consumers, as well as the impacts on manufacturers, including the large potential reduction in INPV. In reaching this decision, DOE notes that a large fraction of both NWGF and MHGF consumers (62.3 percent and 18.6 percent, respectively), including low-income consumers, experience a net cost at TSL 9. This is due to the high incremental cost of NWGFs and MHGFs at the max-tech efficiency levels. This is particularly pronounced for NWGFs, where the incremental production cost above baseline is more than twice as large as the next highest efficiency level (see section IV.C.2 of this document). Consumers with existing furnaces above 90-percent AFUE but below 98-percent AFUE are more likely to experience a net cost at TSL 9, given the relatively modest decrease in operating costs compared to the high incremental installed costs. DOE also notes the consumer impacts are similar across the range of sensitivity analyses performed, particularly with respect to the fraction of consumers who may switch to alternative space-heating products. A large fraction of NWGF and MHGF consumers in the sensitivity analyses experience a net cost at TSL 9 as well. PO 00000 Frm 00140 Fmt 4701 Sfmt 4700 Therefore, DOE’s conclusions would not change if based on any of the sensitivity scenarios. At max-tech, most manufacturers would need to make significant upfront investments to update product lines and manufacturing facilities. Additionally, the companies must make those investments to remain in a less-profitable market where there is less product differentiation to maintain premium pricing tiers and where consumers are more likely to repair their existing furnaces or switch to alternative heating technologies. As result, there is risk that some manufacturers would choose to leave the market and risk that the standard would drive industry consolidation that would not otherwise have occurred. Consequently, the Secretary has concluded that TSL 9 is not economically justified. DOE then considered the standards at TSL 8, which consists of intermediate condensing efficiency levels at 95percent AFUE for both NWGFs and MHGFs across the Nation. TSL 8 would save 4.77 quads of energy, an amount DOE considers significant. Under TSL 8, the NPV of consumer benefit would be $4.8 billion using a discount rate of 7 percent, and $16.3 billion using a discount rate of 3 percent. The cumulative emissions reductions at TSL 8 would be expected to be 332 Mt of CO2, 4.3 million tons of CH4, 0.4 thousand tons of N2O, and 0.9 million tons of NOX. Projected emissions show an increase of 10 thousand tons of SO2 and 0.08 tons of Hg. The increase is due to projected switching from gas furnaces to electric heat pumps and electric furnaces by some consumers under standards at TSL 8. The estimated monetary value of the climate benefits from reduced GHG emissions (associated with the average SC–GHG at a 3-percent discount rate) at TSL 8 is $17.3 billion. The estimated monetary value of the net health benefits from changes to NOX and SO2 emissions at TSL 8 is $8.7 billion using a 7-percent discount rate and $26.6 billion using a 3-percent discount rate. Using a 7-percent discount rate for consumer benefits and costs, net health benefits from SO2 and NOX emission changes, and the 3-percent discount rate case for climate benefits from reduced GHG emissions, the estimated total NPV at TSL 8 is $30.8 billion. Using a 3percent discount rate for all benefits and costs, the estimated total NPV at TSL 8 is $60.2 billion. At TSL 8, the average LCC impact on affected consumers is a savings of $350 for NWGFs and $616 for MHGFs. The simple payback period is 7.6 years for NWGFs and 3.2 years for MHGFs. The E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations fraction of consumers experiencing a net LCC cost is 18.7 percent for NWGFs and 15.3 percent for MHGFs. The fraction of low-income consumers experiencing a net LCC cost is 15.9 percent for NWGFs and 15.3 percent for MHGFs. At TSL 8, the projected changes in INPV range from a decrease of $367.3 million to a decrease of $33.8 million. If the more severe end of this range is realized, TSL 8 could result in a net loss of 26.8 percent in INPV. Industry conversion costs would reach $162.0 million as manufacturers expand secondary heat exchanger capacity and redesign products to meet the standard. At TSL 8, manufacturers would incur conversion costs to develop costoptimized model offerings at the new minimum 95-percent AFUE and to expand secondary heat exchanger production capacity. However, the conversion costs at TSL 8 are substantially lower than those at TSL 9. Ninety percent of manufacturers currently have a range of compliant offerings at TSL 8. DOE estimates that approximately 41.6 percent of the annual NWGF shipments and approximately 19.5 percent of the annual MHGF shipments are already at this level. Furthermore, manufacturers would not be making the upfront investments with same level of profitability risk noted at TSL 9. With a national standard of 95-percent AFUE, both NWGF and MHGF manufacturers would maintain the ability to differentiate products based on efficiency and combustion system technology. With these options available, industry can continue to operate with three markup tiers (‘‘good, better, best’’) that enable greater industry profitability. However, the range of manufacturer markups are compressed, as max-tech products would not be expected to command the same premium as they did in the nonew-standards case. After considering the analysis and weighing the benefits and burdens, the Secretary has concluded that a standard set at TSL 8 for NWGFs and MHGFs would be economically justified. At this TSL, the average LCC savings for both NWGF and MHGF consumers are positive. An estimated 18.7 percent of NWGF consumers and 15.3 percent of MHGF consumers experience a net cost. The reduction in the percentage of consumers experiencing a net cost at TSL 8 compared to TSL 9 is largely due to the market share of consumers already with a furnace at 95-percent AFUE (see section IV.F.8 of this document). These consumers are not impacted by a standard set at TSL 8. For the remaining consumers that are VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 impacted, the lower incremental cost above baseline for a 95-percent AFUE furnace compared to a max-tech furnace (see section IV.C.2 of this document), particularly for NWGFs, results in fewer consumers experiencing a net cost as compared to TSL 9. DOE also notes the consumer impacts are similar across the range of sensitivity analyses performed, particularly with respect to the fraction of consumers who may switch to alternative space-heating products. A much smaller fraction of NWGF and MHGF consumers in the sensitivity analyses experience a net cost at TSL 8 as compared to TSL 9 as well. Therefore, DOE’s conclusions would not change if based on any of the sensitivity scenarios. The FFC national energy savings at TSL 8 are significant, and the NPV of consumer benefits is positive using both a 3-percent and 7-percent discount rate. Notably, the benefits to consumers vastly outweigh the cost to manufacturers. At TSL 8, the NPV of consumer benefits, even measured at the more conservative discount rate of 7 percent, is 13 times higher than the maximum estimated manufacturers’ loss in INPV. The shipment-weighted average LCC savings are 2 times higher than at TSL 9. The standard levels at TSL 8 are economically justified even without weighing the estimated monetary value of the net health benefits of emissions reductions. When those emissions reductions are included—representing $17.3 billion in climate benefits (associated with the average SC–GHG at a 3-percent discount rate), and $26.6 billion (using a 3percent discount rate) or $8.7 billion (using a 7-percent discount rate) in net health benefits—the rationale becomes stronger still. DOE further notes that there have been regulations in Canada requiring condensing furnaces with at least 90percent AFUE for over ten years and requiring at least 95-precent AFUE since July 2019 (see section II.B.3 of this final rule). The adopted standard levels for NWGFs at TSL 8 align with the Canadian regulations. As discussed in the 2016 SNOPR (since withdrawn), some stakeholders noted that Canada has required condensing furnaces for years and stated that neither Natural Resources Canada nor its mortgage agency found any significant implementation issues. 81 FR 65720, 65779 (Sept. 23, 2016). While DOE realizes that climate and fuel prices differ between the U.S. and Canada and will yield different results in terms of costs and benefits of the standard, there are similarities in the equipment and venting materials used in both the U.S. PO 00000 Frm 00141 Fmt 4701 Sfmt 4700 87641 and Canada with respect to NWGFs. Because the stock of buildings using NWGFs in Canada has many similarities to the stock using NWGFs in northern parts of the U.S., the Canadian experience in terms of installation of condensing furnaces has relevance to the U.S. DOE acknowledges that an estimated 15.9 percent of low-income NWGF and 15.3 percent of low-income MHGF consumers experience a net cost at TSL 8, whereas an estimated 5.7 percent of low-income NWGF and 4.7 percent of low-income MHGF consumers experience a net cost at TSL 7. (TSL 7 is an AFUE standard at the same level as TSL 8 but for NWGFs and MHGFs greater than 55 kBtu/h only.) The majority of negatively impacted lowincome consumers at TSL 8 have smaller capacity NWGFs or MHGFs below 55 kBtu/h and, therefore, would not be impacted by a standard set at TSL 7, since the standards for NWGFs and MHGFs below 55 kBtu/h would remain at 80-percent AFUE. However, compared to TSL 7, it is estimated that TSL 8 would result in additional FFC national energy savings of 1.14 quads and additional net health benefits of $9.3 billion (using a 3-percent discount rate) or $3.1 billion (using a 7-percent discount rate). The national consumer NPV similarly increases at TSL 8, compared to TSL 7, by $0.7 billion using a 7-percent discount rate and $3.6 billion using a 3-percent discount rate. These additional savings and benefits at TSL 8 are significant. DOE considers these impacts to be, as a whole, economically justified at TSL 8. Accordingly, the Secretary has concluded that TSL 8 would offer the maximum improvement in efficiency that is technologically feasible and economically justified and would result in the significant conservation of energy. Although results are presented here in terms of TSLs, DOE analyzes and evaluates all possible ELs for each product class in its analysis. For both NWGFs and MHGFs, TSL 8 is comprised of the highest efficiency level below max-tech. For NWGFs and MHGFs, the max-tech efficiency level results in a large percentage of consumers that experience a net LCC cost, in addition to significant manufacturer impacts. The ELs one level below max-tech, representing the adopted standard levels, result in positive LCC savings for both classes, significantly reduce the number of consumers experiencing a net cost, and reduce the decrease in INPV and conversion costs to the point where DOE has concluded they are E:\FR\FM\18DER2.SGM 18DER2 87642 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations economically justified, as discussed for TSL 8 in the preceding paragraphs. Therefore, based on the considerations discussed, DOE adopts the energy conservation standards for NWGFs and MHGFs at TSL 8. The adopted energy conservation standards for NWGFs and MHGFs, which are expressed as AFUE, are shown in Table V.29. TABLE V.29—ADOPTED ENERGY CONSERVATION STANDARDS FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES [Compliance starting 2029] AFUE (percent) Product class Non-Weatherized Gas Furnaces ......................................................................................................................................................... Mobile Home Gas Furnaces ................................................................................................................................................................ 2. Annualized Benefits and Costs of the Adopted Standards The benefits and costs of the adopted standards can also be expressed in terms of annualized values. The annualized net benefit is: (1) the annualized national economic value (expressed in 2022$) of the benefits from operating products that meet the adopted standards (consisting primarily of operating cost savings from using less energy, minus increases in product purchase costs), and (2) the annualized monetary value of the climate and net health benefits from emission reductions. Table V.30 shows the annualized values under TSL 8, expressed in 2022$. The results under the primary estimate are as follows. Using a 7-percent discount rate for consumer benefits and costs and net health benefits from SO2 and NOX emission changes, and the 3-percent discount rate case for climate benefits from reduced GHG emissions, the estimated cost of the adopted standards is $511 million per year in increased equipment costs, while the estimated annual benefits would be $1,054 million in reduced equipment operating costs, $1,021 million in climate benefits, and $987 million in net health benefits 95 95 (accounting for reduced NOX emissions and increased SO2 emissions). In this case, the net benefit amounts to $2,551 million per year. Using a 3-percent discount rate for all benefits and costs, the estimated cost of the adopted standards is $500 million per year in increased equipment costs, while the estimated annual benefits would be $1,467 million in reduced operating costs, $1,021 million in climate benefits, and $1,574 million in net health benefits (accounting for reduced NOX emissions and increased SO2 emissions). In this case, the net benefit amounts to $3,561 million per year. TABLE V.30—ANNUALIZED MONETIZED BENEFITS AND COSTS OF ADOPTED STANDARDS FOR NON-WEATHERIZED GAS FURNACES AND MOBILE HOME GAS FURNACES [TSL 8] Million 2022$/year Primary estimate Low-netbenefits estimate High-netbenefits estimate 3% discount rate Consumer Operating Cost Savings ......................................................................................................... Climate Benefits * ..................................................................................................................................... Net Health Benefits ** .............................................................................................................................. Total Monetized Benefits † ...................................................................................................................... Consumer Incremental Product Costs ‡ .................................................................................................. Net Monetized Benefits ........................................................................................................................... Change in Producer Cashflow (INPV ‡‡) ................................................................................................ 1,467 1,021 1,574 4,061 500 3,561 (27)–(2) 1,528 1,003 1,546 4,077 520 3,557 (27)–(2) 1,440 1,028 1,585 4,053 489 3,564 (27)–(2) 1,054 1,021 987 3,062 511 2,551 (27)–(2) 1,094 1,003 972 3,069 528 2,541 (27)–(2) 1,051 1,028 994 3,073 501 2,572 (27)–(2) khammond on DSKJM1Z7X2PROD with RULES2 7% discount rate Consumer Operating Cost Savings ......................................................................................................... Climate Benefits * (3% discount rate) ...................................................................................................... Health Benefits ** ..................................................................................................................................... Total Monetized Benefits † ...................................................................................................................... Consumer Incremental Product Costs ‡ .................................................................................................. Net Monetized Benefits ........................................................................................................................... Change in Producer Cashflow (INPV ‡‡) ................................................................................................ Note: This table presents the costs and benefits associated with consumer furnaces shipped in 2029–2058. These results include benefits to consumers which accrue after 2058 from the products shipped in 2029–2058. * Climate benefits are calculated using four different estimates of the global SC–GHG (see section IV.L of this document). For presentational purposes of this table, the climate benefits associated with the average SC–GHG at a 3-percent discount rate are shown, but the Department does not have a single, central SC–GHG point estimate. DOE emphasizes the importance and value of considering the benefits calculated using all four sets of SC–GHG estimates. To monetize the benefits of reducing GHG emissions, this analysis uses the interim estimates presented in the Technical Support Document: Social Cost of Carbon, Methane, and Nitrous Oxide Interim Estimates Under Executive Order 13990 published in February 2021 by the IWG. VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 PO 00000 Frm 00142 Fmt 4701 Sfmt 4700 E:\FR\FM\18DER2.SGM 18DER2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations 87643 ** Health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only monetizing (for SO2 and NOX) PM2.5 precursor health benefits and disbenefits and (for NOX) ozone precursor health benefits, but will continue to assess the ability to monetize other effects such as health benefits from reductions in direct PM2.5 emissions. See section IV.L of this document for more details. † Total benefits for both the 3-percent and 7-percent cases are presented using the average SC–GHG with 3-percent discount rate. ‡ Costs include incremental equipment costs, as well as installation costs. ‡‡ Operating Cost Savings are calculated based on the LCC analysis and national impact analysis as discussed in detail below. See sections IV.F and IV.H of this document. DOE’s national impact analysis includes all impacts (both costs and benefits) along the distribution chain beginning with the increased costs to the manufacturer to manufacture the product and ending with the increase in price experienced by the consumer. DOE also separately conducts a detailed analysis on the impacts on manufacturers (the MIA). See section IV.J of this document. In the detailed MIA, DOE models manufacturers’ pricing decisions based on assumptions regarding investments, conversion costs, cashflow, and margins. The MIA produces a range of impacts, which is the rule’s expected impact on the INPV. The change in INPV is the present value of all changes in industry cash flow, including changes in production costs, capital expenditures, and manufacturer profit margins. The annualized change in INPV is calculated using the industry weighted average cost of capital value of 6.4 percent that is estimated in the manufacturer impact analysis (see chapter 12 of the final rule TSD for a complete description of the industry weighted average cost of capital). For NWGFs and MHGFs, those values are ¥$27 million to ¥$2 million. DOE accounts for that range of likely impacts in analyzing whether a TSL is economically justified. See section V.C of this document. DOE is presenting the range of impacts to the INPV under two manufacturer markup scenarios: the Preservation of Gross Margin scenario, which is the manufacturer markup scenario used in the calculation of Consumer Operating Cost Savings in this table, and the Tiered scenario, where DOE assumed amended standards would result in a reduction of product differentiation and a compression of the markup tiers. DOE includes the range of estimated annualized change in INPV in the above table, drawing on the MIA explained further in section IV.J of this document, to provide additional context for assessing the estimated impacts of this final rule to society, including potential changes in production and consumption, which is consistent with OMB’s Circular A–4 and E.O. 12866. If DOE were to include the INPV into the annualized net benefit calculation for this final rule, the annualized net benefits would range from $3,534 million to $3,559 million at 3percent discount rate and would range from $2,524 million to $2,549 million at 7-percent discount rate. Parentheses ( ) indicate negative values. VI. Procedural Issues and Regulatory Review khammond on DSKJM1Z7X2PROD with RULES2 A. Review Under Executive Orders 12866, 13563, and 14094 Executive Order (E.O.) 12866, ‘‘Regulatory Planning and Review,’’ 58 FR 51735 (Oct. 4, 1993), as supplemented and reaffirmed by E.O. 13563, ‘‘Improving Regulation and Regulatory Review,’’ 76 FR 3821 (Jan. 21, 2011), and E.O. 14094, ‘‘Modernizing Regulatory Review,’’ 88 FR 21879 (April 11, 2023), requires agencies, to the extent permitted by law, to: (1) propose or adopt a regulation only upon a reasoned determination that its benefits justify its costs (recognizing that some benefits and costs are difficult to quantify); (2) tailor regulations to impose the least burden on society, consistent with obtaining regulatory objectives, taking into account, among other things, and to the extent practicable, the costs of cumulative regulations; (3) select, in choosing among alternative regulatory approaches, those approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity); (4) to the extent feasible, specify performance objectives, rather than specifying the behavior or manner of compliance that regulated entities must adopt; and (5) identify and assess available alternatives to direct regulation, including providing economic incentives to encourage the desired behavior, such as user fees or marketable permits, or providing information upon which choices can be made by the public. DOE emphasizes as well that E.O. 13563 requires agencies to use the best available techniques to quantify anticipated present and future benefits and costs as accurately as VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 possible. In its guidance, the Office of Information and Regulatory Affairs (OIRA) in the Office of Management and Budget (OMB) has emphasized that such techniques may include identifying changing future compliance costs that might result from technological innovation or anticipated behavioral changes. For the reasons stated in this preamble, this final regulatory action is consistent with these principles. Section 6(a) of E.O. 12866 also requires agencies to submit ‘‘significant regulatory actions’’ to OIRA for review. OIRA has determined that this final regulatory action constitutes a ‘‘significant regulatory action’’ under section 3(f)(1) of E.O. 12866, as amended by E.O. 14094. Accordingly, pursuant to section 6(a)(3)(C) of E.O. 12866, DOE has provided to OIRA an assessment, including the underlying analysis, of benefits and costs anticipated from the final regulatory action, together with, to the extent feasible, a quantification of those costs; and an assessment, including the underlying analysis, of costs and benefits of potentially effective and reasonably feasible alternatives to the planned regulation, and an explanation why the planned regulatory action is preferable to the identified potential alternatives. These assessments are summarized in this preamble and further detail can be found in the technical support document for this rulemaking. B. Review Under the Regulatory Flexibility Act The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires preparation of an initial regulatory flexibility analysis (IRFA) and a final regulatory flexibility analysis (FRFA) for any rule that by law must be proposed for public comment, unless the agency certifies PO 00000 Frm 00143 Fmt 4701 Sfmt 4700 that the rule, if promulgated, will not have a significant economic impact on a substantial number of small entities. As required by E.O. 13272, ‘‘Proper Consideration of Small Entities in Agency Rulemaking,’’ 67 FR 53461 (August 16, 2002), DOE published procedures and policies on February 19, 2003, to ensure that the potential impacts of its rules on small entities are properly considered during the rulemaking process. 68 FR 7990. DOE has made its procedures and policies available on the Office of the General Counsel’s website (www.energy.gov/gc/ office-general-counsel). DOE has prepared the following FRFA for the products that are the subject of this rulemaking. For manufacturers of NWGFs and MHGFs, the SBA has set a size threshold, which defines those entities classified as ‘‘small businesses’’ for the purposes of the statute. DOE used the SBA’s small business size standards to determine whether any small entities would be subject to the requirements of the rule. (See 13 CFR part 121.) The size standards are listed by North American Industry Classification System (NAICS) code and industry description and are available at www.sba.gov/document/ support-table-size-standards. Manufacturing of NWGFs and MHGFs is classified under NAICS 333415, ‘‘AirConditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing.’’ The SBA sets a threshold of 1,250 employees or fewer for an entity to be considered as a small business for this category. 1. Need for, and Objectives of the Rule DOE is amending the energy conservation standards for NWGFs and MHGFs. EPCA specifically provides that DOE must conduct two rounds of energy E:\FR\FM\18DER2.SGM 18DER2 87644 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations conservation standard rulemakings for NWGFs and MHGFs. (42 U.S.C. 6295(f)(4)(B) and (C)) The statute also requires that not later than six years after issuance of any final rule establishing or amending a standard, DOE must publish either a notice of determination that standards for the product do not need to be amended, or a NOPR including new proposed energy conservation standards. (42 U.S.C. 6295(m)(1)) This rulemaking is pursuant to the statutorily required second round of rulemaking for NWGFs and MHGFs and the statutorily required six-yearlookback review. khammond on DSKJM1Z7X2PROD with RULES2 2. Significant Issues Raised in Response to the IRFA In response to the July 2022 NOPR, NGA of Georgia stated that DOE’s proposal fails to capture the negative effects on small businesses that manufacture venting and accessories for non-condensing furnaces. (NGA of Georgia, No. 380 at p. 2) HARDI commented that the proposed standards also do not meet the requirements under the Regulatory Flexibility Act, as DOE only assessed the impact on four small manufacturers, but not on distributors, contractors, or manufacturers of furnace supplies. HARDI stated that there are a number of small businesses that serve as furnace suppliers. (HARDI, No. 384 at pp. 3–4) DOE conducted an IRFA in support of the July 2022 NOPR. The Regulatory Flexibility Act requires an agency to perform a regulatory flexibility analysis of small entity impacts only when a rule directly regulates the small entities. This final rule regulates manufacturers of consumer furnaces, and, as such, DOE’s analysis is scoped to the original equipment manufacturers (OEMs) of the covered products directly affected by this rulemaking. 3. Description and Estimated Number of Small Entities Affected DOE reviewed this final rule under the provisions of the Regulatory Flexibility Act and the procedures and policies published on February 19, 2003. 68 FR 7990. DOE conducted a market survey to identify potential small manufacturers of the covered products. DOE began its assessment by reviewing DOE’s Compliance Certification Database (CCD),285 California Energy Commission’s Modernized Appliance Efficiency Database System (MAEDbS),286 Air 285 DOE’s Compliance Certification Database is available at: www.regulations.doe.gov/certificationdata/ (last accessed March 8, 2023). 286 California Energy Commission’s MAEDbS (available at: cacertappliances.energy.ca.gov/Pages/ VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 Conditioning, Heating, and Refrigeration Institute’s (AHRI) Directory of Certified Product Performance database,287 individual retailer websites, and the withdrawn September 2016 SNOPR to identify manufacturers of the covered products. 81 FR 65720. DOE then consulted publicly-available data, such as manufacturer websites, manufacturer specifications and product literature, import/export logs (e.g., bills of lading from Panjiva 288), and basic model numbers, to identify OEMs of the products covered by this rulemaking. DOE further relied on public data and subscription-based market research tools (e.g., Dun & Bradstreet reports) 289 to determine company location, headcount, and annual revenue. DOE also asked industry representatives if they were aware of any other small manufacturers during manufacturer interviews. DOE screened out companies that do not offer products covered by this rulemaking, do not meet the SBA’s definition of a ‘‘small business,’’ or are foreign-owned and operated. For the IRFA, DOE identified 15 OEMs selling NWGFs and/or MHGFs in the United States. Of those 15 OEMs, DOE tentatively determined that four companies qualified as small businesses and were not foreign-owned or operated. For this FRFA, DOE refreshed its database of model listings to include the most up-to-date information on NWGF and MHGF models currently available on the market. Through its review of the updated product database and other public sources, DOE determined that one MHGF OEM and that one small domestic NWGF OEM no longer offer products covered by this rulemaking. Additionally, DOE identified a new entrant to the NWGF market that qualifies as a ‘‘small business.’’ Therefore, for this FRFA, DOE identified 14 OEMs that sell NWGFs and/or MHGFs in the United States. Of the 14 OEMs identified, DOE determined that four companies qualify as small businesses and are not foreignowned or operated. 4. Description of Compliance Requirements Of the four small domestic OEMs identified, two manufacture NWGFs, Search/AdvancedSearch.aspx) (last accessed July 15, 2021). 287 AHRI’s Directory of Certified Product Performance (available at: www.ahridirectory.org/ Search/SearchHome) (last accessed March 8, 2023). 288 S&P Global. Panjiva Market Intelligence is available at: panjiva.com/import-export/UnitedStates (last accessed March 24, 2023). 289 D&B Hoovers subscription login is available at: app.dnbhoovers.com/ (last accessed March 24, 2023). PO 00000 Frm 00144 Fmt 4701 Sfmt 4700 one manufactures MHGFs, and one manufactures both NWGFs and MHGFs. DOE considered the impact of this rule on the four manufacturers. DOE adjusted the small business conversion cost estimates developed in the IRFA to 2022$ for this FRFA. As previously discussed, DOE also refreshed its database of model listings to include updated information on NWGF and MHGF models currently available on the market. One of the small NWGF manufacturers (‘‘Company A’’) sells a niche product in the NWGF market. The company offers three basic models of a through-the-wall furnace marketed for multi-family construction. The three models have identical dimensions and share many components. One model is rated at 80-percent AFUE, one model is rated at 93-percent AFUE, and the other model is rated at 95-percent AFUE. Given the product similarities and low volume of sales, DOE expects the manufacturer would likely discontinue the non-compliant models. DOE does not expect the small manufacturer would incur conversion costs due to the standard, as the company currently offers their niche product at 95-percent AFUE. The other small NWGF manufacturer (‘‘Company B’’) introduced new products into the CCD after DOE conducted its NOPR analysis. Since the July 2022 NOPR, this small NWGF manufacturer now offers approximately 10 basic models of both non-condensing and condensing NWGFs. The noncondensing models are rated at 81percent AFUE, and the condensing models are rated between 93-percent and 96-percent AFUE. The noncondensing models and condensing models have identical dimensions and share many components. Given the product similarities, DOE expects this manufacturer would likely ramp up production of its compliant models and discontinue models that do not meet the adopted level. However, to avoid underestimating the potential investments, DOE used model counts to scale industry product conversion costs and market share estimates to scale industry capital conversion costs for this FRFA. As discussed in this final rule, capital conversion costs are onetime investments in property, plant, and equipment necessary to adapt or change existing production facilities such that new, compliant product designs can be fabricated and assembled. Product conversion costs are one-time investments in research, development, testing, marketing, and other noncapitalized costs necessary to make product designs comply with amended E:\FR\FM\18DER2.SGM 18DER2 khammond on DSKJM1Z7X2PROD with RULES2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations energy conservation standards. The eight NWGF models that would require redesign or retirement is an estimated 1.0 percent of the 825 NWGF models with an AFUE below 95-percent in the product database developed for this rulemaking. DOE estimates that this small business could incur approximately $0.4 million in product conversion costs and $1.1 million in capital conversion costs as they work to develop a condensing NWGF product line. The total conversion costs of $1.6 million are approximately 0.3 percent of company revenues over the 5-year conversion period.290 The small MHGF manufacturer, Mortex (‘‘Company C’’), sells noncondensing furnaces into the manufactured housing replacement market. DOE identified this small business through its review of DOE’s CCD and the withdrawn September 2016 SNOPR. Of the six MHGF OEMs identified, Mortex is the only MHGF company that does not currently offer any condensing products. DOE analyzed the conversion costs for Mortex separately from other MHGF manufacturers since Mortex would need to make a different set of investments than the rest of the MHGF industry. To offer condensing MHGFs, Mortex would need to either source secondary heat exchangers from a vendor or set up its own manufacturing line to produce secondary heat exchangers. Setting up in-house production is the significantly more capital-intensive option. For this FRFA, DOE estimated the investments required for the company to set up inhouse production. Based on DOE’s engineering analysis, the main driver of additional capital conversion costs would be the production of secondary heat exchangers. Including equipment, tooling, and conveyer, DOE estimates upfront capital investments of $5.3 million to set up manufacturing of condensing MHGFs. Additionally, the design and product development (e.g., engineering resources, testing costs) of condensing products could run as high as $1.4 million. If the company has less than 15 percent market share in the MHGF market, as suggested by the percentage of industry model offerings, the cost recovery period for this investment would be in excess of 10 years. Unlike other MHGF manufacturers, which can leverage their investments in secondary heat exchanger production across other heating products, DOE is not aware of any other heating product from Mortex that could make use of the secondary heat exchanger production capacity. The total conversion costs of $6.7 million are approximately 2.2 percent of company revenues over the 5-year conversion period and are considered significant.291 Given the high upfront investment and long cost recovery period, the small manufacturer would likely seek options other than investing in secondary heat exchanger production capabilities. The company could source the secondary heat exchanger, which would reduce the need for capital conversion costs but would also increase the per-unit cost of the final product. DOE estimates that the secondary heat exchanger accounts for approximately 14 percent of the total manufacturer production cost, on average. Sourcing the heat exchanger could put the company at a pricing disadvantage relative to manufacturers that produce their heat exchangers inhouse. Depending on the business’ ability to compete on factors other than price, its willingness to invest technical resources toward designing a condensing product, and the role of MHGFs in the company’s business strategy, the small manufacturer could also choose to leave the MHGF business. The remaining small manufacturer of NWGFs and MHGFs (‘‘Company D’’) is one of the five MHGF companies that offer condensing products. Of these five companies with condensing MHGFs, one manufacturer only offers products at or above the adopted standard and would, therefore, likely incur no conversion costs. The remaining four 290 According to D&B Hoovers, this small business has an estimated annual revenue of $119.8 million. DOE calculated total conversion costs as a percent of revenue over the 5-year conversion period using the following calculation: ($0.4 million + $1.1 million)/(5 years × $119.8 million). 291 According to D&B Hoovers, this small business has an estimated annual revenue of $60.4 million. DOE calculated total conversion costs as a percent of revenue over the 5-year conversion period using the following calculation: ($1.4 million + $5.3 million)/(5 years × $60.4 million). VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 PO 00000 Frm 00145 Fmt 4701 Sfmt 4700 87645 manufacturers, which includes the small manufacturer of NWGFs and MHGFs, have some products that do not meet the standard. All MHGF conversion costs that are not directly attributed to Mortex would be borne by these four manufacturers. The small domestic business has six MHGF models that would require redesign or retirement, which is an estimated 14.6 percent of the 41 MHGF models with an AFUE below 95 percent in the product database developed for this rulemaking. DOE estimated industry conversion costs of $3.1 million for the MHGF standard when excluding the conversion costs attributable to Mortex.292 For the purposes of this FRFA, DOE assumes the $3.1 million in conversion costs are evenly allocated across the four companies that may incur MHGF conversion costs. The MHGF-related conversion costs are approximately $0.8 million per company. DOE has determined this even allocation of capital and product conversion costs avoids underestimating the investment requirements on the small, domestic manufacturer, given that this manufacturer has a small market share. For the small manufacturer, total conversion costs are approximately 0.1 percent of company revenue over the 5-year conversion period.293 As noted earlier, this small domestic manufacturer also produces NWGFs. The company offers four NWGF models, out of over 1,300 NWGFs in the product database developed for this rulemaking. All four of their NWGF offerings are at or above the adopted standard and would not likely incur conversion costs due to the standard. Therefore, the small manufacturer that produces both MHGFs and NWGFs is expected to only incur conversion costs relating to their MHGF products at TSL 8, the adopted standard level. 292 Excluding the conversion costs attributable to Mortex, DOE estimates industry MHGF capital conversion costs of $2.6 million and industry MHGF product conversion costs of $0.5 million, for a total of $3.1 million, at the adopted level (TSL 8). 293 According to D&B Hoovers, this small business has an estimated annual revenue of $240.6 million. DOE calculated total conversion costs as a percent of revenue over the 5-year conversion period using the following calculation: ($0.1 million + $0.6 million)/(5 years × $240.6 million). E:\FR\FM\18DER2.SGM 18DER2 87646 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations TABLE VI.1—ESTIMATED SMALL BUSINESS IMPACTS [TSL 8] Product conversion costs ($ millions) Company khammond on DSKJM1Z7X2PROD with RULES2 Company Company Company Company A B C D ...................................................................... ...................................................................... ...................................................................... ...................................................................... 5. Significant Alternatives Considered and Steps Taken To Minimize Significant Economic Impacts on Small Entities The discussion in the previous section analyzes impacts on small businesses that would result from the adopted standards, represented by TSL 8. In reviewing alternatives to the adopted standards, DOE examined a range of different efficiency levels and their respective impacts to both manufacturers and consumers. At TSL 9, the conversion costs were higher for small businesses and for industry overall. At TSLs 1, 2, 3, 4, 5, 6, and 7, the impacts on small manufacturers would have been potentially lower. However, those changes would have would come at the expense of reduced consumer benefits and a reduction in energy savings. In general, the consumer benefits were an order of magnitude greater than the cost to industry generally, and multiple orders of magnitude greater than the conversion costs to small manufacturers. DOE has determined that establishing standards at the adopted level, TSL 8, balances the benefits of energy savings with the potential burdens placed on manufacturers of covered products, including small business manufacturers. DOE has determined that establishing standards at TSL 8 would deliver the highest energy savings while mitigating the potential burdens placed on NWGF and MHGF manufacturers, including small business manufacturers. Accordingly, DOE is not adopting one of the other TSLs considered in the analysis, or the other policy alternatives examined as part of the regulatory impact analysis and included in chapter 17 of the final rule TSD. Additional compliance flexibilities may be available through other means. EPCA provides that a manufacturer whose annual gross revenue from all of its operations does not exceed $8 million may apply for an exemption from all or part of an energy conservation standard for a period not longer than 24 months after the effective date of a final rule establishing the VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 Capital conversion costs ($ millions) 0.0 0.4 1.4 0.1 Annual revenue ($ millions) 0.0 1.1 0.0 0.6 standard. (42 U.S.C. 6295(t)) Additionally, manufacturers subject to DOE’s energy conservation standards may apply to DOE’s Office of Hearings and Appeals for exception relief under certain circumstances. Manufacturers should refer to 10 CFR part 430, subpart E, and 10 CFR part 1003 for additional details. C. Review Under the Paperwork Reduction Act Manufacturers of NWGFs and MHGFs must certify to DOE that their products comply with any applicable energy conservation standards in terms of AFUE. In certifying compliance, manufacturers must test their products according to the DOE test procedures for NWGFs and MHGFs, including any amendments adopted for those test procedures. DOE has established regulations for the certification and recordkeeping requirements for all covered consumer products and commercial equipment, including NWGFs and MHGFs. (See generally 10 CFR part 429) These requirements were also discussed in some detail in the July 2022 NOPR. 87 FR 40590, 40702 (July 7, 2022). The collection-of-information requirement for the certification and recordkeeping is subject to review and approval by OMB under the Paperwork Reduction Act (PRA). This requirement has been approved by OMB under OMB control number 1910–1400. Public reporting burden for the certification is estimated to average 35 hours per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. DOE is not amending the existing reporting requirements or establishing new DOE reporting requirements. If determined to be necessary, DOE may consider associated reporting and certification requirements in a future rulemaking. Therefore, DOE has concluded that the amended energy conservation standards for NWGFs and PO 00000 Frm 00146 Fmt 4701 Sfmt 4700 Conversion period revenue ($ millions) 77.0 119.8 60.4 240.6 Conversion costs as a % of conversion period revenue 385.0 599.0 302.0 1,202.8 0.0 0.3 0.5 0.1 MHGFs will not impose additional costs for manufacturers related to reporting and certification. Notwithstanding any other provision of the law, no person is required to respond to, nor shall any person be subject to a penalty for failure to comply with, a collection of information subject to the requirements of the PRA, unless that collection of information displays a currently valid OMB control number. D. Review Under the National Environmental Policy Act of 1969 Pursuant to the National Environmental Policy Act of 1969 (NEPA), DOE has analyzed this action in accordance with NEPA and DOE’s NEPA implementing regulations (10 CFR part 1021). DOE has determined that this rule qualifies for categorical exclusion under 10 CFR part 1021, subpart D, appendix B, categorical exclusion B5.1, because it is a rulemaking that establishes energy conservation standards for consumer products or industrial equipment, none of the exceptions identified in categorical exclusion B5.1(b) apply, no extraordinary circumstances exist that require further environmental analysis, and it otherwise meets the requirements for application of a categorical exclusion. See 10 CFR 1021.410. Therefore, DOE has determined that promulgation of this rule is not a major Federal action significantly affecting the quality of the human environment within the meaning of NEPA, and does not require an environmental assessment or an environmental impact statement. E. Review Under Executive Order 13132 E.O. 13132, ‘‘Federalism,’’ 64 FR 43255 (August 10, 1999), imposes certain requirements on Federal agencies formulating and implementing policies or regulations that preempt State law or that have federalism implications. The Executive order requires agencies to examine the constitutional and statutory authority supporting any action that would limit the policymaking discretion of the E:\FR\FM\18DER2.SGM 18DER2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES2 States and to carefully assess the necessity for such actions. The Executive order also requires agencies to have an accountable process to ensure meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications. On March 14, 2000, DOE published a statement of policy describing the intergovernmental consultation process it will follow in the development of such regulations. 65 FR 13735. DOE has examined this rule and has determined that it would not have a substantial direct effect on the States, on the relationship between the National Government and the States, or on the distribution of power and responsibilities among the various levels of government. EPCA governs and prescribes Federal preemption of State regulations as to energy conservation for the products that are the subject of this final rule. States can petition DOE for exemption from such preemption to the extent, and based on criteria, set forth in EPCA. (42 U.S.C. 6297(d)) Therefore, no further action is required by Executive Order 13132. F. Review Under Executive Order 12988 Regarding the review of existing regulations and the promulgation of new regulations, section 3(a) of E.O. 12988, ‘‘Civil Justice Reform,’’ 61 FR 4729 (Feb. 7, 1996), imposes on Federal agencies the general duty to adhere to the following requirements: (1) eliminate drafting errors and ambiguity; (2) write regulations to minimize litigation; (3) provide a clear legal standard for affected conduct rather than a general standard, and (4) promote simplification and burden reduction. Regarding the review required by section 3(a), section 3(b) of E.O. 12988 specifically requires that Executive agencies make every reasonable effort to ensure that the regulation: (1) clearly specifies the preemptive effect, if any; (2) clearly specifies any effect on existing Federal law or regulation; (3) provides a clear legal standard for affected conduct while promoting simplification and burden reduction; (4) specifies the retroactive effect, if any; (5) adequately defines key terms, and (6) addresses other important issues affecting clarity and general draftsmanship under any guidelines issued by the Attorney General. Section 3(c) of E.O. 12988 requires Executive agencies to review regulations in light of applicable standards in sections 3(a) and 3(b) to determine whether they are met or it is unreasonable to meet one or more of them. DOE has completed the required review and determined that, to the extent permitted by law, this final VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 rule meets the relevant standards of E.O. 12988. G. Review Under the Unfunded Mandates Reform Act of 1995 Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) requires each Federal agency to assess the effects of Federal regulatory actions on State, local, and Tribal governments and the private sector. Public Law 104–4, sec. 201 (codified at 2 U.S.C. 1531). For a regulatory action likely to result in a rule that may cause the expenditure by State, local, and Tribal governments, in the aggregate, or by the private sector of $100 million or more in any one year (adjusted annually for inflation), section 202 of UMRA requires a Federal agency to publish a written statement that estimates the resulting costs, benefits, and other effects on the national economy. (2 U.S.C. 1532(a), (b)) The UMRA also requires a Federal agency to develop an effective process to permit timely input by elected officers of State, local, and Tribal governments on a ‘‘significant intergovernmental mandate,’’ and requires an agency plan for giving notice and opportunity for timely input to potentially affected small governments before establishing any requirements that might significantly or uniquely affect them. On March 18, 1997, DOE published a statement of policy on its process for intergovernmental consultation under UMRA. 62 FR 12820. DOE’s policy statement is also available at www.energy.gov/sites/prod/files/gcprod/ documents/umra_97.pdf. DOE has concluded that this final rule may require expenditures of $100 million or more in any one year by the private sector. Such expenditures may include (1) investment in research and development and in capital expenditures by NWGF and MHGF manufacturers in the years between the final rule and the compliance date for the new standards and (2) incremental additional expenditures by consumers to purchase higher-efficiency NWGFs and MHGFs starting at the compliance date for the applicable standard. Section 202 of UMRA authorizes a Federal agency to respond to the content requirements of UMRA in any other statement or analysis that accompanies the final rule. (2 U.S.C. 1532(c)) The content requirements of section 202(b) of UMRA relevant to a private sector mandate substantially overlap the economic analysis requirements that apply under section 325(o) of EPCA and Executive Order 12866. The SUPPLEMENTARY INFORMATION section of this document and the TSD for this final rule respond to those requirements. PO 00000 Frm 00147 Fmt 4701 Sfmt 4700 87647 Under section 205 of UMRA, DOE is obligated to identify and consider a reasonable number of regulatory alternatives before promulgating a rule for which a written statement under section 202 is required. (2 U.S.C. 1535(a)) DOE is required to select from those alternatives the most cost-effective and least burdensome alternative that achieves the objectives of the rule, unless DOE publishes an explanation for doing otherwise, or the selection of such an alternative is inconsistent with law. As required by EPCA, this final rule establishes amended energy conservation standards for NWGFs and MHGFs that are designed to achieve the maximum improvement in energy efficiency that DOE has determined to be both technologically feasible and economically justified, as required by 42 U.S.C. 6295(o)(2)(A) and 6295(o)(3)(B). A full discussion of the alternatives considered by DOE is presented in chapter 17 of the TSD for this final rule. H. Review Under the Treasury and General Government Appropriations Act, 1999 Section 654 of the Treasury and General Government Appropriations Act, 1999 (Pub. L. 105–277) requires Federal agencies to issue a Family Policymaking Assessment for any rule that may affect family well-being. This rule would not have any impact on the autonomy or integrity of the family as an institution. Accordingly, DOE has concluded that it is not necessary to prepare a Family Policymaking Assessment. I. Review Under Executive Order 12630 Pursuant to E.O. 12630, ‘‘Governmental Actions and Interference with Constitutionally Protected Property Rights,’’ 53 FR 8859 (March 18, 1988), DOE has determined that this rule would not result in any takings that might require compensation under the Fifth Amendment to the U.S. Constitution. J. Review Under the Treasury and General Government Appropriations Act, 2001 Section 515 of the Treasury and General Government Appropriations Act, 2001 (44 U.S.C. 3516, note) provides for Federal agencies to review most disseminations of information to the public under information quality guidelines established by each agency pursuant to general guidelines issued by OMB. OMB’s guidelines were published at 67 FR 8452 (Feb. 22, 2002), and DOE’s guidelines were published at 67 FR 62446 (Oct. 7, 2002). Pursuant to OMB Memorandum M–19–15, E:\FR\FM\18DER2.SGM 18DER2 87648 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations ‘‘Improving Implementation of the Information Quality Act’’ (April 24, 2019), DOE published updated guidelines which are available at: www.energy.gov/sites/prod/files/2019/ 12/f70/DOE%20Final%20Updated %20IQA%20Guidelines %20Dec%202019.pdf. DOE has reviewed this final rule under the OMB and DOE guidelines and has concluded that it is consistent with applicable policies in those guidelines. khammond on DSKJM1Z7X2PROD with RULES2 K. Review Under Executive Order 13211 E.O. 13211, ‘‘Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use,’’ 66 FR 28355 (May 22, 2001), requires Federal agencies to prepare and submit to OIRA at OMB, a Statement of Energy Effects for any significant energy action. A ‘‘significant energy action’’ is defined as any action by an agency that promulgates or is expected to lead to promulgation of a final rule, and that: (1) is a significant regulatory action under Executive Order 12866, or any successor order; and (2) is likely to have a significant adverse effect on the supply, distribution, or use of energy, or (3) is designated by the Administrator of OIRA as a significant energy action. For any significant energy action, the agency must give a detailed statement of any adverse effects on energy supply, distribution, or use should the proposal be implemented, and of reasonable alternatives to the action and their expected benefits on energy supply, distribution, and use. DOE has concluded that this regulatory action, which sets forth amended energy conservation standards for NWGFs and MHGFs, is not a significant energy action because the standards are not likely to have a significant adverse effect on the supply, distribution, or use of energy, nor has it been designated as such by the Administrator at OIRA. Accordingly, DOE has not prepared a Statement of Energy Effects on this final rule. L. Review Under the Information Quality Bulletin for Peer Review On December 16, 2004, OMB, in consultation with the Office of Science and Technology Policy (OSTP), issued its Final Information Quality Bulletin for Peer Review (‘‘the Bulletin’’). 70 FR 2664 (Jan. 14, 2005). The Bulletin establishes that certain scientific information shall be peer reviewed by qualified specialists before it is disseminated by the Federal Government, including influential scientific information related to agency regulatory actions. The purpose of the Bulletin is to enhance the quality and VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 credibility of the Government’s scientific information. Under the Bulletin, the energy conservation standards rulemaking analyses are ‘‘influential scientific information,’’ which the Bulletin defines as ‘‘scientific information the agency reasonably can determine will have, or does have, a clear and substantial impact on important public policies or private sector decisions.’’ 70 FR 2664, 2667 (Jan. 14, 2005). In response to OMB’s Bulletin, DOE conducted formal peer reviews of the energy conservation standards development process and the analyses that are typically used and prepared a report describing that peer review.294 Generation of this report involved a rigorous, formal, and documented evaluation using objective criteria and qualified and independent reviewers to make a judgment as to the technical/ scientific/business merit, the actual or anticipated results, and the productivity and management effectiveness of programs and/or projects. Because available data, models, and technological understanding have changed since 2007, DOE has engaged with the National Academy of Sciences to review DOE’s analytical methodologies to ascertain whether modifications are needed to improve DOE’s analyses. DOE is in the process of evaluating the resulting December 2021 report.295 M. Congressional Notification As required by 5 U.S.C. 801, DOE will report to Congress on the promulgation of this rule prior to its effective date. The report will state that it has been determined that the rule falls within the scope of 5 U.S.C. 804(2). VII. Approval of the Office of the Secretary The Secretary of Energy has approved publication of this final rule. List of Subjects in 10 CFR Part 430 Administrative practice and procedure, Confidential business information, Energy conservation, Household appliances, Imports, Intergovernmental relations, Small businesses. 294 The 2007 ‘‘Energy Conservation Standards Rulemaking Peer Review Report’’ is available at the following website: energy.gov/eere/buildings/ downloads/energy-conservation-standardsrulemaking-peer-review-report-0 (last accessed Feb. 16, 2022). 295 The December 2021 NAS report is available at www.nationalacademies.org/our-work/review-ofmethods-for-setting-building-and-equipmentperformance-standards (last accessed August 14, 2023). PO 00000 Frm 00148 Fmt 4701 Sfmt 4700 Signing Authority This document of the Department of Energy was signed on September 28, 2023, by Jeffrey Marootian, Principal Deputy Assistant Secretary for Energy Efficiency and Renewable Energy, pursuant to delegated authority from the Secretary of Energy. That document with the original signature and date is maintained by DOE. For administrative purposes only, and in compliance with requirements of the Office of the Federal Register, the undersigned DOE Federal Register Liaison Officer has been authorized to sign and submit the document in electronic format for publication, as an official document of the Department of Energy. This administrative process in no way alters the legal effect of this document upon publication in the Federal Register. Signed in Washington, DC, on November 14, 2023. Treena V. Garrett, Federal Register Liaison Officer, U.S. Department of Energy. For the reasons stated in the preamble, DOE amends part 430 of chapter II, of title 10 of the Code of Federal Regulations, as set forth below: PART 430—ENERGY CONSERVATION PROGRAM FOR CONSUMER PRODUCTS 1. The authority citation for part 430 continues to read as follows: ■ Authority: 42 U.S.C. 6291–6309; 28 U.S.C. 2461 note. 2. Amend § 430.32 by: a. Revising paragraph (e)(1)(ii); b. Redesignating paragraph (e)(1)(iii) as paragraph (e)(1)(iv); and ■ c. Adding a new paragraph (e)(1)(iii). The revision and addition read as follows: ■ ■ ■ § 430.32 Energy and water conservation standards and their compliance dates. * * * * * (e) * * * (1) * * * (ii) The AFUE for non-weatherized gas furnaces (not including mobile home gas furnaces) manufactured on or after November 19, 2015, but before December 18, 2028; mobile home gas furnaces manufactured on or after November 19, 2015, but before December 18, 2028; non-weatherized oil-fired furnaces (not including mobile home furnaces) manufactured on or after May 1, 2013, mobile home oil-fired furnaces manufactured on or after September 1, 1990; weatherized gasfired furnaces manufactured on or after January 1, 2015; weatherized oil-fired furnaces manufactured on or after E:\FR\FM\18DER2.SGM 18DER2 Federal Register / Vol. 88, No. 241 / Monday, December 18, 2023 / Rules and Regulations January 1, 1992; and electric furnaces manufactured on or after January 1, 87649 1992; shall not be less than the following: AFUE (percent) 1 Product class (A) Non-weatherized gas furnaces (not including mobile home furnaces) ......................................................................................... (B) Mobile home gas furnaces ............................................................................................................................................................ (C) Non-weatherized oil-fired furnaces (not including mobile home furnaces) ................................................................................... (D) Mobile home oil-fired furnaces ...................................................................................................................................................... (E) Weatherized gas furnaces ............................................................................................................................................................. (F) Weatherized oil-fired furnaces ....................................................................................................................................................... (G) Electric furnaces ............................................................................................................................................................................ 1 Annual 80.0 80.0 83.0 75.0 81.0 78.0 78.0 Fuel Utilization Efficiency, as determined in § 430.23(n)(2). (iii) The AFUE for non-weatherized gas (not including mobile home gas furnaces) manufactured on and after December 18, 2028; and mobile home gas furnaces manufactured on and after December 18, 2028, shall not be less than the following: AFUE (percent) 1 Product class (A) Non-weatherized gas furnaces (not including mobile home gas furnaces) .................................................................................. (B) Mobile home gas furnaces ............................................................................................................................................................ 1 Annual * * Fuel Utilization Efficiency, as determined in § 430.23(n)(2). * * * Note: The following appendix will not appear in the Code of Federal Regulations. Appendix A—Letter From the Department of Justice to the Department of Energy U.S. Department of Justice Antitrust Division RFK Main Justice Building 950 Pennsylvania Avenue NW Washington, DC 20530–0001 September 6, 2022 Ami Grace-Tardy Assistant General Counsel for Legislation, Regulation and Energy Efficiency U.S. Department of Energy Washington, DC 20585 Ami.Grace-Tardy@hq.doe.gov Dear Assistant General Counsel Grace-Tardy: I am responding to your July 7, 2022, letter seeking the views of the Attorney General about the potential impact on competition of proposed energy conservation standards for consumer furnaces, specifically for nonweatherized gas furnaces (‘‘NWGFs’’) and mobile-home gas furnaces (‘‘MHGFs’’). Your request was submitted under Section 325(o)(2)(B)(i)(V) of the Energy Policy and khammond on DSKJM1Z7X2PROD with RULES2 95.0 95.0 VerDate Sep<11>2014 17:57 Dec 15, 2023 Jkt 262001 Conservation Act, as amended (EPCA), 42 U.S.C. 6295(o)(2)(B)(i)(V) and 42 U.S.C. 6316(a), which requires the Attorney General to make a determination of the impact of any lessening of competition that is likely to result from the imposition of proposed energy conservation standards. The Attorney General’s responsibility for responding to requests from other departments about the effect of a program on competition has been delegated to the Assistant Attorney General for the Antitrust Division in 28 CFR 0.40(g). The Assistant Attorney General for the Antitrust Division has authorized me, as the Policy Director for the Antitrust Division, to provide the Antitrust Division’s views regarding the potential impact on competition of proposed energy conservation standards on his behalf. In conducting its analysis, the Antitrust Division examines whether a proposed standard may lessen competition, for example, by substantially limiting consumer choice or increasing industry concentration. A lessening of competition could result in higher prices to manufacturers and consumers. We have reviewed the proposed standards contained in the Notice of Proposed Rulemaking (87 FR 40591, July 7, 2022). We have also interviewed industry participants, reviewed public comments and PO 00000 Frm 00149 Fmt 4701 Sfmt 9990 information provided by industry participants, reviewed comments submitted to DOJ, have spoken with DOE staff, and have listened to the Webinar of the Public Meeting held on August 3, 2022. Based on our review of the information currently available, we do not believe that the proposed energy conservation standards for consumer furnaces are likely to substantially lessen competition in any particular product or geographic market. In the course of our review, we were told that the MHGF market may be more highly concentrated than DOE’s analysis suggests. Given the necessarily short time-frame for our review, we are not in a position to confirm the level of concentration increase that may be caused by the rule, but encourage DOE to closely examine and consider potential competitive issues that commenters may raise with respect to this rulemaking. Sincerely, /s/ David G.B. Lawrence, Director of Policy. [FR Doc. 2023–25514 Filed 12–15–23; 8:45 am] BILLING CODE 6450–01–P E:\FR\FM\18DER2.SGM 18DER2

Agencies

DEPARTMENT OF ENERGY

[Federal Register Volume 88, Number 241 (Monday, December 18, 2023)]
[Rules and Regulations]
[Pages 87502-87649]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-25514]



[[Page 87501]]

Vol. 88

Monday,

No. 241

December 18, 2023

Part II





Department of Energy





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10 CFR Part 63





Energy Conservation Program: Energy Conservation Standards for Consumer 
Furnaces; Final Rule

Federal Register / Vol. 88 , No. 241 / Monday, December 18, 2023 / 
Rules and Regulations

[[Page 87502]]


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DEPARTMENT OF ENERGY

10 CFR Part 430

[EERE-2014-BT-STD-0031]
RIN 1904-AD20


Energy Conservation Program: Energy Conservation Standards for 
Consumer Furnaces

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

ACTION: Final rule.

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SUMMARY: The Energy Policy and Conservation Act, as amended (``EPCA''), 
prescribes energy conservation standards for various consumer products 
and certain commercial and industrial equipment, including consumer 
furnaces. EPCA also requires the U.S. Department of Energy (``DOE'' or 
``the Department'') to determine periodically whether more stringent 
standards would be technologically feasible and economically justified, 
and would result in significant energy savings. In this final rule, DOE 
is adopting amended energy conservation standards for consumer 
furnaces, specifically non-weatherized gas furnaces and mobile home gas 
furnaces. The Department has determined that the amended energy 
conservation standards for the subject products would result in 
significant conservation of energy, and are technologically feasible 
and economically justified.

DATES: 
    Effective date: The effective date of this rule is February 16, 
2024.
    Compliance date: Compliance with the amended standards established 
for the subject consumer furnaces in this final rule is required on and 
after December 18, 2028.

ADDRESSES: The docket for this rulemaking, which includes Federal 
Register notices, public meeting attendee lists and transcripts, 
comments, and other supporting documents/materials, is available for 
review at www.regulations.gov. All documents in the docket are listed 
in the www.regulations.gov index. However, not all documents listed in 
the index may be publicly available, such as information that is exempt 
from public disclosure.
    The docket web page can be found at www.regulations.gov/docket/EERE-2014-BT-STD-0031. The docket web page contains instructions on how 
to access all documents, including public comments, in the docket.

FOR FURTHER INFORMATION CONTACT:  Ms. Julia Hegarty, U.S. Department of 
Energy, Office of Energy Efficiency and Renewable Energy, Building 
Technologies Office, EE-5B, 1000 Independence Avenue SW, Washington, DC 
20585-0121. Telephone: (240) 597-6737. Email: 
[email protected].
    Mr. Eric Stas, U.S. Department of Energy, Office of the General 
Counsel, GC-33, 1000 Independence Avenue SW, Washington, DC, 20585-
0121. Telephone: (202) 586-5827. Email: [email protected].
    For further information on how to review the docket, contact the 
Appliance and Equipment Standards Program staff at (202) 287-1445 or by 
email: [email protected].

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Synopsis of the Final Rule
    A. Benefits and Costs to Consumers
    B. Impact on Manufacturers
    C. National Benefits and Costs
    D. Conclusion
II. Introduction
    A. Authority
    B. Background
    1. Current Standards
    2. History of Standards Rulemaking for Consumer Furnaces
    3. Current Standards in Canada
III. General Discussion
    A. General Comments
    1. Comments Regarding Authority
    2. Comments Opposing the July 2022 Proposal
    3. Comments Expressing Support for the July 2022 Proposal
    4. Regional Standards
    5. Recommendations for Analytical Changes
    6. Opportunity for Public Input
    7. Federal Financial Assistance
    8. Standby Mode and Off Mode Power Consumption Standards
    B. Product Classes and Scope of Coverage
    C. Test Procedure
    D. Technological Feasibility
    1. General
    2. Maximum Technologically Feasible Levels
    E. Energy Savings
    1. Determination of Savings
    2. Significance of Savings
    F. Economic Justification
    1. Specific Criteria
    a. Economic Impact on Manufacturers and Consumers
    b. Savings in Operating Costs Compared to Increase in Price (LCC 
and PBP)
    c. Energy Savings
    d. Lessening of Utility or Performance of Products
    e. Impact of Any Lessening of Competition
    f. Need for National Energy Conservation
    g. Other Factors
    2. Rebuttable Presumption
    G. Compliance Date
    H. Impact From Other Rulemakings
IV. Methodology and Discussion of Related Comments
    A. Market and Technology Assessment
    1. Scope of Coverage and Product Classes
    a. General Approach
    b. Through-the-Wall Units
    c. Condensing and Non-Condensing Furnaces
    d. Mobile Home Gas Furnaces
    2. Technology Options
    B. Screening Analysis
    1. Screened-Out Technologies
    2. Remaining Technologies
    C. Engineering Analysis
    1. Efficiency Analysis
    a. Baseline Efficiency Level and Product Characteristics
    b. Higher Efficiency Levels
    2. Cost Analysis
    a. Teardown Analysis
    b. Cost Estimation Method
    c. Manufacturing Production Costs
    d. Cost-Efficiency Relationship
    e. Manufacturer Markup
    f. Manufacturer Interviews
    g. Electric Furnaces
    D. Markups Analysis
    E. Energy Use Analysis
    1. Building Sample
    2. Furnace Sizing
    3. Furnace Active Mode Energy Use
    a. Adjustments to Energy Use Estimates
    4. Furnace Electricity Use
    F. Life-Cycle Cost and Payback Period Analysis
    1. Product Cost
    2. Installation Cost
    a. Basic Installation Costs
    b. Additional Installation Costs for Non-Weatherized Gas 
Furnaces
    c. Additional Installation Costs for Mobile Home Gas Furnaces
    d. Contractor Survey and DOE's Sources
    e. Summary of Installation Costs
    3. Annual Energy Consumption
    4. Energy Prices
    5. Maintenance and Repair Costs
    6. Product Lifetime
    7. Discount Rates
    8. Energy Efficiency Distribution in the No-New-Standards Case
    a. Condensing Furnace Market Share in Compliance Year
    b. Market Shares of Different Condensing Furnace Efficiency 
Levels
    c. Assignment of Furnace Efficiency to Sampled Households
    9. Alternative Size Thresholds for Small Consumer Gas Furnaces
    a. Accounting for Impacts of Downsized Equipment
    10. Accounting for Product Switching Under Potential Standards
    a. Product Switching Resulting From Amended Standards for Non-
Weatherized Gas Furnaces
    b. Product Switching Resulting From Amended Standards for Mobile 
Home Gas Furnaces
    11. Accounting for Furnace Repair as an Alternative to 
Replacement Under Potential Standards
    12. Payback Period Analysis
    G. Shipments Analysis

[[Page 87503]]

    1. Shipments Model and Inputs
    a. Historical Shipments Data
    b. Shipment Projections in No-New-Standards Case
    2. Impact of Potential Standards on Shipments
    a. Impact of Equipment Switching
    b. Impact of Repair vs. Replace
    H. National Impact Analysis
    1. Product Efficiency Trends
    2. National Energy Savings
    3. Net Present Value Analysis
    I. Consumer Subgroup Analysis
    1. Low-Income Households
    J. Manufacturer Impact Analysis
    1. Overview
    2. Government Regulatory Impact Model and Key Inputs
    a. Manufacturer Production Costs
    b. Shipments Projections
    c. Capital and Product Conversion Costs
    d. Manufacturer Markup Scenarios
    K. Emissions Analysis
    1. Air Quality Regulations Incorporated in DOE's Analysis
    L. Monetizing Emissions Impacts
    1. Monetization of Greenhouse Gas Emissions
    a. Social Cost of Carbon
    b. Social Cost of Methane and Nitrous Oxide
    2. Monetization of Other Emissions Impacts
    M. Utility Impact Analysis
    N. Employment Impact Analysis
V. Analytical Results and Conclusions
    A. Trial Standard Levels
    B. Economic Justification and Energy Savings
    1. Economic Impacts on Individual Consumers
    a. Life-Cycle Cost and Payback Period
    b. Consumer Subgroup Analysis
    c. Rebuttable Presumption Payback
    2. Economic Impacts on Manufacturers
    a. Industry Cash-Flow Analysis Results
    b. Direct Impacts on Employment
    c. Impacts on Manufacturing Capacity
    d. Impacts on Subgroups of Manufacturers
    e. Cumulative Regulatory Burden
    3. National Impact Analysis
    a. Significance of Energy Savings
    b. Net Present Value of Consumer Costs and Benefits
    c. Indirect Impacts on Employment
    4. Impact on Utility or Performance of Products
    5. Impact of Any Lessening of Competition
    6. Need of the Nation to Conserve Energy
    7. Other Factors
    8. Summary of National Economic Impacts
    C. Conclusion
    1. Benefits and Burdens of TSLs Considered for Non-Weatherized 
Gas Furnace and Mobile Home Gas Furnace AFUE Standards
    2. Annualized Benefits and Costs of the Adopted Standards
VI. Procedural Issues and Regulatory Review
    A. Review Under Executive Orders 12866, 13563, and 14094
    B. Review Under the Regulatory Flexibility Act
    C. Review Under the Paperwork Reduction Act
    D. Review Under the National Environmental Policy Act of 1969
    E. Review Under Executive Order 13132
    F. Review Under Executive Order 12988
    G. Review Under the Unfunded Mandates Reform Act of 1995
    H. Review Under the Treasury and General Government 
Appropriations Act, 1999
    I. Review Under Executive Order 12630
    J. Review Under the Treasury and General Government 
Appropriations Act, 2001
    K. Review Under Executive Order 13211
    L. Review Under the Information Quality Bulletin for Peer Review
    M. Congressional Notification
VII. Approval of the Office of the Secretary

I. Synopsis of the Final Rule

    The Energy Policy and Conservation Act, Public Law 94-163, (42 
U.S.C. 6291-6317, as codified) as amended (``EPCA''),\1\ authorizes DOE 
to regulate the energy efficiency of a number of consumer products and 
certain industrial equipment. Title III, Part B \2\ of EPCA established 
the Energy Conservation Program for Consumer Products Other Than 
Automobiles. (42 U.S.C. 6291-6309) These products include non-
weatherized gas furnaces (NWGFs) and mobile home gas furnaces (MHGFs), 
the subject of this rulemaking. (42 U.S.C. 6292(a)(5))
---------------------------------------------------------------------------

    \1\ All references to EPCA in this document refer to the statute 
as amended through the Energy Act of 2020, Public Law 116-260 (Dec. 
27, 2020), which reflect the last statutory amendments that impact 
Parts A and A-1 of EPCA.
    \2\ For editorial reasons, upon codification in the U.S. Code, 
Part B was redesignated Part A.
---------------------------------------------------------------------------

    Pursuant to EPCA, any new or amended energy conservation standard 
must be designed to achieve the maximum improvement in energy 
efficiency that DOE determines is technologically feasible and 
economically justified. (42 U.S.C. 6295(o)(2)(A)) Furthermore, the new 
or amended standard must result in significant conservation of energy. 
(42 U.S.C. 6295(o)(3)(B)) EPCA specifically provides that DOE must 
conduct two rounds of energy conservation standard rulemakings for 
NWGFs and MHGFs. (42 U.S.C. 6295(f)(4)(B) and (C)) EPCA also provides 
that not later than six years after issuance of any final rule 
establishing or amending a standard, DOE must publish either a notice 
of determination that standards for the product do not need to be 
amended, or a notice of proposed rulemaking (``NOPR'') including new 
proposed energy conservation standards (proceeding to a final rule, as 
appropriate). (42 U.S.C. 6295(m)) This rulemaking is being undertaken 
pursuant to the statutorily-required second round of rulemaking for 
NWGFs and MHGFs, and it also satisfies the statutorily-required 6-year-
lookback review.
    In accordance with these and other relevant statutory provisions 
discussed in this document, DOE is adopting amended energy conservation 
standards for the subject consumer furnaces (i.e., NWGFs and MHGFs). 
The adopted standards, which are expressed in terms of minimum annual 
fuel utilization efficiency (``AFUE''), are shown in Table I.1. These 
standards apply to all products listed in Table I.1 and manufactured 
in, or imported into, the United States starting on December 18, 2028. 
For the reasons discussed in section III.A of this document, DOE is not 
adopting standby mode or off mode power consumption standards for NWGFs 
and MHGFs in this final rule.

  Table I.1--AFUE Energy Conservation Standards for Non-Weatherized Gas
                  Furnaces and Mobile Home Gas Furnaces
                 [Compliance Starting December 18, 2028]
------------------------------------------------------------------------
                      Product class                          AFUE (%)
------------------------------------------------------------------------
Non-Weatherized Gas Furnaces............................            95.0
Mobile Home Gas Furnaces................................            95.0
------------------------------------------------------------------------

A. Benefits and Costs to Consumers

    Table I.2 summarizes DOE's evaluation of the economic impacts of 
the adopted standards on consumers of NWGFs and MHGFs, as measured by 
the average life-cycle cost (``LCC'') savings and the simple payback 
period (``PBP'').\3\ The average LCC savings are positive for all 
product classes, and the PBP is less than the average lifetime of both 
NWGFs and MHGFs, which is estimated to be 21.5 years (see section IV.F 
of this document).
---------------------------------------------------------------------------

    \3\ The average LCC savings refer to consumers that are affected 
by a standard and are measured relative to the efficiency 
distribution in the no-new-standards case, which depicts the market 
in the compliance year in the absence of new or amended standards 
(see section IV.F of this document). The simple PBP, which is 
designed to compare specific efficiency levels, is measured relative 
to the baseline product (see section IV.F of this document).

[[Page 87504]]



Table I.2--Impacts of Adopted Energy Conservation Standards on Consumers
      of Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces
------------------------------------------------------------------------
                                            Average LCC
              Furnace class                   savings     Simple payback
                                              (2022$)     period (years)
------------------------------------------------------------------------
Non-Weatherized Gas Furnaces............             350             7.6
Mobile Home Gas Furnaces................             616             3.2
------------------------------------------------------------------------

    DOE's analysis of the impacts of the adopted standards on consumers 
is described in section IV.F of this document.

B. Impact on Manufacturers ⁴
---------------------------------------------------------------------------

    \4\ All monetary values in this document are expressed in 2022 
dollars (2022$).
---------------------------------------------------------------------------

    The industry net present value (INPV) is the sum of the discounted 
cash flows to the industry from the base year through the end of the 
analysis period (2023-2058). The change in INPV is the present value of 
all changes in industry cash flow, including changes in production 
costs, conversion costs, and manufacturer profit margins. Using a real 
discount rate of 6.4 percent, DOE estimates that the INPV for 
manufacturers of NWGFs and MHGFs in the case without amended standards 
is $1,371.8 million in 2022$. Under the adopted standards, DOE 
estimates the change in INPV to range from -26.8 percent to -2.5 
percent, which is a reduction of approximately -$367.3 million to -
$33.8 million. In order to bring products into compliance with amended 
standards, it is estimated that industry will incur total conversion 
costs of $162.0 million (which are incorporated into the calculation of 
INPV).
    DOE's analysis of the impacts of the adopted energy conservation 
standards on manufacturers is described in sections IV.J and V.B.2 of 
this document.

C. National Benefits and Costs

    DOE's analyses indicate that the adopted AFUE energy conservation 
standards for NWGFs and MHGFs would save a significant amount of 
energy. Relative to the case without amended standards, the lifetime 
energy savings for NWGFs and MHGFs purchased in the 30-year period that 
begins in the anticipated year of compliance with the amended standards 
(2029-2058), are estimated to amount to 4.77 quadrillion British 
thermal units (``Btu''), or quads.\5\ This represents a savings of 3.2 
percent relative to the energy use of these products in the case 
without amended standards (referred to as the ``no-new-standards 
case'').
---------------------------------------------------------------------------

    \5\ The quantity refers to full-fuel-cycle (FFC) energy savings. 
FFC energy savings include the energy consumed in extracting, 
processing, and transporting primary fuels (i.e., coal, natural gas, 
petroleum fuels), and, thus, presents a more complete picture of the 
impacts of energy efficiency standards. For more information on the 
FFC metric, see section IV.H.2 of this document.
---------------------------------------------------------------------------

    The cumulative net present value (``NPV'') of total consumer 
benefits of the amended standards for NWGFs and MHGFs ranges from $4.8 
billion (at a 7-percent discount rate) to $16.3 billion (at a 3-percent 
discount rate). This NPV expresses the estimated total value of future 
operating-cost savings minus the estimated increased product and 
installation costs for NWGFs and MHGFs purchased in years 2029 through 
2058.
    In addition, the adopted standards for NWGFs and MHGFs are 
projected to yield significant environmental benefits. DOE estimates 
that the amended standards will result in cumulative emission 
reductions (over the same period as for energy savings) of 332 million 
metric tons (Mt) \6\ of carbon dioxide (CO2), 4.3 million 
tons of methane (CH4), 0.38 thousand tons of nitrous oxide 
(N2O), and 0.9 million tons of nitrogen oxides 
(NOX). The amended standards will result in cumulative 
emission increases of 10.0 thousand tons of sulfur dioxide 
(SO2) and 0.08 tons of mercury (Hg).\7\
---------------------------------------------------------------------------

    \6\ A metric ton is equivalent to 1.1 short tons. Results for 
emissions other than CO2 are presented in short tons.
    \7\ DOE calculated emissions reductions relative to the no-new-
standards-case, which reflects key assumptions in the Annual Energy 
Outlook 2023 (AEO2023). AEO2023 represents current Federal and State 
legislation and final implementation of regulations as of the time 
of its preparation. See section IV.K of this document for further 
discussion of AEO2023 assumptions that effect air pollutant 
emissions. The increase in emissions of some pollutants is due to an 
increase in electricity consumption.
---------------------------------------------------------------------------

    DOE estimates the value of climate benefits from a reduction in 
greenhouse gases (GHG) using four different estimates of the social 
cost of CO2 (SC-CO2), the social cost of methane 
(SC-CH4), and the social cost of nitrous oxide (SC-
N2O). Together these represent the social cost of GHG (SC-
GHG). DOE used interim SC-GHG values developed by an Interagency 
Working Group on the Social Cost of Greenhouse Gases (IWG).\8\ The 
derivation of these values is discussed in section IV.L.1 of this 
document. For presentational purposes, the climate benefits associated 
with the average SC-GHG at a 3-percent discount rate are estimated to 
be $17.3 billion. DOE does not have a single central SC-GHG point 
estimate, and it emphasizes the importance and value of considering the 
benefits calculated using all four sets of SC-GHG estimates.
---------------------------------------------------------------------------

    \8\ To monetize the benefits of reducing GHG emissions this 
analysis uses the interim estimates presented in the Technical 
Support Document: Social Cost of Carbon, Methane, and Nitrous Oxide 
Interim Estimates Under Executive Order 13990 published in February 
2021 by the IWG. (February 2021 SC-GHG TSD) (Available at: 
www.whitehouse.gov/wp-content/uploads/2021/02/TechnicalSupportDocument_SocialCostofCarbonMethaneNitrousOxide.pdf) 
(Last accessed August 1, 2023).
---------------------------------------------------------------------------

    DOE estimated the monetized net health benefits of NOX 
and SO2 emissions changes, using benefit per ton estimates 
from the scientific literature, as discussed in section IV.L of this 
document.\9\ DOE estimated the present value of the health benefits 
would be $8.7 billion using a 7-percent discount rate, and $26.6 
billion using a 3-percent discount rate.\10\ DOE is currently only 
monetizing (for SO2 and NOX) particulate matter 
(PM2.5) precursor health benefits and (for NOX) 
ozone precursor health benefits, but will continue to assess the 
ability to monetize other effects such as health benefits from 
reductions in direct PM2.5 emissions.
---------------------------------------------------------------------------

    \9\ DOE did not monetize mercury emissions because the quantity 
is very small.
    \10\ DOE estimates the economic value of these emissions 
reductions resulting from the considered TSLs for the purpose of 
complying with the requirements of Executive Order 12866.
---------------------------------------------------------------------------

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

[[Page 87505]]



   Table I.3--Summary of Monetized Benefits and Costs of Adopted AFUE
   Energy Conservation Standards for Non-Weatherized Gas Furnaces and
                        Mobile Home Gas Furnaces
                     [Trial Standard Level (TSL) 8]
------------------------------------------------------------------------
                                                      Billion 2022$
------------------------------------------------------------------------
                            3% discount rate
------------------------------------------------------------------------
Consumer Operating Cost Savings................                     24.8
Climate Benefits *.............................                     17.3
Net Health Benefits **.........................                     26.6
                                                ------------------------
Total Monetized Benefits [dagger]..............                     68.7
Consumer Incremental Product Costs [Dagger]....                      8.5
                                                ------------------------
Net Monetized Benefits.........................                     60.2
------------------------------------------------------------------------
Change in Producer Cashflow (INPV                         (0.37)--(0.03)
 [Dagger][Dagger]).............................
------------------------------------------------------------------------
                            7% discount rate
------------------------------------------------------------------------
Consumer Operating Cost Savings................                      9.3
Climate Benefits * (3% discount rate)..........                     17.3
Net Health Benefits **.........................                      8.7
                                                ------------------------
Total Monetized Benefits [dagger]..............                     35.3
Consumer Incremental Product Costs [Dagger]....                      4.5
                                                ------------------------
    Net Monetized Benefits.....................                     30.8
------------------------------------------------------------------------
Change in Producer Cashflow (INPV                         (0.37)--(0.03)
 [Dagger][Dagger]).............................
------------------------------------------------------------------------
Note: This table presents the costs and benefits associated with the
  subject consumer furnaces shipped in 2029-2058. These results include
  benefits to consumers which accrue after 2058 from the products
  shipped in 2029-2058.
* Climate benefits are calculated using four different estimates of the
  social cost of carbon (SC-CO2), methane (SC-CH4), and nitrous oxide
  (SC-N2O) (model average at 2.5-percent, 3-percent, and 5-percent
  discount rates; 95th percentile at 3-percent discount rate) (see
  section IV.L of this document). Together these represent the global SC-
  GHG. For presentational purposes of this table, the climate benefits
  associated with the average SC-GHG at a 3-percent discount rate are
  shown; however, DOE emphasizes the importance and value of considering
  the benefits calculated using all four sets of SC-GHG estimates. To
  monetize the benefits of reducing GHG emissions, this analysis uses
  the interim estimates presented in the Technical Support Document:
  Social Cost of Carbon, Methane, and Nitrous Oxide Interim Estimates
  Under Executive Order 13990 published in February 2021 by the IWG.
** Health benefits are calculated using benefit-per-ton values for NOX
  and SO2. DOE is currently only monetizing (for SO2 and NOX) PM2.5
  precursor health benefits and (for NOX) ozone precursor health
  benefits, but will continue to assess the ability to monetize other
  effects such as health benefits from reductions in direct PM2.5
  emissions. See section IV.L of this document for more details.
[dagger] Total and net benefits include those consumer, climate, and
  health benefits that can be quantified and monetized. For presentation
  purposes, total and net benefits for both the 3-percent and 7-percent
  cases are presented using the average SC-GHG with 3-percent discount
  rate.
[Dagger] Costs include incremental equipment costs as well as
  installation costs.
[Dagger][Dagger] Operating Cost Savings are calculated based on the LCC
  analysis and national impact analysis as discussed in detail below.
  See sections IV.F and IV.H of this document. DOE's national impact
  analysis includes all impacts (both costs and benefits) along the
  distribution chain beginning with the increased costs to the
  manufacturer to manufacture the product and ending with the increase
  in price experienced by the consumer. DOE also separately conducts a
  detailed analysis on the impacts on manufacturers (the MIA). See
  section IV.J of this document. In the detailed MIA, DOE models
  manufacturers' pricing decisions based on assumptions regarding
  investments, conversion costs, cashflow, and margins. The MIA produces
  a range of impacts, which is the rule's expected impact on the INPV.
  The change in INPV is the present value of all changes in industry
  cash flow, including changes in production costs, capital
  expenditures, and manufacturer profit margins. Change in INPV is
  calculated using the industry weighted average cost of capital value
  of 6.4 percent that is estimated in the MIA (see chapter 12 of the
  final rule technical support document (``TSD'') for a complete
  description of the industry weighted average cost of capital). For
  NWGFs and MHGFs, those values are -$367 million to -$34 million. DOE
  accounts for that range of likely impacts in analyzing whether a TSL
  is economically justified. See section V.C of this document. DOE is
  presenting the range of impacts to the INPV under two manufacturer
  markup scenarios: the Preservation of Gross Margin scenario, which is
  the manufacturer markup scenario used in the calculation of Consumer
  Operating Cost Savings in this table, and the Tiered scenario, which
  models a reduction of manufacturer markups due to reduced product
  differentiation as a result of amended standards. DOE includes the
  range of estimated INPV in the above table, drawing on the MIA
  explained further in section IV.J of this document, to provide
  additional context for assessing the estimated impacts of this final
  rule to society, including potential changes in production and
  consumption, which is consistent with the Office of Management and
  Budget's (OMB) Circular A-4 and E.O. 12866. If DOE were to include the
  INPV into the net benefit calculation for this final rule, the net
  benefits would range from $59.83 billion to $60.17 billion at 3-
  percent discount rate and would range from $30.43 billion to $30.77
  billion at 7-percent discount rate. Parentheses ( ) indicate negative
  values.


[[Page 87506]]

    The benefits and costs of the adopted standards can also be 
expressed in terms of annualized values. The monetary values for the 
total annualized net benefits are: (1) the reduced consumer operating 
costs, minus (2) the increase in product purchase prices and 
installation costs, plus (3) the value of climate and health benefits 
of emission reductions, all annualized.\11\
---------------------------------------------------------------------------

    \11\ To convert the time-series of costs and benefits into 
annualized values, DOE calculated a present value in 2029, the year 
used for discounting the NPV of total consumer costs and savings. 
For the benefits, DOE calculated a present value associated with 
each year's shipments in the year in which the shipments occur 
(e.g., 2030), and then discounted the present value from each year 
to 2029. Using the present value, DOE then calculated the fixed 
annual payment over a 30-year period, starting in the compliance 
year, that yields the same present value.
---------------------------------------------------------------------------

    The national operating cost savings are domestic private U.S. 
consumer monetary savings that occur as a result of purchasing the 
covered products and are measured for the lifetime of NWGFs and MHGFs 
shipped in 2029-2058. The health benefits associated with reduced 
emissions achieved as a result of the adopted standards are also 
calculated based on the lifetime of NWGFs and MHGFs shipped in 2029-
2058. Total benefits for both the 3-percent and 7-percent cases are 
presented using the average GHG social costs with 3-percent discount 
rate.\12\ Estimates of total benefits are presented for all four SC-GHG 
discount rates in section V.B of this document.
---------------------------------------------------------------------------

    \12\ As discussed in section IV.L.1 of this document, DOE agrees 
with the IWG that using consumption-based discount rates (e.g., 3 
percent) is appropriate when discounting the value of climate 
impacts. Combining climate effects discounted at an appropriate 
consumption-based discount rate with other costs and benefits 
discounted at a capital-based rate (i.e., 7 percent) is reasonable 
because of the different nature of the types of benefits being 
measured.
---------------------------------------------------------------------------

    Table I.4 presents the total estimated monetized benefits and costs 
associated with the adopted standard, expressed in terms of annualized 
values. The results under the primary estimate are as follows.
    Using a 7-percent discount rate for consumer benefits and costs and 
health effects from changes in NOX and SO2 
emissions, and the 3-percent discount rate case for climate benefits 
from reduced GHG emissions, the estimated cost of the standards adopted 
in this rule is $511 million per year in increased equipment costs, 
while the estimated annual benefits are $1,054 million in reduced 
equipment operating costs, $1,021 million in climate benefits, and $987 
million in net health benefits. In this case, the net benefit amounts 
to $2,551 million per year.
    Using a 3-percent discount rate for all benefits and costs, the 
estimated cost of the adopted standards is $500 million per year in 
increased equipment costs, while the estimated annual benefits are 
$1,467 million in reduced operating costs, $1,021 million in climate 
benefits, and $1,574 million in net health benefits. In this case, the 
net benefit amounts to $3,561 million per year.

  Table I.4--Annualized Monetized Benefits and Costs of Adopted Standards for Non-Weatherized Gas Furnaces and
                                            Mobile Home Gas Furnaces
                                                     [TSL 8]
----------------------------------------------------------------------------------------------------------------
                                                                                Million 2022$/year
                                                                 -----------------------------------------------
                                                                                     Low-net-        High-net-
                                                                      Primary        benefits        benefits
                                                                     estimate        estimate        estimate
----------------------------------------------------------------------------------------------------------------
                                                3% discount rate
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings.................................           1,467           1,528           1,440
Climate Benefits *..............................................           1,021           1,003           1,028
Net Health Benefits **..........................................           1,574           1,546           1,585
    Total Monetized Benefits [dagger]...........................           4,061           4,077           4,053
Consumer Incremental Product Costs [Dagger].....................             500             520             489
Net Monetized Benefits..........................................           3,561           3,557           3,564
Change in Producer Cashflow (INPV [Dagger][Dagger]).............        (27)-(2)        (27)-(2)        (27)-(2)
----------------------------------------------------------------------------------------------------------------
                                                7% discount rate
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings.................................           1,054           1,094           1,051
Climate Benefits * (3% discount rate)...........................           1,021           1,003           1,028
Health Benefits **..............................................             987             972             994
Total Monetized Benefits [dagger]...............................           3,062           3,069           3,073
Consumer Incremental Product Costs [Dagger].....................             511             528             501
Net Monetized Benefits..........................................           2,551           2,541           2,572
----------------------------------------------------------------------------------------------------------------
Change in Producer Cashflow (INPV [Dagger][Dagger]).............        (27)-(2)        (27)-(2)        (27)-(2)
----------------------------------------------------------------------------------------------------------------
Note: This table presents the costs and benefits associated with the subject consumer furnaces shipped in 2029-
  2058. These results include consumer, health, and climate benefits which accrue after 2058 from the products
  shipped in 2029-2058.
* Climate benefits are calculated using four different estimates of the global SC-GHG (see section IV.L of this
  document). For presentational purposes of this table, the climate benefits associated with the average SC-GHG
  at a 3-percent discount rate are shown; however, DOE emphasizes the importance and value of considering the
  benefits calculated using all four sets of SC-GHG estimates. To monetize the benefits of reducing GHG
  emissions, this analysis uses the interim estimates presented in the Technical Support Document: Social Cost
  of Carbon, Methane, and Nitrous Oxide Interim Estimates Under Executive Order 13990 published in February 2021
  by the IWG.
**Health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only monetizing
  (for SO2 and NOX) PM2.5 precursor health benefits and disbenefits and (for NOX) ozone precursor health
  benefits, but will continue to assess the ability to monetize other effects such as health benefits from
  reductions in direct PM2.5 emissions. See section IV.L of this document for more details.
[dagger] Total benefits for both the 3-percent and 7-percent cases are presented using the average SC-GHG with 3-
  percent discount rate.
[Dagger] Costs include incremental equipment costs as well as installation costs.

[[Page 87507]]

 
[Dagger][Dagger] Operating Cost Savings are calculated based on the LCC analysis and national impact analysis as
  discussed in detail below. See sections IV.F and IV.H of this document. DOE's national impact analysis
  includes all impacts (both costs and benefits) along the distribution chain beginning with the increased costs
  to the manufacturer to manufacture the product and ending with the increase in price experienced by the
  consumer. DOE also separately conducts a detailed analysis on the impacts on manufacturers (the MIA). See
  section IV.J of this document. In the detailed MIA, DOE models manufacturers' pricing decisions based on
  assumptions regarding investments, conversion costs, cashflow, and margins. The MIA produces a range of
  impacts, which is the rule's expected impact on the INPV. The change in INPV is the present value of all
  changes in industry cash flow, including changes in production costs, capital expenditures, and manufacturer
  profit margins. The annualized change in INPV is calculated using the industry weighted average cost of
  capital value of 6.4 percent that is estimated in the manufacturer impact analysis (see chapter 12 of the
  final rule TSD for a complete description of the industry weighted average cost of capital). For NWGFs and
  MHGFs, those values are -$27 million to -$2 million. DOE accounts for that range of likely impacts in
  analyzing whether a TSL is economically justified. See section V.C of this document. DOE is presenting the
  range of impacts to the INPV under two manufacturer markup scenarios: the Preservation of Gross Margin
  scenario, which is the manufacturer markup scenario used in the calculation of Consumer Operating Cost Savings
  in this table, and the Tiered scenario, where DOE assumed amended standards would result in a reduction of
  product differentiation and a compression of the markup tiers. DOE includes the range of estimated annualized
  change in INPV in the above table, drawing on the MIA explained further in section IV.J of this document, to
  provide additional context for assessing the estimated impacts of this final rule to society, including
  potential changes in production and consumption, which is consistent with OMB's Circular A-4 and E.O. 12866.
  If DOE were to include the INPV into the annualized net benefit calculation for this final rule, the
  annualized net benefits would range from $3,534 million to $3,559 million at 3-percent discount rate and would
  range from $2,524 million to $2,549 million at 7-percent discount rate. Parentheses ( ) indicate negative
  values.

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

D. Conclusion

    DOE concludes that the standards adopted in this final rule 
represent the maximum improvement in energy efficiency that is 
technologically feasible and economically justified, and would result 
in the significant conservation of energy. Specifically, with regards 
to technological feasibility, products achieving these standard levels 
are already commercially available for all product classes covered by 
this final rule. As for economic justification, DOE's analysis shows 
that the benefits of the standards exceed, to a great extent, the 
burdens of the standards.
    Using a 7-percent discount rate for consumer benefits and costs and 
NOX and SO2 emissions reduction benefits, and a 
3-percent discount rate case for GHG social costs, the estimated cost 
of the standards for NWGFs and MHGFs is $511 million per year in 
increased product costs, while the estimated annual benefits are $1,054 
million in reduced product operating costs, $1,021 million in climate 
benefits, and $987 million in health benefits. The net benefit amounts 
to $2,551 million per year. DOE notes that the net benefits are 
substantial even in the absence of the climate benefits,\13\ and DOE 
would adopt the same standards in the absence of such benefits.
---------------------------------------------------------------------------

    \13\ The information on climate benefits is provided in 
compliance with Executive Order 12866.
---------------------------------------------------------------------------

    The significance of energy savings offered by a new or amended 
energy conservation standard cannot be determined without knowledge of 
the specific circumstances surrounding a given rulemaking.\14\ For 
example, some covered products and equipment have most of their energy 
consumption occur during periods of peak energy demand. The impacts of 
these products on the energy infrastructure can be more pronounced than 
products with relatively constant demand. Accordingly, DOE evaluates 
the significance of energy savings on a case-by-case basis.
---------------------------------------------------------------------------

    \14\ Procedures, Interpretations, and Policies for Consideration 
in New or Revised Energy Conservation Standards and Test Procedures 
for Consumer Products and Commercial/Industrial Equipment, 86 FR 
70892, 70901 (Dec. 13, 2021).
---------------------------------------------------------------------------

    As previously mentioned, the standards are projected to result in 
estimated national energy savings of 4.77 quad (full-fuel-cycle 
(``FFC'')), the equivalent of the primary annual energy use of 51 
million homes. Based on these findings, DOE has determined that the 
energy savings from the standard levels adopted in this final rule are 
``significant'' within the meaning of 42 U.S.C. 6295(o)(3)(B). A more 
detailed discussion of the basis for these conclusions is contained in 
the remainder of this document and the accompanying technical support 
document (``TSD'').

II. Introduction

    The following section briefly discusses the statutory authority 
underlying this final rule, as well as some of the relevant historical 
background related to the amended standards for consumer NWGFs and 
MHGFs.

A. Authority

    EPCA authorizes DOE to regulate the energy efficiency of a number 
of consumer products and certain industrial equipment. Title III, Part 
B of EPCA established the Energy Conservation Program for Consumer 
Products Other Than Automobiles. (42 U.S.C. 6291-6309) These products 
include the consumer furnaces that are the subject of this document. 
(42 U.S.C. 6292(a)(5)) EPCA prescribed energy conservation standards 
for these products (42 U.S.C. 6295(f)(1) and (2)), and directs DOE to 
conduct future rulemakings to determine whether to amend these 
standards. (42 U.S.C. 6295(f)(4)) EPCA further provides that, not later 
than six years after the issuance of any final rule establishing or 
amending a standard, DOE must publish either a notice of determination 
that standards for the product do not need to be amended, or a NOPR 
including new proposed energy conservation standards (proceeding to a 
final rule, as appropriate). (42 U.S.C. 6295(m)(1))
    The energy conservation program under EPCA consists essentially of 
four parts: (1) testing, (2) labeling, (3) the establishment of Federal 
energy conservation standards, and (4) certification and enforcement 
procedures. Relevant provisions of the EPCA specifically include 
definitions (42 U.S.C. 6291), coverage (42 U.S.C. 6292), test 
procedures (42 U.S.C. 6293), labeling provisions (42 U.S.C. 6294), 
energy conservation standards (42 U.S.C. 6295), and the authority to 
require information and reports from manufacturers (42 U.S.C. 6296).
    Federal energy efficiency requirements for covered products 
established under EPCA generally supersede State laws and regulations 
concerning energy conservation testing, labeling, and standards. (42 
U.S.C. 6297(a)-(c)) DOE may, however, grant waivers of Federal 
preemption in limited instances for particular State laws or 
regulations, in accordance with the procedures and other provisions set 
forth under EPCA. (42 U.S.C. 6297(d))
    Subject to certain statutory criteria and conditions, DOE is 
required to develop test procedures that are reasonably designed to 
produce test results that measure the energy efficiency, energy use, or 
estimated annual operating cost of each covered product during a 
representative average use cycle and that are not unduly burdensome to 
conduct. (42 U.S.C. 6293(b)(3), 6295(o)(3)(A), and 6295(r)) 
Manufacturers of covered products must use the prescribed Federal test 
procedure as the basis for: (1) certifying to DOE that their products 
comply with

[[Page 87508]]

the applicable energy conservation standards adopted pursuant to EPCA 
and (2) making representations regarding the energy use or efficiency 
of those products. (42 U.S.C. 6293(c) and 6295(s)) Similarly, DOE must 
use these test procedures to determine whether the products comply with 
the relevant energy conservation standards promulgated under EPCA. (42 
U.S.C. 6295(s)) The DOE test procedures for consumer furnaces appear at 
title 10 of the Code of Federal Regulations (CFR), part 430, subpart B, 
appendix N.
    DOE must follow specific statutory criteria for prescribing new or 
amended energy conservation standards for covered products, including 
consumer furnaces. Any new or amended standard for a covered product 
must be designed to achieve the maximum improvement in energy 
efficiency that the Secretary of Energy determines is technologically 
feasible and economically justified. (42 U.S.C. 6295(o)(2)(A) and 
6295(o)(3)(B)) Furthermore, DOE may not adopt any standard that would 
not result in the significant conservation of energy. (42 U.S.C. 
6295(o)(3))
    Moreover, DOE may not prescribe a standard: (1) for certain 
products, including NWGFs and MHGFs, if no test procedure has been 
established for the product, or (2) if DOE determines by rule that the 
standard is not technologically feasible or economically justified. (42 
U.S.C. 6295(o)(3)(A)-(B)) In deciding whether a proposed standard is 
economically justified, DOE must determine whether the benefits of the 
standard exceed its burdens. (42 U.S.C. 6295(o)(2)(B)(i)) DOE must make 
this determination after receiving comments on the proposed standard, 
and by considering, to the greatest extent practicable, the following 
seven statutory factors:
    (1) The economic impact of the standard on manufacturers and on 
consumers of the products subject to the standard;
    (2) The savings in operating costs throughout the estimated average 
life of the covered products in the type (or class) compared to any 
increase in the price of, initial charges for, or maintenance expenses 
of, the covered products which are likely to result from the imposition 
of the standard;
    (3) The total projected amount of energy (or as applicable, water) 
savings likely to result directly from the imposition of the standard;
    (4) Any lessening of the utility or the performance of the covered 
products likely to result from the imposition of the standard;
    (5) The impact of any lessening of competition, as determined in 
writing by the Attorney General, that is likely to result from the 
imposition of the standard;
    (6) The need for national energy and water conservation; and
    (7) Other factors the Secretary of Energy (Secretary) considers 
relevant.
    (42 U.S.C. 6295(o)(2)(B)(i)(I)-(VII))
    Further, EPCA establishes a rebuttable presumption that a standard 
is economically justified if the Secretary finds that the additional 
cost to the consumer of purchasing a product complying with an energy 
conservation standard level will be less than three times the value of 
the energy savings during the first year that the consumer will receive 
as a result of the standard, as calculated under the applicable test 
procedure. (42 U.S.C. 6295(o)(2)(B)(iii))
    EPCA also contains what is known as an ``anti-backsliding'' 
provision, which prevents the Secretary from prescribing any amended 
standard that either increases the maximum allowable energy use or 
decreases the minimum required energy efficiency of a covered product. 
(42 U.S.C. 6295(o)(1)) Also, the Secretary may not prescribe an amended 
or new standard if the Secretary finds (and publishes such finding) 
that interested persons have established by a preponderance of the 
evidence that the standard is likely to result in the unavailability in 
the United States in any covered product type (or class) of performance 
characteristics (including reliability), features, sizes, capacities, 
and volumes that are substantially the same as those generally 
available in the United States at the time of the Secretary's finding. 
(42 U.S.C. 6295(o)(4))
    Additionally, EPCA specifies requirements when promulgating an 
energy conservation standard for a covered product that has two or more 
subcategories that warrant separate product classes and energy 
conservation standards with a different level of energy efficiency or 
energy use than that which would apply for such group of covered 
products which have the same function or intended use. DOE must specify 
a different standard level for a type or class of products that has the 
same function or intended use if DOE determines that products within 
such group: (A) consume a different kind of energy from that consumed 
by other covered products within such type (or class); or (B) have a 
capacity or other performance-related feature which other products 
within such type (or class) do not have and such feature justifies a 
higher or lower standard. (42 U.S.C. 6295(q)(1)) In determining whether 
a performance-related feature justifies a different standard for a 
group of products, DOE must consider such factors as the utility to the 
consumer of such a feature and other factors DOE deems appropriate. Id. 
Any rule prescribing such a standard must include an explanation of the 
basis on which such higher or lower level was established. (42 U.S.C. 
6295(q)(2))
    Pursuant to amendments contained in the Energy Independence and 
Security Act of 2007 (EISA 2007), Public Law 110-140, DOE may consider 
the establishment of a regional energy conservation standard for 
furnaces (except boilers). (42 U.S.C. 6295(o)(6)) Specifically, in 
addition to a base national standard for a product, DOE may establish 
for furnaces a single more-restrictive regional standard. (42 U.S.C. 
6295(o)(6)(B)) The region must include only contiguous States (with the 
exception of Alaska and Hawaii, which may be included in a region with 
which they are not contiguous), and each State may be placed in only 
one region (i.e., an entire State cannot simultaneously be placed in 
two regions, nor can it be divided between two regions).\15\ (42 U.S.C. 
6295(o)(6)(C)) Further, DOE can establish the additional regional 
standard for furnaces only: (1) where doing so would produce 
significant energy savings in comparison to a single national standard; 
(2) if the regional standard is economically justified; and (3) after 
considering the impact of such standard on consumers, manufacturers, 
and other market participants, including product distributors, dealers, 
contractors, and installers. (42 U.S.C. 6295(o)(6)(D))
---------------------------------------------------------------------------

    \15\ DOE notes that the regional standards provision at 42 
U.S.C. 6295(o)(6) also applies to central air conditioners and heat 
pumps, products for which the statute permits either one or two 
regional standards. This is in contrast to furnaces, for which EPCA 
permits only one regional standard. As a result, the statute 
frequently employs plural language in these provisions.
---------------------------------------------------------------------------

    Finally, pursuant to the amendments contained in EISA 2007, any 
final rule for new or amended energy conservation standards promulgated 
after July 1, 2010, is required to address standby mode and off mode 
energy use. (42 U.S.C. 6295(gg)(3)) Specifically, when DOE adopts a 
standard for a covered product after that date, it must, if justified 
by the criteria for adoption of standards under EPCA (42 U.S.C. 
6295(o)), incorporate standby mode and off mode energy use into a 
single standard, or, if that is not feasible, adopt a separate standard 
for such energy use for that product if doing so would be consistent 
with section 6295(o). (42 U.S.C. 6295(gg)(3)(A)-(B)) DOE's current test 
procedures for consumer furnaces address standby mode and off mode

[[Page 87509]]

energy use for all covered consumer furnaces. DOE's energy conservation 
standards address standby mode and off mode energy use only for non-
weatherized oil-fired and electric furnaces. 10 CFR 430.32(e)(1)(iii). 
In the NOPR published in the Federal Register on July 7, 2022 (``the 
July 2022 NOPR''), DOE proposed to specify new energy conservation 
standards to address the standby mode and off mode energy use of NWGFs 
and MHGFs. 87 FR 40590, 40706. However, for the reasons discussed in 
section III.A.8 of this document, DOE has concluded that it would not 
be consistent with section 6295(o) to adopt standby mode and off mode 
energy standards for NWGFs and MHGFs in this final rule. DOE will 
continue to investigate and analyze appropriate standby mode and off 
mode energy consumption standards for these products in a future 
rulemaking.

B. Background

1. Current Standards
    The most recent energy conservation standards for NWGFs and MHGFs 
were adopted in a final rule published in the Federal Register on 
November 19, 2007 (``November 2007 Final Rule''), in which DOE 
prescribed amended energy conservation standards for consumer furnaces 
manufactured on or after November 19, 2015. 72 FR 65136. The November 
2007 Final Rule revised the energy conservation standards to 80-percent 
AFUE for NWGFs, to 81-percent AFUE for weatherized gas furnaces, to 80-
percent AFUE for MHGFs, and to 82-percent AFUE for non-weatherized oil-
fired furnaces.\16\ 72 FR 65136, 65169. Based on market assessment and 
the standard levels under consideration (and that were ultimately 
adopted), the November 2007 Final Rule established standards without 
regard to the certified input capacity of a furnace. Id.
---------------------------------------------------------------------------

    \16\ Although the November 2007 Final Rule did not explicitly 
state the standards for oil-fired furnaces were applicable only to 
non-weatherized oil-fired furnaces, the NOPR that preceded the final 
rule made clear that DOE did not perform analysis of and was not 
proposing standards for weatherized oil-fired furnaces or mobile 
home oil-fired furnaces. 71 FR 59203, 52914 (Oct. 6, 2006). Thus, 
the proposed standards that were ultimately adopted in the November 
2007 Final Rule only applied to non-weatherized oil-fired furnaces.
---------------------------------------------------------------------------

    Following a series of publications described in section II.B.2 of 
this document and discussed in further detail in the July 2022 NOPR 
(see 87 FR 40590, 40601-40602 (July 7, 2022)), required compliance with 
the standards established in the November 2007 Final Rule for these 
products began on November 19, 2015. The standards currently applicable 
to all consumer furnaces, including the two product classes for which 
DOE is amending standards in this final rule, are set forth in DOE's 
regulations at 10 CFR 430.32(e)(1)(ii). Table II.1 presents the 
currently applicable standards for NWGFs and MHGFs and the date on 
which compliance with that standard was required.

   Table II.1--Current Federal Energy Conservation Standards for Non-
          Weatherized Gas Furnaces and Mobile Home Gas Furnaces
------------------------------------------------------------------------
                                          Minimum annual
                                               fuel
              Product class                 utilization     Compliance
                                            efficiency         date
                                                (%)
------------------------------------------------------------------------
Non-weatherized Gas.....................              80      11/19/2015
Mobile Home Gas.........................              80      11/19/2015
------------------------------------------------------------------------

2. History of Standards Rulemaking for Consumer Furnaces
    Given the somewhat complicated interplay of recent DOE rulemakings 
and statutory provisions related to consumer furnaces, DOE provides the 
following regulatory history as background leading to this document. 
Amendments to EPCA in the National Appliance Energy Conservation Act of 
1987 (``NAECA''), Public Law 100-12, established EPCA's original energy 
conservation standards for furnaces, consisting of the minimum AFUE 
levels for mobile home furnaces \17\ and for all other furnaces except 
``small'' gas furnaces. (42 U.S.C. 6295(f)(1)-(2)) The original 
standards established a minimum AFUE of 75 percent for mobile home 
furnaces and 78 percent for all other furnaces. Pursuant to 42 U.S.C. 
6295(f)(1)(B), in a final rule published in the Federal Register on 
November 17, 1989 (``the November 1989 Final Rule''), DOE adopted a 
mandatory minimum AFUE level for ``small'' furnaces. 54 FR 47916. The 
standards established by NAECA and the November 1989 Final Rule for 
``small'' gas furnaces are still in effect for mobile home oil-fired 
furnaces, weatherized oil-fired furnaces, and electric furnaces.
---------------------------------------------------------------------------

    \17\ DOE notes that prior to June 15, 1976, prefabricated homes 
that were built in a factory were commonly referred to as ``mobile 
homes,'' as reflected in the terminology used in EPCA. However, such 
dwellings built after that date came to be known as ``manufactured 
homes'' and have to meet specific construction standards required by 
the U.S. Department of Housing and Urban Development (HUD) Code. (24 
CFR part 3280) DOE's mobile home furnace standards apply to furnaces 
designed for and intended to be used in both mobile and manufactured 
homes that meet DOE's ``mobile home furnace'' definition at 10 CFR 
430.2.
---------------------------------------------------------------------------

    Pursuant to EPCA, DOE was required to conduct two rounds of 
rulemaking to consider amended energy conservation standards for 
furnaces. (42 U.S.C. 6295(f)(4)(B) and (C)) In satisfaction of this 
first round of amended standards rulemaking under 42 U.S.C. 
6295(f)(4)(B), as noted previously, DOE published the November 2007 
Final Rule that revised these standards for most furnaces, but left 
them in place for two product classes (i.e., mobile home oil-fired 
furnaces and weatherized oil-fired furnaces).\18\ The standards amended 
in the November 2007 Final Rule were to apply to furnaces manufactured 
or imported on and after November 19, 2015; this compliance date was 
consistent with the 8-year statutory lead time provided under 42 U.S.C. 
6295(f)(4)(B). 72 FR 65136 (Nov. 19, 2007). The energy conservation 
standards in the November 2007 Final Rule consist of a minimum AFUE 
level for each of the six classes of furnaces. Id. at 72 FR 65169. As 
previously noted, based on the market analysis for the November 2007 
Final Rule and the standards established under that rule, the November 
2007 Final Rule

[[Page 87510]]

eliminated the distinction between furnaces based on their certified 
input capacity (i.e., the standards applicable to ``small'' furnaces 
were established at the same level and as part of their appropriate 
class of furnace generally). Id.
---------------------------------------------------------------------------

    \18\ The November 2007 Final Rule adopted amended standards for 
``oil-fired furnaces'' generally. However, on July 28, 2008, DOE 
published a final rule technical amendment in the Federal Register 
that clarified that the amended standards adopted in the November 
2007 Final Rule for oil-fired furnaces did not apply to mobile home 
oil-fired furnaces and weatherized oil-fired furnaces; rather they 
were only applicable for non-weatherized oil-fired furnaces. 73 FR 
43611, 43613.
---------------------------------------------------------------------------

    On June 27, 2011, DOE published a direct final rule (``DFR'') in 
the Federal Register (``June 2011 DFR'') revising the energy 
conservation standards for residential furnaces pursuant to the 
voluntary remand in State of New York, et al. v. Department of Energy, 
et al. 76 FR 37408 (June 27, 2011). In the June 2011 DFR, DOE 
considered the amendment of the same six product classes considered in 
the November 2007 Final Rule analysis plus electric furnaces. Id. at 76 
FR 37445. The June 2011 DFR amended the existing AFUE energy 
conservation standards for NWGFs, MHGFs, and non-weatherized oil 
furnaces, and amended the compliance date (but left the existing 
standards in place) for weatherized gas furnaces.\19\ Id. at 76 FR 
37410. The existing AFUE standards were left in place for three classes 
of consumer furnaces (i.e., weatherized oil-fired furnaces, mobile home 
oil-fired furnaces, and electric furnaces). The June 2011 DFR also 
established electrical standby mode and off mode energy conservation 
standards for NWGFs (including mobile home furnaces), non-weatherized 
oil furnaces (including mobile home furnaces), and electric furnaces. 
DOE confirmed the standards and compliance dates promulgated in the 
June 2011 DFR in a notice of effective date and compliance dates 
published in the Federal Register on October 31, 2011. 76 FR 67037.
---------------------------------------------------------------------------

    \19\ For NWGFs and MHGFs, the standards were amended to a level 
of 80-percent AFUE nationally with a more-stringent 90-percent AFUE 
requirement in the Northern region. For non-weatherized oil-fired 
furnaces, the standard was amended to 83-percent AFUE nationally. 76 
FR 37408, 37410 (June 27, 2011).
---------------------------------------------------------------------------

    Compliance with the energy conservation standards promulgated in 
the June 2011 DFR was to be required on May 1, 2013, for non-
weatherized furnaces and on January 1, 2015, for weatherized furnaces. 
76 FR 37408, 37547-37548 (June 27, 2011); 76 FR 67037, 67051 (Oct. 31, 
2011). The amended energy conservation standards and compliance dates 
in the June 2011 DFR superseded those standards and compliance dates 
promulgated by the November 2007 Final Rule for NWGFs, MHGFs, and non-
weatherized oil furnaces. Similarly, the amended compliance date for 
weatherized gas furnaces in the June 2011 DFR superseded the compliance 
date in the November 2007 Final Rule.
    Following DOE's adoption of the June 2011 DFR, the American Public 
Gas Association (``APGA'') filed a petition for review with the United 
States Court of Appeals for the District of Columbia Circuit (``D.C. 
Circuit'') to invalidate the DOE rule as it pertained to NWGFs. 
Petition for Review, American Public Gas Ass'n, et al. v. U.S. Dep't of 
Energy, et al., No. 11-1485 (D.C. Cir. filed Dec. 23, 2011).\20\ The 
parties to the litigation engaged in settlement negotiations which 
ultimately led to filing of an unopposed motion on March 11, 2014, 
seeking to vacate DOE's rule in part and to remand to the agency for 
further rulemaking. On April 24, 2014, the Court granted a motion that 
approved a settlement agreement that was reached between DOE and APGA, 
in which DOE agreed to a partial vacatur and remand of the NWGFs and 
MHGFs portions of the June 2011 DFR in order to conduct further notice-
and-comment rulemaking. Accordingly, the Court's order vacated the June 
2011 DFR in part (i.e., those portions relating to NWGFs and MHGFs) and 
remanded to the agency for further rulemaking.
---------------------------------------------------------------------------

    \20\ After APGA filed its petition for review on December 23, 
2011, various entities subsequently intervened.
---------------------------------------------------------------------------

    As part of the settlement, DOE agreed to use best efforts to issue 
a notice of proposed rulemaking within one year of the remand, and to 
issue a final rule within the later of two years of the issuance of 
remand, or one year of the issuance of the proposed rule, including at 
least a 90-day public comment period. Due to the extensive and recent 
rulemaking history for residential furnaces, as well as the associated 
opportunities for notice and comment described previously, DOE forwent 
the typical earlier rulemaking stages (e.g., framework document, 
preliminary analysis) and instead published a NOPR in the Federal 
Register on March 12, 2015 (``March 2015 NOPR''). 80 FR 13120. DOE 
concluded that there was a sufficient recent exchange of information 
between interested parties and DOE regarding the energy conservation 
standards for residential furnaces such as to allow for this proceeding 
to move directly to the NOPR stage. Moreover, under 42 U.S.C. 6295(p) 
and 5 U.S.C. 553(b) and (c), EPCA requires that DOE publish only a 
notice of proposed rulemaking and accept public comments before 
amending energy conservation standards in a final rule (i.e., DOE is 
not required by statute to conduct any earlier rulemaking stages).\21\
---------------------------------------------------------------------------

    \21\ This aligns with the direction provided in the final rule 
published in the Federal Register on December 13, 2021, regarding 
the procedures, interpretations, and policies for consideration in 
new or revised energy conservation standards and test procedures for 
consumer products and commercial/industrial equipment (December 2021 
Final Rule). 86 FR 70892, 70922.
---------------------------------------------------------------------------

    In the March 2015 NOPR, DOE proposed adopting a national standard 
of 92-percent AFUE for all NWGFs and MHGFs. 80 FR 13120, 13198 (March 
12, 2015). In response, while some stakeholders supported the national 
92-percent AFUE standard, others opposed the proposed standards and 
encouraged DOE to withdraw the March 2015 NOPR.
    Multiple parties suggested that DOE should create a separate 
product class for furnaces based on input capacity and set lower 
standards for ``small furnaces'' in order to mitigate some of the 
negative impacts of the proposed standards. Among other reasons, 
commenters suggested that such an approach would reduce the number of 
low-income consumers switching to electric heat due to higher 
installation costs, because those consumers typically have smaller 
homes in which a furnace with a lower input capacity would be installed 
and, therefore, would not be impacted if a condensing standard were 
adopted only for higher-input-capacity furnaces. To explore the 
potential impacts of such an approach, DOE published a notice of data 
availability (``NODA'') in the Federal Register on September 14, 2015 
(``September 2015 NODA''). 80 FR 55038. The September 2015 NODA 
contained analysis that considered thresholds for defining the small 
NWGF product class from 45 thousand British thermal units per hour 
(``kBtu/h'') to 65 kBtu/h certified input capacity and maintaining a 
non-condensing 80-percent AFUE standard for that product class, while 
increasing the standard to a condensing level (i.e., either 90-percent, 
92-percent, 95-percent, or 98-percent AFUE) for large NWGFs. Id. at 80 
FR 55042. The results indicated that life-cycle cost savings increased 
and that the share of consumers with net costs decreased as a result of 
an 80-percent AFUE standard for a small NWGF product class. Id. at 80 
FR 55042-55044. It also showed that national energy savings increased 
because fewer consumers switched to electric heat.\22\ Id. at 80 FR 
55038, 55044.
---------------------------------------------------------------------------

    \22\ In terms of full-fuel-cycle energy, switching from gas to 
electricity increases energy use because of the losses in thermal 
electricity generation.
---------------------------------------------------------------------------

    Therefore, DOE published a supplemental notice of proposed 
rulemaking (``SNOPR'') in the Federal

[[Page 87511]]

Register on September 23, 2016 (``September 2016 SNOPR'') that proposed 
separate standards for small and large NWGFs.\23\ 81 FR 65720. For 
NWGFs with input capacities of 55 kBtu/h or less, DOE proposed to 
maintain the standard at 80-percent AFUE. Id. at 81 FR 65852. For all 
other NWGFs and for all MHGFs, DOE proposed a standard of 92-percent 
AFUE. Id. As was the case in the September 2015 NODA, a small NWGF 
product class was shown to reduce the number of consumers experiencing 
net costs due to higher installation costs for condensing furnaces or 
switching to electric heat. In the September 2016 SNOPR, DOE initially 
determined that the combination of a 55 kBtu/h product class threshold 
and a 92-percent AFUE standard for all NWGFs above that size 
appropriately balanced the costs and benefits. DOE also noted in that 
SNOPR that a 60 kBtu/h threshold may also be economically justified 
based on the analysis, and sought further comment regarding the 
particular size threshold proposed. 81 FR 65720, 65755 (Sept. 23, 
2016).
---------------------------------------------------------------------------

    \23\ DOE initially provided 60 days for comment on the SNOPR, 
and subsequently reopened the comment period an additional 30 days. 
81 FR 87493 (Dec. 5, 2016).
---------------------------------------------------------------------------

    In addition, for the March 2015 NOPR and September 2016 SNOPR, DOE 
analyzed energy conservation standards for the standby mode and off 
mode energy use of NWGFs and MHGFs, as required by EPCA. (42 U.S.C. 
6295(gg)(3); 80 FR 13120, 13198; 81 FR 65720, 65759-65760) In both the 
March 2015 NOPR and the September 2016 SNOPR, DOE proposed a maximum 
energy use of 8.5 watts (``W'') in both standby mode and off mode for 
NWGFs and MHGFs. 80 FR 13120, 13198 (March 12, 2015) and 81 FR 65720, 
65852 (Sept. 23, 2016).
    On January 15, 2021, in response to a petition for rulemaking \24\ 
submitted by the American Public Gas Association, Spire, Inc., the 
Natural Gas Supply Association, the American Gas Association, and the 
National Propane Gas Association (the ``Gas Industry Petition''), DOE 
published a final interpretive rule (``January 2021 Final Interpretive 
Rule'') \25\ in the Federal Register, determining that, in the context 
of residential furnaces, commercial water heaters, and similarly 
situated products/equipment, use of non-condensing technology (and 
associated venting) constitutes a performance-related ``feature'' under 
EPCA that cannot be eliminated through adoption of an energy 
conservation standard. 86 FR 4776. Correspondingly, on the same day, 
DOE published in the Federal Register a notification withdrawing the 
March 2015 NOPR and the September 2016 SNOPR for NWGFs and MHGFs, 
because DOE determined that those rulemaking documents were 
inconsistent with its revised interpretation. 86 FR 3873 (Jan. 15, 
2021).
---------------------------------------------------------------------------

    \24\ DOE published the Gas Industry Petition in the Federal 
Register for comment on November 1, 2018. 83 FR 54838.
    \25\ DOE published a proposed interpretive rule (``July 2019 
Proposed Interpretive Rule'') in the Federal Register for comment on 
July 11, 2019. 84 FR 22011. DOE also published a supplemental 
proposed interpretive rule (``September 2020 Supplemental Proposed 
Interpretive Rule'') in the Federal Register for comment on 
September 24, 2020. 85 FR 60090.
---------------------------------------------------------------------------

    The interpretation adopted by the January 2021 Final Interpretive 
Rule reflected a significant departure from DOE's previous and long-
standing interpretation (reflected in practice through decades of 
rulemaking and explicitly discussed in the December 2021 Final 
Interpretive Rule, with examples) that the type of technology (e.g., 
non-condensing technology (and associated venting)) used to generate a 
furnace's heat did not provide a distinct consumer utility as would 
constitute a performance-related ``feature'' pursuant to 42 U.S.C. 
6295(o)(4) that DOE may not eliminate by way of an energy conservation 
standard. The January 2021 Final Interpretive Rule justified this 
change by focusing on: (1) the potential space constraints arising from 
switching from non-condensing furnaces (and associated venting) to 
condensing furnaces (and associated venting) in replacement 
applications, including certain situations where such changes may not 
be possible; (2) the potential need for significant and unwelcome 
physical modifications to a home or business (e.g., by adding new 
venting into the living/commercial space or decreasing closet or other 
storage/retail space), thereby impacting consumer utility, and (3) a 
policy decision to remain neutral regarding competing energy sources in 
the marketplace and maintaining a broader range of consumer choice for 
the relevant appliances across fuel types. 86 FR 4776, 4816 (Jan. 15, 
2021). (See the January 2021 Final Interpretive Rule for a more 
complete discussion of DOE's rationale for its changed interpretation.) 
The anticipated result of DOE's change in interpretation was that the 
Department would set separate product classes and standards for 
condensing and non-condensing furnaces in its ongoing furnaces energy 
conservation standards rulemaking.
    On January 20, 2021, the President issued Executive Order 13990, 
``Protecting Public Health and the Environment and Restoring Science to 
Tackle the Climate Crisis.'' 86 FR 7037 (Jan. 25, 2021). Section 1 of 
that order lists several policies related to the protection of public 
health and the environment, including reducing greenhouse gas emissions 
and bolstering the Nation's resilience to climate change. Id. at 86 FR 
7037. Section 2 of the order also asks all agencies to review 
``existing regulations, orders, guidance documents, policies, and any 
other similar agency actions (``agency actions'') promulgated, issued, 
or adopted between January 20, 2017, and January 20, 2021, that are or 
may be inconsistent with, or present obstacles to, [these policies].'' 
Id. Agencies are then directed, as appropriate and consistent with 
applicable law, to consider suspending, revising, or rescinding these 
agency actions and to immediately commence work to confront the climate 
crisis. Id. In light of the requirements under the EPCA, and in a 
manner consistent with E.O. 13990, DOE undertook a re-evaluation of the 
final interpretation and withdrawal of proposed rulemakings published 
in the Federal Register on January 15, 2021, and DOE published a 
proposed interpretive rule in the Federal Register on August 27, 2021, 
to once again address this matter. 86 FR 48049.
    Following the re-evaluation of the January 2021 Final Interpretive 
Rule and consideration of public comments, DOE published a final 
interpretive rule in the Federal Register on December 29, 2021 
(``December 2021 Final Interpretive Rule''),\26\ that returns to DOE's 
previous and long-standing interpretation (in effect prior to the 
January 2021 Final Interpretive Rule).\27\ 86 FR 73947. Residential 
furnaces were one of the two primary focuses of the December 2021 Final 
Interpretive Rule (along with commercial water heaters), and in that 
document, DOE offered an extensive explanation for why it does not view 
non-condensing technology and associated venting to be a performance-
related feature warranting

[[Page 87512]]

a separate product class for such furnaces. As noted previously, in the 
December 2021 Final Interpretive Rule, DOE also included examples in 
other rules that are consistent with DOE's previous and long-standing 
interpretation. As DOE explained, non-condensing technology is not a 
performance-related feature because it does not affect the consumer 
utility of the product (i.e., providing heat, irrespective of venting 
type). DOE noted the availability of technological alternatives for 
difficult installation situations and explained that it would properly 
account for the costs of such installations when considering a 
standard's economic justification. DOE has considered concerns 
regarding specific installation circumstances in the context of this 
product-specific rulemaking. See 86 FR 73947 (Dec. 29, 2021).
---------------------------------------------------------------------------

    \26\ DOE published a proposed interpretive rule (``August 2021 
Proposed Interpretive Rule'') in the Federal Register for comment on 
August 27, 2021. 86 FR 48049.
    \27\ Prior to the January 2021 Final Interpretive Rule, DOE had 
not had a formal interpretation of EPCA's ``features'' provision at 
42 U.S.C. 6295(o)(4), but instead, it had examined the consumer 
utility of potential appliance features in the context of individual 
energy conservation standards rulemakings. These rulemakings, which 
outline relevant DOE precedent prior to the January 2021 Final 
Interpretive Rule, are presented in some detail in the December 2021 
Final Interpretive Rule (see 86 FR 73947, 73952-73958 (Dec. 29, 
2021)).
---------------------------------------------------------------------------

    In conducting its review of the January 2021 Final Interpretive 
Rule under the requirements of EPCA and in a manner consistent with 
E.O. 13990, DOE ultimately arrived at a different determination in the 
December 2021 Final Interpretive Rule, based on a policy that 
emphasizes furtherance of the congressional purpose of improving the 
energy efficiency of covered products and equipment. DOE reasoned that 
maintaining less-efficient technologies which do not provide distinct 
consumer utility is contrary to the purposes of EPCA ``to conserve 
energy supplies through energy conservation programs, and, where 
necessary, the regulation of certain energy uses'' (42 U.S.C. 6201(4)) 
and ``to provide for improved energy efficiency of . . . major 
appliances, and certain other consumer products'' (42 U.S.C. 6201(5)). 
Such purposes are further reflected in the specific provisions of EPCA 
granting DOE authority to prescribe energy conservation standards 
designed to achieve the maximum improvement in energy efficiency, which 
are technologically feasible and economically justified. (42 U.S.C. 
6295(o)(2)(A)). As discussed more fully in the December 2021 Final 
Interpretive Rule, DOE concluded that the concerns motivating its 
changed interpretation reflected in the January 2021 Final Interpretive 
Rule (i.e., space constraints/difficult installation situations, the 
potential for unwanted physical modifications, and maintaining consumer 
choice of appliances across fuel types) could be addressed by other 
means. DOE found that these issues could be resolved through available 
technological solutions or by switching to an appliance using 
alternative technologies (e.g., a heat pump). 86 FR 73947, 73960 (Dec. 
29, 2021). DOE further concluded that the potential for fuel switching 
is likely to be limited and that there will continue to be a range of 
product availability across fuel types. Id. at 86 FR 73964.
    Given the binary nature of the question at hand--whether non-
condensing technology (and associated venting) is or is not a 
``feature'' under 42 U.S.C. 6295(o)(4)--DOE did not identify any other 
policy alternatives on this matter. DOE further notes that it does not 
anticipate any strong reliance interests associated with the rescinded 
January 2021 Final Interpretive Rule, given that it was rescinded less 
than a year after its issuance and the fact that it was never applied 
in the context of any energy conservation standards rulemaking for a 
specific appliance.\28\
---------------------------------------------------------------------------

    \28\ A number of States and municipalities filed a legal 
challenge to the January 2021 Final Interpretive Rule in the U.S. 
Circuit Court of Appeals for the Second Circuit on March 16, 2021. 
State of New York, et al. v. U.S. Dep't of Energy, No. 21-602 (2d 
Cir. filed March 16, 2021).
---------------------------------------------------------------------------

    On July 7, 2022, DOE published the July 2022 NOPR in the Federal 
Register. 87 FR 40590. Consistent with the December 2021 Final 
Interpretive Rule, in conducting the analysis for the July 2022 NOPR, 
DOE did not consider identifying separate product classes based on 
condensing technologies and associated venting systems when analyzing 
potential energy conservation standards. Based on the results of the 
NOPR analysis, DOE proposed amended AFUE standards at 95-percent AFUE 
for both NWGFs and MHGFs, as well as an 8.5 W energy use standard for 
standby mode and off mode energy consumption. 87 FR 40590, 40706 (July 
7, 2022). Additionally, on August 30, 2022, DOE published in the 
Federal Register a Notice of Data Availability (NODA) (August 2022 
NODA) announcing an extension of the comment period, making available a 
revised version of the LCC spreadsheet supporting the July 2022 NOPR, 
and announcing a public meeting webinar on September 6, 2022, to assist 
stakeholders with operation of the LCC spreadsheet. 87 FR 52861.
    DOE received 3,636 comments in response to the July 2022 NOPR and 
August 2022 NODA from the interested parties listed in Table II.2. 
(Note that of these total comments, 3,552 comments were ``form letter'' 
email submissions contained in docket entry EERE-2014-BT-STD-0031-0348. 
Additionally, several commenters submitted more than one comment to the 
docket.)
---------------------------------------------------------------------------

    \29\ Although the stakeholders who authored the comments EERE-
2014-BT-STD-0031-0330, EERE-2014-BT-STD-0031-0345, EERE-2014-BT-STD-
0031-0356, and EERE-2014-BT-STD-0031-0362 refer to themselves as the 
``Joint Requestors,'' Atmos Energy was not listed as a contributor 
to EERE-2014-BT-STD-0031-0330. Therefore, to distinguish the groups 
of authors, the authors of EERE-2014-BT-STD-0031-0330 are herein 
referred to as the ``Joint Gas Commenters.''

                                       Table II.2--July 2022 NOPR Comments
----------------------------------------------------------------------------------------------------------------
                                                                    Comment number in
              Commenter(s)                      Abbreviation            the Docket           Commenter type
----------------------------------------------------------------------------------------------------------------
Eduardo Veiga..........................  Veiga....................                326  Individual.
Scott Willis...........................  Willis...................                327  Individual.
Johanna E. Neumann.....................  Neumann..................                328  Individual.
Anonymous 1............................  Anonymous 1..............                329  Individual.
American Public Gas Association;         Joint Gas Commenters \29\                330  Utilities and Utility
 American Gas Association; Spire Inc.;                                                  Trade Associations.
 Spire Missouri Inc.; Spire Alabama
 Inc.; National Propane Gas Association.
A. Kessler Consulting, LLC.............  A. Kessler Consulting....                331  Industry Representative.
Natalie Guarin.........................  Guarin...................                332  Individual.
Hayes Arnold...........................  Arnold...................                333  Individual.
Christina Haag.........................  Haag.....................                334  Individual.
Adelita G. Cantu.......................  Cantu....................                335  Individual.
Kim Marcellini.........................  Marcellini...............                336  Individual.
Kaitlynn Liset.........................  Liset....................                338  Individual.
Raelene Shippee-Rice...................  Shippee-Rice.............                339  Individual.

[[Page 87513]]

 
Lee's Air, Plumbing, & Heating.........  Lee's Air, Plumbing, &                   342  Industry Representative.
                                          Heating.
Natural Gas Supply Association.........  NGSA.....................                343  Utility Trade
                                                                                        Association.
Manufactured Housing Institute.........  MHI......................      344; 363; 365  Trade Association.
American Public Gas Association;         Joint Requesters.........      345; 356; 362  Utilities and Utility
 American Gas Association; Spire Inc.;                                                  Trade Associations.
 Spire Missouri Inc.; Spire Alabama
 Inc.; National Propane Gas
 Association; Atmos Energy.
Anonymous 2............................  Anonymous 2..............                346  Individual.
Ohio Partners for Affordable Energy....  OPAE.....................                347  Efficiency Advocate.
Individual Commenters..................  Individual Commenters....                348  Individual.
Todd Snyder............................  Snyder...................                349  Individual.
Middle Tennessee Natural Gas Utility     MTNGUD...................                350  Utility.
 District.
Watertown Municipal Utilities..........  WMU......................                351  Utility.
Southwest Gas Corporation..............  Southwest Gas Corporation                353  Utility.
Consumer Energy Alliance...............  Consumer Energy Alliance.                354  Efficiency Advocate.
Lake Apopka Natural Gas District.......  LANGD....................                355  Utility.
Christopher Lish.......................  Lish.....................                358  Individual.
National Caucus of Environmental         National Caucus of                       359  State/Local Government
 Legislators.                             Environmental                                 Officials.
                                          Legislators.
Theodore Trampe........................  Trampe...................                361  Individual.
Consumer Federation of America.........  CFA......................                363  Consumer Advocate.
Edison Electric Institute..............  Edison Electric Institute          363; 4099  Trade Association.
Environment America....................  Environment America......                363  Efficiency/Environmental
                                                                                        Advocate.
National Consumer Law Center...........  NCLC.....................                363  Consumer Advocate.
Natural Resources Defense Council......  NRDC.....................                363  Efficiency/Environmental
                                                                                        Advocate.
Philadelphia Solar Energy Association..  PSEA.....................                363  Efficiency/Environmental
                                                                                        Advocate.
Physicians for Social Responsibility...  Physicians for Social                    363  Consumer Advocate.
                                          Responsibility.
Evergreen Action.......................  Evergreen Action.........                364  Environmental Advocate.
Mark Strauch...........................  Mark Strauch.............                366  Individual.
Municipal Gas Authority of Georgia.....  Georgia Gas Authority....                367  Utility.
Northwest Energy Efficiency Alliance...  NEEA.....................                368  Efficiency/Environmental
                                                                                        Advocates.
Competitive Enterprise Institute,        Joint Market and Consumer           369, 373  Other Stakeholders.
 Consumers' Research, Center for the      Organizations.
 American Experiment, JunkScience.com,
 Project 21, Caesar Rodney Institute,
 Rio Grande Foundation, Committee for a
 Constructive Tomorrow, FreedomWorks
 Foundation, Heartland Institute,
 Thomas Jefferson Institute,
 Independent Women's Forum, Independent
 Women's Voice, and Institute for
 Energy Research.
National Comfort Products..............  NCP......................                370  Manufacturer.
Green & Healthy Homes Initiative.......  GHHI.....................           363; 371  Efficiency/Environmental
                                                                                        Advocates.
Distribution Contractors Association...  DCA......................                372  Trade Association.
Napoleon (aka Wolf Steel Limited)......  Napoleon.................                374  Manufacturer.
Pennsylvania Department of               State Agencies...........                375  State Agencies.
 Environmental Protection; State of
 Nevada; New Jersey Board of Public
 Utilities; New York State Energy
 Research and Development Authority;
 Washington State Department of
 Commerce; Colorado Energy Office; New
 Mexico Energy, Minerals, and Natural
 Resources Department; California
 Energy Commission; Vermont Department
 of Public Service; Hawai'i State
 Energy Office.
The Heartland Institute................  The Heartland Institute..                376  Other Stakeholder.
Carrier Global Corporation.............  Carrier..................                377  Manufacturer.
The Manufactured Housing Institute;      The Coalition............                378  Trade Associations.
 National Apartment Association;
 National Association of Home Builders;
 National Leased Housing Association;
 National Multifamily Housing Council.
New York State Energy Research and       NYSERDA..................                379  State Agency.
 Development Authority.
The Natural Gas Association of Georgia.  NGA of Georgia...........                380  Utility Trade
                                                                                        Association.

[[Page 87514]]

 
The Appliance Standards Awareness        Joint Efficiency                         381  Efficiency/Environmental
 Project; American Council for Energy-    Commenters.                                   Advocates.
 Efficient Economy, CLASP, Consumer
 Federation of America, Government of
 the District of Columbia--Department
 of Energy & Environment, National
 Consumer Law Center; Natural Resources
 Defense Council; Northeast Energy
 Efficiency Partnerships; Southwest
 Energy Efficiency Project.
California Energy Commission...........  CEC......................                382  State Agency.
The National Consumer Law Center on      NCLC et al...............                383  Consumer Advocates.
 behalf of its low-income clients:
 Alliance for Affordable Energy;
 Pennsylvania Utility Law Project;
 Consumer Federation of America;
 Southface; Massachusetts Energy
 Directors' Association; Green Energy
 Consumers Alliance; Georgia Watch;
 North Carolina Justice Center; Texas
 Legal Services Center; Consumers
 Council of Missouri; Wildfire; Renew
 Missouri; Virginia Citizens Consumer
 Council.
Heating, Air-conditioning &              HARDI....................                384  Trade Association.
 Refrigeration Distributors
 International.
Gas Analytic & Advocacy Services.......  GAS......................                385  Other Stakeholder.
Weil-McLain; Williamson-Thermoflo;       The Marley Companies.....                386  Manufacturers.
 Marley Engineered Products, LLC;
 Patterson-Kelley, LLC.
American Public Gas Association........  APGA.....................                387  Utility Trade
                                                                                        Association.
Center for Climate and Energy            Climate Commenters.......                388  Efficiency/Environmental
 Solutions; Institute for Policy                                                        Advocates.
 Integrity, New York University School
 of Law; Montana Environmental
 Information Center; Natural Resources
 Defense Council; Sierra Club; Union of
 Concerned Scientists.
Lennox International Inc...............  Lennox...................                389  Manufacturer.
Jack Spencer and Kevin Dayaratna, Ph.D.  Spencer and Dayaratna....                390  Other Stakeholder.
American Gas Association American;       AGA et al................                391  Manufacturers, Trade
 Pipeline Contractors Association;                                                      Associations, and Other
 American Public Gas Association;                                                       Stakeholders.
 American Society of Gas Engineers;
 American Supply Association; Arkansas
 Gas Association; Consumer Energy
 Alliance; Distribution Contractors
 Association; Hearth, Patio & Barbecue
 Association; Hispanics in Energy;
 Louisiana Gas Association;
 Manufactured Housing Institute;
 National Apartment Association;
 National Association of Home Builders;
 National Leased Housing Association;
 National Multifamily Housing Council;
 National Propane Gas Association;
 National Utility Contractors
 Association; Natural Gas Supply
 Association; Northeast Gas
 Association; Plastics Pipe Institute;
 Plumbing-Heating-Cooling Contractors
 Association; Rinnai America
 Corporation; Thermo Products LLC; U.S.
 Chamber of Commerce; Utility Workers
 Union of America, AFL-CIO; Williams
 Furnace Co. dba Williams Comfort
 Products or Williams.
American Coke and Coal Chemicals         The Associations.........                392  Trade Associations.
 Institute; American Gas Association;
 American Public Gas Association;
 Independent Petroleum Association of
 America; National Mining Association;
 Plumbing-Heating-Cooling Contractors--
 National Association; U.S. Chamber of
 Commerce.
Climate Smart Missoula; Environmental    Climate Smart Missoula et                393  Efficiency/Environmental
 Defense Fund; Elevate Energy; Energy     al.                                           Advocates.
 Efficiency Alliance of New Jersey;
 Campaign for 100% Renewable Energy;
 Evergreen Action; Green Energy
 Consumers Alliance; Green & Healthy
 Homes Initiative; Keystone Energy
 Efficiency Alliance; Montana
 Environmental Info Center; New
 Buildings Institute; New York
 Geothermal Energy Organization;
 Climate & Clean Energy Program;
 Rewiring America; RMI; Sealed; Sierra
 Club; Union of Concerned Scientists;
 Urban Green Council; Utah Clean Energy.
Rheem Manufacturing Company............  Rheem....................                394  Manufacturer.
National Propane Gas Association.......  NPGA.....................                395  Utility Trade
                                                                                        Association.

[[Page 87515]]

 
ACTION-Housing Inc.; Audubon Mid-        ACTION-Housing Inc. et                   396  Other Stakeholders.
 Atlantic; Clean Air Council; Community   al.
 Action Association of Pennsylvania;
 Conservation Voters of Pennsylvania;
 Energy Coordinating Agency;
 Environmental Justice Center of
 Chestnut Hill United Church;
 Evangelical Environmental Network;
 Green Building United; Green & Healthy
 Homes Initiative; Housing Alliance of
 Pennsylvania; Keystone Energy
 Efficiency Alliance; National Housing
 Trust; PA Jewish Earth Alliance;
 PennEnvironment; Pennsylvania Council
 of Churches; Pennsylvania Interfaith
 Power and Light; Pennsylvania Utility
 Law Project; Performance Systems
 Development; Philadelphia Energy
 Authority; Philadelphia Solar Energy
 Association; Physicians for Social
 Responsibility Pennsylvania;
 Schuylkill Community Action; Vote
 Solar; Working for Justice Ministry.
Black Hills Energy.....................  Black Hills Energy.......                397  Utility.
Air Condition Contractors of America...  ACCA.....................                398  Trade Association.
Allergy & Asthma Network; Alliance of    Climate and Health                       399  Efficiency/Environmental
 Nurses for Healthy Environments;         Coalition.                                    Advocates.
 American Geophysical Union; American
 Lung Association; American Public
 Health Association; American Thoracic
 Society; Asthma and Allergy Foundation
 of America; Children's Environmental
 Health Network; Climate for Health/
 ecoAmerica; National Carbon Monoxide
 Awareness Association; Oregon
 Physicians for Social Responsibility;
 Physicians for Social Responsibility;
 Physicians for Social Responsibility
 Florida; Physicians for Social
 Responsibility Pennsylvania; Texas
 Physicians for Social Responsibility;
 Washington Physicians for Social
 Responsibility.
Pacific Gas and Electric Company, San    The CA IOUs..............                400  Utilities.
 Diego Gas and Electric, and Southern
 California Edison; collectively
 referred to as ``the California
 Investor-Owned Utilities''.
Sierra Club and Earthjustice...........  Sierra Club et al........                401  Efficiency/Environmental
                                                                                        Advocates.
Avangrid; Consolidated Edison;           The Joint Utilities......                402  Utilities.
 Eversource; Exelon; Liberty Utilities;
 National Grid; Unitil; PG&E
 Corporation; Xcel.
Plumbing-Heating-Cooling Contractors--   PHCC.....................                403  Trade Association.
 National Association.
Plastics Pipe Institute................  PPI......................                404  Trade Association.
American Gas Association...............  AGA......................                405  Utility Trade
                                                                                        Association.
Nortek Global HVAC, LLC................  Nortek...................                406  Manufacturer.
National Grid..........................  National Grid............                407  Utility.
Offices of the Attorney General for the  Attorneys General........                408  State/Local Government
 States of Illinois, Maine, Maryland,                                                   Agencies.
 Minnesota, Nevada, New Jersey, New
 Mexico, New York, Oregon, and Vermont,
 Washington, The Commonwealth of
 Massachusetts, the District of
 Columbia, and the City of New York.
State of Washington, Department of       State of Washington......                409  State Agency.
 Commerce.
Mortex Products, Inc...................  Mortex...................                410  Manufacturer.
Johnson Controls.......................  JCI......................                411  Manufacturer.
Trane Technologies.....................  Trane....................                412  Manufacturer.
Spire Inc.; Spire Alabama Inc.; Spire    Spire....................          413; 4099  Utilities.
 Missouri Inc..
Air-Conditioning, Heating, &             AHRI.....................                414  Trade Association.
 Refrigeration Institute.
Atmos Energy Corporation...............  Atmos Energy.............                415  Utility.
Daikin Comfort Technologies              Daikin...................                416  Manufacturer
 Manufacturing, L.P..
----------------------------------------------------------------------------------------------------------------

    A parenthetical reference at the end of a comment quotation or 
paraphrase provides the location of the item in the public record.\30\ 
To the extent that interested parties have provided written comments 
that are substantively consistent with any oral comments provided 
during the public meetings held on August 3, 2022,\31\ or September 6, 
2022,\32\ DOE cites the written comments throughout this final rule.
---------------------------------------------------------------------------

    \30\ The parenthetical reference provides a reference for 
information located in the docket of DOE's rulemaking to develop 
energy conservation standards for NWGFs and MHGFs. (Docket No. EERE-
2014-BT-STD-0031, which is maintained at www.regulations.gov) The 
references are arranged as follows: (commenter name, comment docket 
ID number, page of that document).
    \31\ The transcript for the August 3, 2022, public meeting can 
be found at Docket No. EERE-2014-BT-STD-0031-0363, which is 
maintained at www.regulations.gov.
    \32\ The transcript for the September 6, 2022, public meeting 
can be found at Docket No. EERE-2014-BT-STD-0031-4099, which is 
maintained at www.regulations.gov.
---------------------------------------------------------------------------

3. Current Standards in Canada
    Although climate and fuel prices differ between the United States 
and Canada and will yield different results

[[Page 87516]]

in terms of costs and benefits of the standard, there are similarities 
in the equipment and venting materials used in both the United States 
and Canada with respect to NWGFs. Because the stock of buildings using 
NWGFs in Canada has many similarities to the stock using NWGFs in 
northern parts of the United States, the Canadian experience in terms 
of installation of condensing furnaces has relevance to the United 
States. As such, multiple stakeholders discussed the Canadian standards 
in their comments on the July 2022 NOPR, and DOE references these 
standards several times later in this document. Further, as discussed 
in section V.C.1 of this document, the standard levels adopted for 
NWGFs by this final rule align with the Canadian regulations.
    Consumer furnaces are a regulated product in Canada and are subject 
to energy efficiency regulations. On December 24, 2008, Natural 
Resources Canada published regulations in the Canada Gazette, Part II 
amending the energy efficiency regulations for consumer furnaces, among 
other appliances and equipment.\33\ The revised regulation, required on 
or after December 31, 2009, sets a minimum efficiency of 90-percent 
AFUE for gas furnaces. This standard is applicable to gas furnaces, 
other than those with an integrated cooling component that are outdoor 
or through-the-wall gas furnaces, that have an input rate no greater 
than 65.92 kilowatts (``kW'') (225,000 Btu/h), and that use single-
phase electric current.
---------------------------------------------------------------------------

    \33\ See Canada Gazette, Part II, Vol. 142, No. 26, pp. 2512-
2570. (Available at: www.gazette.gc.ca/rp-pr/p2/2008/2008-12-24/pdf/g2-14226.pdf) (Last accessed Feb. 15, 2022)
---------------------------------------------------------------------------

    On June 12, 2019, Natural Resources Canada published regulations in 
the Canada Gazette, Part II amending the energy efficiency regulations 
for consumer furnaces, among other appliances and equipment.\34\ In 
addition to the definition of ``gas furnaces,'' Natural Resources 
Canada added a separate definition for ``gas furnaces for relocatable 
buildings'' (e.g., MHGFs). The revised regulation, which applies to 
covered gas furnaces (excluding gas furnaces for relocatable building, 
replacement gas furnaces, outdoor furnaces with an integrated cooling 
component, and through-the wall furnaces with an integrated cooling 
component) manufactured for sale or import into the Canadian market on 
or after July 3, 2019, sets a minimum efficiency of 95-percent AFUE. 
Furthermore, the revised regulation also sets a minimum efficiency of 
80-percent AFUE for gas furnaces for relocatable buildings.\35\
---------------------------------------------------------------------------

    \34\ See Canada Gazette, Part II, Vol. 153, No. 12, pp. 2423-
2517. (Available at www.gazette.gc.ca/rp-pr/p2/2019/2019-06-12/pdf/g2-15312.pdf) (Last accessed Feb. 15, 2022)
    \35\ ``Gas furnace for relocatable buildings'' is defined in 
that regulation as a gas furnace that is intended for use in a 
temporary modular building that can be relocated from one site to 
another and is marked for use in relocatable buildings.
---------------------------------------------------------------------------

III. General Discussion

    DOE developed this final rule after considering comments, data, and 
information from interested parties that represent a variety of 
interests. The following discussion addresses issues raised by these 
commenters regarding rulemaking timing and process, product classes and 
scope of coverage, the test procedure, technological feasibility, 
significance of energy savings, economic justification, the compliance 
date, and impacts from other rulemakings.

A. General Comments

    This section summarizes general comments received from interested 
parties regarding rulemaking timing and process.
1. Comments Regarding Authority
    The Marley Companies commented that the regulation of multiple 
levels of components (e.g., motors and furnace fans, which are 
themselves covered products under EPCA) internal to an appliance limits 
the utility of the appliance, because the specifications for such 
components (necessary for compliance with DOE energy conservation 
standards for those components as covered products) place constraints 
on the covered product's design and operation. (The Marley Companies, 
No. 386 at pp. 7-9) The Marley Companies argued that changes to the 
efficiency of a component, prescriptive requirements, and test 
procedures are all cumulatively subject to the 6-year window between 
standards provided to manufacturers per 42 U.S.C. 6295(m)(4)(B), so 
according to the commenter, any change to the standard for a covered 
product, to the standard for an internal component of that product, or 
to the test procedure should preclude further regulation of that 
product for six years pursuant to 42 U.S.C. 6295(m)(4)(B). (Id. at p. 
7) Further, Marley asserted that the cumulative impact of multiple 
component efficiency regulations within a regulated appliance is that 
the operating range of the entire product is reduced. (Id.) The Marley 
Companies commented that the definition of ``energy conservation 
standard'' includes a reference to 42 U.S.C. 6295(r), which discusses 
the inclusion in standards of test procedures and other requirements, 
and, therefore, the term ``standard'' includes test procedures used to 
determine the efficiency of covered products. (Id. at p. 9) The Marley 
Companies commented that 42 U.S.C. 6293(e)(4) conveys that Congress 
realized and stated in EPCA that test procedures should not be altered 
at the same time as appliance level efficiencies, and, therefore, the 
Marley Companies asserted that Congress established that any change in 
an efficiency of any component, combination of components, or the 
entire covered product, as well as any required construction change 
through prescriptive requirements and any change in the test procedure 
used to determine efficiency, would reset the 6-year timeframe 
established by 42 U.S.C. 6295(m)(4)(B). (Id. at p. 9) In contrast, 
Sierra Club et al. commented that DOE correctly interprets furnaces and 
furnaces fan as two separate products for the purposes of the ``6-year 
lock-out'' provision at 42 U.S.C. 6295(m)(4)(B). (Sierra Club et al., 
No. 401 at p. 3)
    There are two products that can be found as a component of a 
consumer furnace and which are separately regulated by DOE: consumer 
furnace fans and certain types of electric motors. In response to 
comments from Marley Companies and the Sierra Club, DOE notes that 
consumer furnaces, consumer furnace fans, and electric motors are all 
separately covered products under EPCA. (42 U.S.C. 6292(a)(5); 42 
U.S.C. 6295(f)(4)(D); 42 U.S.C. 6311(1)(A)) As such, DOE considers 
their timelines separately in the context of the requirement 
established by 42 U.S.C. 6295(m)(4)(B) that a manufacturer ``shall not 
be required to apply new standards to a product with respect to which 
other new standards have been required during the prior 6-year 
period.'' \36\ The 6-year period applies to covered products 
individually, and ECPA does not provide exceptions to the review 
requirements when related products or components have overlapping 
review timeframes. Furthermore, DOE notes that 42 U.S.C. 6295(m) 
applies to energy conservation standards, not test

[[Page 87517]]

procedures. Under this provision, DOE is directed to amend energy 
conservation standards for a covered product if such standards would be 
technologically feasible, economically justified, and result in 
significant conservation of energy. (42 U.S.C. 6295(m)(1)(B); 42 U.S.C. 
6295(o)) As such, DOE does not agree with the Marley Companies' 
contention that this statutory provision applies more broadly to test 
procedure changes, and the Department has concluded that the Marley 
Companies have advanced an incorrect reading of 42 U.S.C. 6295(r) to 
support their point. That provision of EPCA simply acknowledges that 
most energy conservation standards (i.e., performance-based ones) will 
require an accompanying test procedure and may necessitate additional 
ancillary requirements to facilitate compliance. Further, 42 U.S.C. 
6295(r) specifically refers to test procedures prescribed in accordance 
with 42 U.S.C. 6293. As such, there simply is no statutory basis for 
applying the 6-year timeframe, which applies to standards prescribed 
under 42 U.S.C. 6295(m), to test procedures prescribed under 42 U.S.C. 
6293.\37\
---------------------------------------------------------------------------

    \36\ DOE notes that EPCA set a deadline of December 31, 2013, 
for the Department to prescribe an energy conservation standard or 
energy use standard for electricity used for purposes of circulating 
air through ductwork (colloquially referred to as ``furnace fans''). 
(42 U.S.C. 6295(f)(4)(D)) EPCA likewise set deadlines for the 
Department to set standards for certain motors, including a five-
years lead time for compliance. (42 U.S.C. 6313(b)(4)(B)) These 
deadlines are independent of the standard-setting provisions for 
consumer furnaces at 42 U.S.C. 6295(f) and the six-year-lookback 
provisions at 42 U.S.C. 6295(m).
    \37\ For example, DOE previously published in the Federal 
Register a direct final rule establishing new energy conservation 
standards for consumer furnaces on June 27, 2011 (76 FR 37408), and 
then published in the Federal Register a final rule amending the 
test procedure for consumer furnaces on January 15, 2016 (81 FR 
2628). DOE previously published in the Federal Register a final rule 
amending the test procedure for furnace fans on January 3, 2014 (79 
FR 500), and then published in the Federal Register a final rule 
establishing new energy conservation standards for furnace fans on 
July 3, 2014 (79 FR 38130).
---------------------------------------------------------------------------

    NPGA stated that DOE has failed to provide a fair and transparent 
rulemaking process. (NPGA, No. 395 at p. 3) NPGA and AGA both commented 
that they believe the proposal to be unlawful because DOE is not 
authorized to create design standards for furnaces, but NPGA and AGA 
suggested that is what the proposed rule effectively does. (NPGA, No. 
395 at p. 9; AGA, No. 405 at pp. 50-51) NPGA stated that the proposal 
sets a de facto standard for building design by requiring the 
alteration of building venting systems. (NPGA, No. 395 at p. 22) 
Additionally, NPGA and AGA stated that the necessity to include 
condensing technology, as well as other associated design elements, 
including new venting, electric fans, and a condensate drainage system, 
is effectively enforcing a design requirement. (NPGA, No. 395 at pp. 9-
10; AGA, No. 405 at pp. 50-51) AGA further commented that Congress's 
decision to exclude furnaces from the list of products for which DOE 
can include design requirements, as outlined in 42 U.S.C. 6291(6)(B), 
demonstrates that DOE may not develop design requirements for furnaces. 
(AGA, No. 405 at pp. 50-52)
    In response, DOE is not creating a prescriptive design requirement 
for consumer furnaces in this final rule. In its definition of ``energy 
conservation standard'' at 42 U.S.C. 6291(6), EPCA provides that a 
performance standard is one which prescribes a minimum level of energy 
efficiency or a maximum quantity of energy use for a covered product, 
determined in accordance with test procedures developed under 42 U.S.C. 
6293. (42 U.S.C. 6291(6)(A)) In this case, the standards adopted in 
this final rule are set in terms of AFUE, which is a performance metric 
and is determined through testing consumer furnaces under the 
applicable DOE test procedure, as discussed in section III.C of this 
document. DOE does not mandate any specific design for achieving 
compliance with the amended standard, as would constitute a design 
requirement under 42 U.S.C. 6291(6)(B). Thus, the final rule complies 
with the statutory requirements for setting a performance standard 
under EPCA. The possibility that some technologies may not be 
sufficient to achieve compliance is true for any performance standard, 
and does not transform a performance standard into a de facto design 
requirement. DOE acknowledges that the NWGFs and MHGFs that currently 
achieve 95-percent AFUE do employ condensing technology. However, the 
performance-based standards adopted in this final rule do not preclude 
new or alternative heat exchanger designs, venting systems, or 
materials from being used in future furnace product designs, which may 
provide additional avenues (alone or in combination) for increasing 
furnace AFUE. In addition, this final rule provides a five-year lead 
time before compliance with the amended standards is required, so 
further innovation may be possible during that time. DOE's approach has 
been explained at length and in detail in both the July 2022 NOPR and 
this final rule, as well as the TSDs accompanying those documents.
2. Comments Opposing the July 2022 Proposal
    This section summarizes comments opposing the July 2022 proposal.
    Several commenters stated that DOE should withdraw the proposed 
rule. (Georgia Gas Authority, No. 367 at p. 1; MHI, No. 365 at p. 1; 
DCA, No. 372 at p. 2; The Heartland Institute, No. 376 at p. 1; HARDI, 
No. 384 at p. 2; Nortek, No. 406 at pp. 5-6) Plastics Pipe Institute 
commented that it opposes the proposed rule due to negative impacts on 
consumers (including senior and low-income households), small 
businesses, the overall gas furnace market, and the gas industry. 
(Plastics Pipe Institute, No. 404 at p. 1) Spire commented that the 
proposed standards place undue burden on consumers because many homes 
are not set up so as to be compatible with condensing gas furnaces. 
(Spire, No. 413 at pp. 20-21) The Heartland Institute commented that 
this rule is unnecessary. (The Heartland Institute, No. 376 at pp. 1-2) 
HARDI stated disagreement with the methodology and conclusions used to 
support the proposed standards. (HARDI, No. 384 at p. 2) A number of 
individuals urged DOE to reject the proposed rule on gas-burning 
residential furnaces because of considerations such as individual 
preferences, higher upfront costs, and higher maintenance costs. 
(Veiga, No. 326 at p. 1; Willis, No, 327 at p. 1; Anonymous 1, No. 329 
at p. 1) PHCC commented that it does not support the proposed standards 
for NWGFs and MHGFs, as there are parts of the NOPR that are overly 
optimistic, do not reflect current market conditions, make inaccurate 
assumptions, minimize installation issues for condensing-type products, 
and would generally create negative impacts for manufacturers and 
consumers. (PHCC, No. 403 at p. 1) Strauch recommended that both 
condensing and non-condensing furnaces remain available on the market. 
(Strauch, No. 366 at p. 2) Spencer and Dayaratna stated that the 
standards proposed in the July 2022 NOPR are unnecessary because 
condensing furnaces are readily available in the marketplace and have 
already achieved significant market penetration. (Spencer and 
Dayaratna, No. 390 at p. 10)
    The Heartland Institute expressed concern that the proposed 
standard would negatively impact energy consumption, emissions, and the 
economy. (The Heartland Institute, No. 376 at p. 1) The Heartland 
Institute further stated that there is a lack of economic 
justification. (Id. at p. 2) Additionally, the Heartland Institute 
argued that, while the highest-efficiency products may produce long-run 
savings for consumers under ideal laboratory settings, these gains from 
an increased efficiency are often not replicated in the real world. 
(Id. at p. 1) Atmos Energy similarly commented that the technical 
analyses do not reasonably consider economic impacts, particularly 
those on affordability and the potential disruption to highly-effective 
energy

[[Page 87518]]

conservation programs. (Atmos Energy, No. 415 at p. 2)
    As discussed in section II.A of this document, EPCA provides DOE 
with the authority to regulate the energy efficiency of a number of 
consumer products, including NWGFs and MHGFs, which are a subset of 
consumer furnaces. (42 U.S.C. 6292(a)(5)) EPCA prescribed energy 
conservation standards for these products (42 U.S.C. 6295(f)(1) and 
(2)) and directs DOE to conduct future rulemakings to determine whether 
to amend these standards (42 U.S.C. 6295(f)(4) and 42 U.S.C. 
6295(m)(1)). Any such new standards for NWGFs and MHGFs must, under 42 
U.S.C. 6295(o)(2)(A), be designed to achieve the maximum improvement in 
energy efficiency that is technologically feasible and economically 
justified. DOE's analyses supporting its conclusion that it has met 
these criteria for the standards adopted in this final rule are 
presented in section IV and section V of this document, respectively.
    Atmos Energy disagreed that the proposed standards would 
``represent the maximum improvement in energy efficiency that is 
technologically feasible and economically justified,'' alleging that 
DOE's underlying technical analyses do not reasonably consider relevant 
economic impacts. (Atmos Energy, No. 415 at p. 2) Atmos Energy also 
disagreed with the July 2022 NOPR's tentative conclusion that the 
benefits of the proposed standards greatly exceed the burdens. (Id.) 
Atmos Energy commented that DOE should improve the accuracy of its 
analysis by tailoring its consideration of consumer behavior, life-
cycle evaluations, and costs. (Id. at p. 5) Atmos Energy further 
commented that the proposed rule uses unsupported and broad assumptions 
that are not reflective of actual consumer behavior and information. 
(Id.) Similarly, the Coalition commented that DOE has failed to 
adequately consider the cost impacts of the proposed standards and has 
failed to properly assess the balancing of benefits and burdens. (The 
Coalition, No. 378 at p. 5) Spencer and Dayaratna stated that the 
standards proposed in the July 2022 NOPR do not meet the ``economically 
justified'' criteria for prescribing new or amended standards. (Spencer 
and Dayaratna, No. 390 at pp. 1-2) Specifically, Spencer and Dayaratna 
stated that the analysis in the July 2022 NOPR is questionable 
regarding all seven of the factors set by EPCA. (Id.) Spencer and 
Dayaratna suggested that DOE did not present sufficient rationale for 
factors 5 (i.e., the effect of any lessening of competition, as 
determined in writing by the Attorney General, that is likely to result 
from the standard) and 6 (i.e., the need for national energy and water 
conservation). (Id.) AGA commented that the NOPR suffers from many 
evidentiary shortcomings that fail to meet the statutory requirement 
that energy conservation standards must be ``supported by substantial 
evidence'' on the record. (AGA, No. 405 at pp. 29-30) AGA commented 
that the NOPR's conclusion that the proposed standards would be 
economically justified and technically feasible relies on unexplained 
assumptions and conclusions. (Id.) AGA asserted that the NOPR 
fundamentally fails to adhere to the Process Rule,\38\ and specifically 
found fault with DOE's LCC model and the lack of sufficient time for 
public comment. (Id. at pp. 21-23) AGA commented that particularly in 
the LCC model, the qualitative and quantitative analytical methods are 
not fully documented for the public and do not produce results that can 
be explained and reproduced. (Id.) AGA commented that these issues 
prevent stakeholders from evaluating compliance with other aspects of 
EPCA's and the Process Rule's requirements, and the commenter 
encouraged DOE to correct these deficiencies. (Id.) Trampe commented 
that he does not support the proposed 95-percent AFUE standard, and 
that the standard should be maintained at 80-percent AFUE. (Trampe, No. 
361 at p. 1)
---------------------------------------------------------------------------

    \38\ The ``Process Rule'' refers to 10 CFR part 430, subpart C, 
appendix A, ``Procedures, Interpretations, and Policies for 
Consideration of New or Revised Energy Conservation Standards and 
Test Procedures for Consumer Products and Certain Commercial/
Industrial Equipment''.
---------------------------------------------------------------------------

    Lennox suggested that DOE should reconsider whether a 92-percent 
AFUE standard is an appropriate minimum efficiency level for NWGFs. 
(Lennox, No. 389 at p. 2) Lennox also commented that, based on DOE's 
analysis, AFUE levels above 95 percent are not economically justified 
and have significant negative consumer impacts. (Id.)
    In regard to the proposed MHGF standards, Nortek and JCI commented 
that they do not support the proposed 95-percent AFUE standard for 
MHGFs. (Nortek, No. 406 at p. 2; JCI, No. 411 at p. 1) Nortek commented 
that DOE should maintain the 80-percent AFUE requirement for MHGFs. 
(Nortek, No. 406 at pp. 5-6) JCI added that the 95-percent AFUE 
standard for MHGFs would impose costs on consumers with, on average, 
lower household incomes. (JCI, No. 411 at p. 1) JCI recommended that 
DOE should exclude MHGFs from this rulemaking and gather additional 
data on that product class, particularly in replacement applications. 
(Id.) AHRI also stated that DOE should reconsider active mode energy 
conservation standards for MHGFs. (AHRI, No. 414-2 at p. 2) Mortex 
commented that it too does not believe that DOE's proposed 95-percent 
AFUE standard is economically justified for MHGFs, and that DOE should 
retain the current standard for MHGFs. (Mortex, No. 410 at p. 1) In 
support of its recommendation, Mortex pointed to the two-tiered 
standards that Canada has developed for furnaces, with a 95-percent 
AFUE level for most residential gas furnaces and 80-percent AFUE level 
for gas furnaces in relocatable buildings and replacements in 
manufactured housing. (Mortex, No. 410 at p. 4) Mortex recommended this 
structure as a model for DOE to utilize. (Id.) MHI commented that the 
current MHGF AFUE standards strike a balance between energy savings and 
affordability, and the commenter urged DOE to withdraw the NOPR or 
replace the proposed 95-percent AFUE level for MHGF with a standard at 
80-percent AFUE for gas furnaces used in manufactured homes. (MHI, No. 
365 at pp. 2-3)
    As discussed in section II.A of this document, EPCA provides 
specific statutory criteria for amending energy conservation standards. 
EPCA generally requires a public notice-and-comment process (see 42 
U.S.C. 6295(p)), which affords members of the public the opportunity to 
comment on the rulemaking, and DOE makes all relevant documents 
publicly available at www.regulations.gov. As part of the process for 
this rulemaking, DOE convened two public meetings, including one aimed 
at helping stakeholders understand its analytical models, to ensure the 
transparency of its process. Additionally, DOE carefully considers the 
benefits and burdens of amended standards to determine whether the 
amended standards are the maximum standard levels that are 
technologically feasible and economically justified, and would conserve 
a significant amount of energy, as required by EPCA (see 42 U.S.C. 
6295(o)(2)-(3)). Section IV of this document outlines DOE's approach to 
analyzing various potential amended standard levels, and section V of 
this document provides the results of those analyses, as well as a 
detailed explanation of DOE's weighing of the benefits and burdens and 
the rationale for the amended standards adopted by this final rule. As 
detailed in those sections, DOE has determined that its rulemaking 
process for the subject

[[Page 87519]]

furnaces has satisfied the applicable requirements of EPCA and the 
Process Rule and that the adopted standards are supported by 
substantial evidence in the record. Further, DOE notes that the webinar 
held on September 6, 2022, provided further opportunity for 
clarification regarding the LCC model and extended the comment period 
to provide sufficient time to provide written comments.
    Plastics Pipe Institute expressed concern with the precedent that 
would accompany this rule change, adding that it would open the door 
for future restrictions on natural gas. (Plastics Pipe Institute, No. 
404 at p. 3) In response, DOE notes that the amended energy 
conservation standards for NWGFs and MHGFs do not prohibit the sale and 
use of gas-fired furnaces, nor do they restrict the use of natural gas, 
but instead, they improve the energy efficiency of those gas-burning 
products.
3. Comments Expressing Support for the July 2022 Proposal
    This section summarizes comments expressing support for the July 
2022 proposal.
    DOE received comments from the OPAE, NCEL, State of Washington, 
NEEA, the Joint Utilities, the National Grid, Climate Smart Missoula et 
al., Evergreen Action, the CA IOUs, the PSEA, the NCLC et al., and the 
NRDC expressing support for the proposed energy conservation standards 
for NWGFs and MHGFs. (OPAE, No. 347 at p. 1; NCEL, No. 359 at p. 1; 
State of Washington, No. 409 at pp. 1-2; NEEA, No. 368 at pp. 1-2; the 
Joint Utilities, No. 402 at p. 1; National Grid, No. 407 at p. 1; 
Climate Smart Missoula et al., No. 393 at pp. 1-2; Evergreen Action, 
No. 364 at p. 1; The CA IOUs, No. 400 at p. 1; PSEA, Public Meeting 
Webinar Transcript, No. 363 at p. 37; NCLC et al., No. 383 at p. 9; 
NRDC, Public Meeting Webinar Transcript, No. 363 at p. 30;) GHHI, the 
Attorneys General, and Sierra Club et al. further encouraged DOE to 
adopt the proposed efficiency standards for consumer gas furnaces. 
(GHHI, No. 371 at p. 1; Attorneys General, No. 408 at pp. 1-2; Sierra 
Club et al., No. 401 at p. 1) The Joint Efficiency Commenters added 
that they strongly support DOE's proposed standards for minimum 
efficiency of NWGFs and MHGFs and standby mode and off mode power 
consumption. (Joint Efficiency Commenters, No. 381 at p. 1) The CA IOUs 
further explained that the proposed rule would allow consumers to have 
greater access to energy-efficient products that are technologically 
feasible and economically justified. (The CA IOUs, No. 400 at p. 1) 
Daikin stated that despite some concerns regarding the accuracy of some 
portions of the TSD concerning costs due to the confidential nature of 
some manufacturer cost data, the company generally finds that DOE's 
analysis is reasonable in most areas based on the data that is publicly 
available. (Daikin, No. 416 at p. 3) The Joint Utilities stated that 
they support common-sense, cost-saving improvements to existing 
efficiency standards coupled with programs to provide the financial 
resources to enable customers to make the transition to higher-
efficiency furnace products and minimize the impact of upfront costs. 
(The Joint Utilities, No. 402 at p. 1) National Grid stated that 
Federal energy conservation standards ensure that the benefits of 
efficiency gains can reach all customer segments, including renters who 
often do not make decisions about appliances. (National Grid, No. 407 
at p. 1) The State of Washington added that it understands the cost 
savings and emissions benefits that more efficient standards can 
provide. (State of Washington, No. 409 at pp. 1-2)
    DOE also received over 3,000 submissions of a form letter 
encouraging DOE to enact strong efficiency standards for furnaces that 
phase out the least-efficient furnace models. (Individual Commenters, 
No. 348 at pp. 1-3552) The commenters stated that heating homes should 
not produce pollution, and they stated that outdated and inefficient 
gas furnaces are emitting millions of tons of avoidable climate 
emissions and other harmful pollutants. (Id.) A number of other 
individual commenters expressed similar views. (Neumann, No. 328 at p. 
1; Guarin, No. 332 at p. 1; Haag, No. 334 at p. 1; Cantu, No. 335 at p. 
1; Marcellini, No. 336 at p. 1; Liset, No. 338 at p. 1; Snyder, No. 349 
at p. 1; Lish, No. 358 at p. 1) In addition to expressing support for 
the standards via the form letter, Guarin, Haag, Cantu, Marcellini, 
NCEL, and Liset all commented that by requiring furnaces to use about 
15-percent less energy, the proposed standard would cut 373 million 
metric tons of carbon emissions and 833 thousand tons of NOX 
over 30 years of sales, as outlined in the July 2022 NOPR. (Guarin, No. 
332 at p. 1; Haag, No. 334 at p. 1; Cantu, No. 335 at p. 1; Marcellini, 
No. 336 at p. 1; NCEL, No. 359 at p. 1; Liset, No. 338 at p. 1) These 
commenters added that the proposed standard would help with breathing 
since it would reduce needless greenhouse gas emissions. (Guarin, No. 
332 at p. 1; Haag, No. 334 at p. 1; Cantu, No. 335 at p. 1; Marcellini, 
No. 336 at p. 1; Liset, No. 338 at p. 1) The CA IOUs similarly stated 
that this standard will significantly improve ambient and indoor air 
quality in the United States. (The CA IOUs, No. 400 at p. 2)
    Other commenters similarly discussed the beneficial impacts that 
the proposed standards would have on health and the environment. Arnold 
asked DOE to help work toward a cleaner and more sustainable future by 
increasing the efficiency standards for furnaces. (Arnold, No. 333 at 
p. 1) Shippee-Rice urged DOE to enact these ``long overdue'' standards, 
stating that doing so will decrease pollutants that threaten human, 
animal, and plant health. Shippee-Rice also noted that this proposed 
standard will help to decrease the harmful effects of current climate 
change dangers. (Shippee-Rice, No. 339 at p. 1) Daikin agreed with 
DOE's initiatives to address emission reductions and set higher 
standards with climate change, decarbonization, and electrification in 
mind. (Daikin, No. 416 at pp. 2-3) Lee's Air, Plumbing & Heating 
commented that a higher standard would eliminate pollution and wasted 
energy. (Lee's Air, Plumbing & Heating, No. 342 at p. 1) The Physicians 
for Social Responsibility commented that pollutants from gas furnaces 
may be back-drafted into homes when indoor air pressure is reduced. 
Alternatively, they stated that pollutants can be vented out into the 
surrounding community. The commenter added that those pollutants from 
gas appliances can lead to the development of childhood asthma, 
increase susceptibility to other respiratory infections, decrease 
general cognitive and neurological functioning, and exacerbate 
cardiovascular disease. The commenter also stated that these pollutants 
can cause community-wide harm, particularly among low-income 
communities and communities of color. (The Physicians for Social 
Responsibility, Public Meeting Webinar Transcript, No. 363 at pp. 5-6) 
The commenter further argued that the proposed standards can help lower 
utility bills, which on its own can positively impact consumers' 
health. The commenter concluded that higher efficiency standards will 
reduce the health effects from air pollution and limit the impacts of 
climate change such as extreme heat, population displacement, and 
injuries and fatalities due to natural disasters. (Id. at p. 7) 
Evergreen Action noted that residential heating is the biggest utility 
in most U.S. households. Evergreen Action stated that gas heating 
appliances account for two-thirds of on-site household greenhouse gas 
emissions, and that gas

[[Page 87520]]

furnaces are a significant source of NOX. (Evergreen Action, 
No. 364 at p. 1) Climate Smart Missoula et al. also stated that 
furnaces have lifespans of 20 years or more and suggested that adopting 
updated standards will lead to benefits for consumers' pocketbooks, as 
well as the planet, through emission reduction. (Climate Smart Missoula 
et al., No. 393 at p. 2) Environment America commented that the 
proposed standards would reduce pollution that causes climate change 
and negatively impacts health. (Environment America, Public Meeting 
Webinar Transcript, No. 363 at pp. 18-19) Environment America suggested 
that, based on the reduced energy use and emissions, along with reduced 
annual home heating bills, DOE should finalize the proposed standards. 
(Id.) The National Caucus of Environmental Legislators recommended that 
DOE not to give in to industry-delaying tactics because action has been 
delayed and stymied numerous times in the past 30 years. They further 
commented in support of the proposal to increase the efficiency level 
of gas furnaces to 95-percent AFUE. (National Caucus of Environmental 
Legislators, No. 359 at p. 1)
    NEEA supported DOE's finding in the July 2022 NOPR that 
implementing a 95-percent AFUE standard for NWGFs and MHGFs would lead 
to significant, cost-effective energy savings. (NEEA, No. 368 at pp. 1-
2) NEEA stated that the consumer furnace market is ready for a furnace 
standard set at a condensing level, as evidenced by the market maturity 
and the lack of insurmountable barriers. (Id. at pp. 2-3) NEEA noted 
that condensing furnaces make up the majority of sales in the Northwest 
and their market share is growing. (Id.) NEEA stated that a study 
commissioned by NEEA and other stakeholders demonstrated the lack of 
barriers as would prevent a condensing furnace installation. (Id.) 
Additionally, NEEA commented that a 5-year transition time would allow 
sufficient time for manufacturers to convert their production and close 
the remaining sales gap. (Id.)
    Daikin commented that it believes the results of DOE's analysis 
would not substantially change even if DOE were provided additional 
data, and, therefore, it expressed support for the proposed 95-percent 
standard for NWGFs. (Daikin, No. 416 at p. 3) Carrier and Trane also 
expressed support for the 95-percent AFUE standard for NWGF, and Trane 
added that this level will provide significant CO2 savings. 
(Carrier, No. 377 at p. 1; Trane, No. 412 at p. 1) AHRI stated that DOE 
has conducted sufficient analysis to amend active mode energy 
conservation standards for NWGFs and recommended that DOE finalize this 
rulemaking to bring resolution to the process and to bring certainty to 
the marketplace. (AHRI, No. 414-1 at p. 1) The CEC commented that it 
supports DOE's proposed standard for consumer furnaces at 95-percent 
AFUE and 8.5 W, and that DOE should finalize these standards. (CEC, No. 
382 at pp. 1-2) AHRI and Rheem agreed with DOE's conclusion that a 98-
percent AFUE standard would be unreasonable and not economically 
justified for NWGFs. (AHRI, No. 414-1 at pp. 1-2; Rheem, No. 394 at p. 
2)
    The State Agencies supported the proposed TSL 8 standard and 
methodology and encouraged DOE to adopt the rule. (State Agencies, No. 
375 at pp. 1-2) The State Agencies further commented that the proposed 
TSL 8 standard is technologically achievable, beneficial to American 
consumers' physical and financial health, and is an important step in 
reducing emissions. (Id. at p. 1) NYSERDA supported DOE's proposal to 
adopt TSL 8 for MHGFs and NWGFs and recommended that DOE consider an 
even more stringent standard at 96-percent AFUE for NWGF. (NYSERDA, No. 
379 at pp. 1-2) NYSERDA further commented that TSL 8 leads to 
significant energy and economic savings over the lifetime of the 
equipment. (Id.) The NCLC et al. and the Joint Efficiency Commenters 
also stated that the proposed TSL 8 efficiency levels promise 
substantial financial benefits to consumers and added that these 
financial benefits are especially promising for low-income consumers. 
(NCLC et al., No. 383 at p. 4; Joint Efficiency Commenters, No. 381 at 
p. 2) The NCLC commented that low-income rental properties are more 
likely to have less-efficient furnaces and to pass the associated 
larger energy bills on to tenants. (NCLC, Public Meeting Webinar 
Transcript, No. 363 at pp. 8-10) NCLC noted that this could amount to 
$2,000 to $3,000 in incremental costs for tenants over the life of the 
furnace. (Id. at p. 9) The commenter also stated that low-income 
consumers have the fewest resources to address the harms of rising 
temperatures and would be further adversely impacted. The NCLC 
commented that this presents an equity issue and accordingly concluded 
that DOE should adopt a strong furnace efficiency standard. (Id. at p. 
10)
    The Philadelphia Solar Energy Association commented in support of 
the proposed standards, stating that high-efficiency furnaces help low-
income consumers in Philadelphia reduce their energy costs, as well as 
indoor air pollution from atmospheric furnaces. (Philadelphia Solar 
Energy Association, Public Meeting Webinar Transcript, No. 363 at p. 
37)
    The Joint Efficiency Commenters stated that DOE should not adopt 
TSL 7 as an alternative to TSL 8, adding that the percentage of low-
income consumers benefitting from the potential standards is 
significantly greater at TSL 8 compared to TSL 7. (Joint Efficiency 
Commenters, No. 381 at p. 2)
    In response to the July 2022 NOPR, The NCLC et al. commented that 
if the standard is set too high, many consumers will be saddled with 
purchasing expensive products where energy savings do not outweigh 
initial costs. However, the NCLC et al. commented that, if the standard 
is set too low, then the percentage of customers who end up with higher 
LCC will increase. (NCLC et al., No. 383 at p. 6) Therefore, the NCLC 
et al. commented that DOE should not reject a standard because some 
consumers will experience net costs over the life of the product. (Id.) 
NCLC et al. noted that, at TSL 8, the average net benefits are more 
significant than the average net costs for NWGFs. (Id.)
    As discussed in section II.A of this document, DOE is directed by 
EPCA to conduct periodic rulemakings to determine whether to amend the 
standards for various products, including consumer furnaces. (42 U.S.C. 
6295(f)(4) and 42 U.S.C. 6295(m)(1)) The standards adopted by this 
final rule, which include the same AFUE levels as those proposed in the 
July 2022 NOPR, adhere to the requirements of EPCA in that they are 
designed to achieve the maximum improvement in energy efficiency that 
DOE determines is technologically feasible and economically justified. 
(42 U.S.C. 6295(o)(2)(A) and 42 U.S.C. 6295(o)(3)(B)) The analytical 
results showing both the benefits and burdens of the standards, along 
with DOE's rationale for adopting these amended standards, are 
discussed in section V of this document.
4. Regional Standards
    Nortek, AHRI, and MHI encouraged DOE to consider regional standards 
that align with the U.S. Department of Housing and Urban Development 
(``HUD'') zones. (Nortek, No. 406 at p. 6; AHRI, No. 414-2 at pp. 3-4; 
MHI, No. 365 at pp. 1-2) MHI commented that the HUD code for 
manufactured homes prescribes energy efficiency features that are 
specific to the region where the home will be sited. (MHI, No. 365 at 
pp. 1-2) MHI suggested that consulting with

[[Page 87521]]

HUD will assist DOE in understanding how furnace standards impact 
consumer access to affordable housing, including manufactured housing. 
(Id.) PHCC commented that DOE's early efforts for this consumer furnace 
rulemaking considered creating regional standards to establish a 
pathway for higher-efficiency products that could not be justified on a 
national scale due to differences in usage and energy consumption of 
different climate zones. (PHCC, No. 403 at pp. 1-2) Trampe commented 
that the entire United States should not have to follow the same 
standard and added that what applies in Minnesota may not apply in 
Kansas, Tennessee, Texas, or other States. (Trampe, No. 361 at p. 1) 
Nortek pointed to NRCan's standards, which were set at 95-percent AFUE 
for NWGFs and 80-percent AFUE for MHGFs in 2019. Nortek noted that the 
climate in Canada has more severe winters than many parts of the United 
States. Nortek also stated that setting standards at a condensing level 
disproportionately impacts southern homeowners because most 
manufactured homes are in the South where mild winters allow furnaces 
to run for only 3 months a year. (Nortek, No. 406 at pp. 3-4) Like 
Nortek, the Heartland Institute also discussed regional differences, 
stating that in Northern States, such as Minnesota or Wisconsin, most 
residential natural gas furnaces already meet 95-percent AFUE. In 
Southern States, such as Texas, Georgia, and Florida, a smaller 
percentage of homeowners have adopted higher-efficiency furnace models. 
The Heartland Institute further offered that condensing models are 
already installed in regions where furnaces are heavily used, which 
mitigates the need for this mandate. (The Heartland Institute, No. 376 
at p. 2) JCI commented that it believes a regional standard with a 
condensing level for the Northern region and a non-condensing level for 
the Southern region would be more economically justified and would 
align with the existing central air conditioning/heat pump standards. 
JCI commented that, in southern installations, the additional 
installation cost would result in a negative LCC using the amended 
values JCI supplied for manufacturer production costs (``MPCs''). (JCI, 
No. 411 at p. 2)
    Conversely, Daikin commented that there are logistical and 
operational challenges associated with regional standards; therefore, 
Daikin supported a national energy conservation standard, stating that 
it does not support TSL 4. (Daikin, No. 416 at p. 2) Similarly, Rheem 
commented that DOE should maintain a single, nationwide and capacity-
wide standard for NWGFs to avoid costly supply and inventory planning 
problems for manufacturers, distributors, and contractors. (Rheem, No. 
394 at p. 3) The CFA commented that DOE should consider a uniform 
standard, arguing that certain furnaces no longer need to be exempted 
from the standard. (CFA, Public Meeting Webinar Transcript, No. 363 at 
p. 22)
    In response, DOE's analyses of each considered efficiency level 
accounts for regional differences (e.g., in terms of climate data, 
shipments) when appropriate, as discussed throughout this document. For 
the July 2022 NOPR and for this final rule, in addition to considering 
uniform national standard, DOE included consideration of a potential 
regional standard (i.e., TSL 4; see section V.A of this document) 
consisting of efficiency levels at 95-percent AFUE for the Northern 
region and 80-percent AFUE for the rest of the country, for both NWGFs 
and MHGFs. However, as discussed in section V of this document, DOE 
conducts a walk-down analysis to determine the TSL that represents the 
maximum improvement in energy efficiency that is technologically 
feasible and economically justified, as required under EPCA. In this 
final rule, DOE has found that a national standard for both NWGFs and 
MHGFs corresponding to 95-percent AFUE (i.e., TSL 8) meets those 
statutory criteria, and, therefore, DOE is adopting a national standard 
rather than regional standards.
5. Recommendations for Analytical Changes
    Atmos Energy commented that DOE should supplement its technical 
analysis in accordance with consumer welfare recommendations identified 
by the National Academy of Science peer review report before proceeding 
with a final rule, arguing that this would increase the accuracy of the 
technical analysis and have a material impact on the final standards. 
(Atmos Energy, No. 415 at p. 5) AGA commented that DOE should follow, 
or at a minimum respond to, the National Academies of Sciences, 
Engineering, and Medicine's (NAS) Recommendations (the NAS Report) on 
its process. (AGA, No. 405 at pp. 25-27) AGA stated that DOE should 
revisit the proposed rule to address NAS's recommendations and allow 
stakeholders an opportunity to comment on the revisions. (Id.) APGA 
stated that many months after the NAS Report, DOE does not reflect the 
NAS findings in the NOPR but merely states that DOE ``is in the process 
of evaluating the resulting report.'' (APGA, No. 387 at p. 56) APGA 
pointed out that the residential furnace rulemaking was one of the 
three rulemakings studied in depth by the NAS committee. (Id.) APGA 
noted that NAS came to conclusions about consumer behavior that are 
extremely critical to the NOPR. APGA cited the NAS Report's 
recommendation that ``[f]or some commercial goods in particular, there 
should be a presumption that the market actors behave rationally unless 
DOE can provide evidence or argument to the contrary.'' (Id.)
    In response, DOE notes that the rulemaking process for energy 
conservation standards for covered products and equipment are outlined 
in appendix A to subpart C of 10 CFR part 430, and DOE periodically 
examines and revises these provisions in separate rulemaking 
proceedings. DOE notes that discussion of the recommendations of the 
NAS report, which pertain to the processes by which DOE analyzes energy 
conservation standards, will be addressed as part of a separate notice-
and-comment process.
    Rheem commented that DOE should consider a simplified analysis and 
reproducible model for future rulemakings. (Rheem, No. 394 at p. 2) 
Specifically, Rheem encouraged DOE to adopt a consistent and 
predictable approach to quantifying energy savings to ensure the 
recommendations will result in the estimated savings. (Id.) GAS argued 
that ``Uncertainties . . . include numerous variables contained within 
DOE's overly complex `determination' apparatus,'' and that DOE has 
failed to ``use transparent and robust analytical methods.'' (GAS, No. 
385 at pp. 4-5) AHRI suggested that, for future rulemakings, DOE should 
modify the way that it analyzes consumer economic impact to look at the 
probability that individual consumers will benefit from standards 
rather than whether the aggregate benefit is positive and stated that 
these changes would be best accomplished in an open review process. 
(AHRI, No. 414-1 at p. 2)
    Although DOE understands the desire for simplicity, the Department 
notes that its analysis is informed by the Process Rule and includes a 
number of modifications in response to comments from interested parties 
on prior notices, which recommended that DOE consider a variety of 
additional factors when evaluating the impacts of potential standards. 
These additional considerations, while adding complexity to the 
analysis, are responsive to commenters and increase the granularity of 
results. A simplified analysis would run counter to those

[[Page 87522]]

recommendations,\39\ which have proven to have merit. In response to 
AHRI's comment that consumer impacts should be assessed individually, 
DOE notes that as discussed in section IV.F of this document, the LCC 
includes a Monte Carlo analysis that allows DOE to assess impacts on a 
wide range of installations. DOE uses this information to assess and 
consider how consumers would likely be impacted by potential standards. 
DOE also conducts a consumer subgroup analysis (described in section 
IV.I of this document) that evaluates the economic impacts of standards 
on specific groups. DOE further notes that its analysis is designed to 
be reproducible to interested parties, and DOE provides a range of 
statistics, including the percentage of consumers that will be 
negatively and positively impacted by an amended energy conservation 
standard. Therefore, for this final rule, DOE continued to conduct the 
energy savings and economic rulemakings using largely the same 
methodologies used in the July 2022 NOPR of this rulemaking, which are 
generally consistent with those used for prior rulemakings.
---------------------------------------------------------------------------

    \39\ For example, sections 12 through 16 of the Process Rule 
outlines factors to be considered in the process for developing 
energy conservation standards, including delineating several factors 
relating to identification of candidate standard levels and other 
factors to be considered in the selection of proposed standards, as 
well as the subsequent selection of a final standard. These 
analyses, along with the accompanying sensitivity analyses, are 
necessary to ensure the robustness of the Energy Conservation 
Standards amendment process.
---------------------------------------------------------------------------

    ACCA suggested that DOE should focus its attention on efficiency 
improvements, such as installing heating, ventilation, and air-
conditioning (HVAC) systems according to the industry's recommended 
standards (including proper equipment sizing, duct re-design and 
sealing, and appropriate refrigerant charge levels), that would reduce 
peak electricity demand without requiring revised installation or 
design standards. (ACCA, No. 398 at p. 2)
    As discussed in section IV.F.4 of this document, DOE's analysis 
accounts for the electricity consumption of NWGFs and MHGFs. Although 
reducing peak electricity demand can be a benefit of energy 
conservation standards, as discussed in section II.A of this document, 
EPCA provides specific factors that DOE must consider when establishing 
or amending energy conservation standards. One of these factors is the 
total projected energy savings that would result from the standard (see 
42 U.S.C. 6295(o)(2)(B)(i)(III)), and DOE includes impacts on 
electricity consumption when evaluating the projected energy savings. 
DOE follows the statutory obligations laid out in EPCA when evaluating 
the potential for energy savings, technological feasibility, and 
economic justification.
6. Opportunity for Public Input
    MTNGUD, Watertown Municipal Utilities, and LANGD recommended that 
DOE hold a workshop to further discuss this rulemaking. (MTNGUD, No. 
350 at pp. 1-2; WMU, No. 351 at p. 1; LANGD, No. 355 at p. 2) MTNGUD 
and LANGD specifically noted that at the workshop, DOE should further 
discuss its LCC analysis with stakeholders in order to achieve a common 
understanding, and these parties added that the LCC is a central part 
of the proposed standard. (MTNGUD, No. 350 at p. 1; WMU, No. 351 at p. 
2; Consumer Energy Alliance, No. 354 at p. 1, LANGD, No. 355 at p. 2) 
MTNGUD, Watertown Municipal Utilities, and Joint Requesters stated that 
holding a workshop and extending the associated comment period would be 
in accordance with the objectives of the Process Rule. (MTNGUD, No. 350 
at pp. 1-2; WMU, No. 351 at pp. 1-2; Joint Requesters, No. 356 at pp. 
1-4) Joint Requesters requested another webinar to cover comments and 
questions related to DOE's LCC model that were not addressed during the 
webinar held on September 6, 2022. (Joint Requesters, No. 362 at p. 2) 
Additionally, the Consumer Energy Alliance urged that an extension of 
the comment period by DOE and hosting the requested workshop would 
allow for sufficient time for all stakeholders to analyze the NOPR so 
as to develop meaningful comments. (Consumer Energy Alliance, No. 354 
at pp. 1-2)
    MTNGUD, Watertown Municipal Utilities, Consumer Energy Alliance, 
and LANGD also encouraged DOE to extend the comment period at least 45 
days after the workshop to give commenters additional time to 
effectively comment on the July 2022 NOPR. (MTNGUD, No. 350 at p. 2; 
WMU, No. 351 at p. 2; Consumer Energy Alliance, No. 354 at 2; LANGD, 
No. 355 at p. 2) LANGD and Watertown Municipal Utilities stated that 
more time is needed to evaluate the impacts on low-income households, 
seniors, and energy insecure consumers. (LANGD, No. 355 at p. 1; WMU, 
No. 351 at p. 1) Consumer Energy Alliance commented that the proposal 
and supporting documents are highly technical and voluminous, so it 
will take additional time to sufficiently analyze everything DOE has 
issued, adding that DOE's proposal will impact millions of consumers 
while also raising complex legal, regulatory, economic, and technical 
issues. (Consumer Energy Alliance, No. 354 at p. 1) Consumer Energy 
Alliance further commented that stakeholders should have a sufficient 
opportunity to evaluate the various issues raised in the NOPR, 
including how such issues may impact the stakeholders' members/
customers. (Id.) Consumer Energy Alliance requested that an extension 
of the comment period be granted by DOE, and the commenter argued that 
hosting the requested workshop would allow for sufficient time for all 
stakeholders to analyze the NOPR and develop meaningful comments. (Id. 
at p. 2)
    Several parties requested an extension of at least 60 days to 
sufficiently analyze the NOPR and the related documents. (Joint 
Commenters, No. 330 at p. 1; NGSA, No. 343, at p. 1; MHI, No. 344, at 
p. 1). They stated that DOE did not follow the Process Rule, and that 
the 60-day comment period made meaningful comment impossible. (Joint 
Commenters, No. 330 at p. 1; NPGA, No. 395 at pp. 26-27) Similarly, 
LANGD and the Consumer Energy Alliance commented that the 60-day 
comment period does not allow for a meaningful opportunity to verify 
DOE's analysis and provide substantive comments to aid in a productive 
rulemaking process. (LANGD, No. 355 at p. 1; Consumer Energy Alliance, 
No. 354 at p. 1) APGA and AGA noted that the Administrative Procedure 
Act (APA) requires that agencies provide a ``meaningful'' opportunity 
for comment. (APGA, No. 387 at p. 65; AGA, No. 405 at p. 24) APGA 
commented that DOE has violated the APA due to the deviation from past 
public comment periods and the complexities of the models in this 
rulemaking. (APGA, No. 387 at p. 65) APGA stated that DOE's 
justifications for fewer days to comment are unavailing, and that it 
appears DOE is rushing to judgment by denying APGA and other 
stakeholders a reasonable process to comment. (APGA, No. 387 at p. 67) 
AGA also commented that stakeholders have been denied a meaningful 
opportunity to evaluate the NOPR. (AGA, No. 405 at pp. 24-25)
    Conversely, AHRI stated that by holding the webinar focused on the 
LCC model on September 6, 2022 and extending the comment period for the 
July 2022 NOPR, DOE provided all commenters with sufficient opportunity 
to review its models and make thoughtful comments. (AHRI, No. 414-1 at 
p. 1) Sierra Club et al. commented that the deviations from the Process 
Rule are justified in light of the long

[[Page 87523]]

delay on these standards, which is in violation of the statutory 
deadline for this action and the schedule to which DOE agreed as part 
of a settlement agreement. (Sierra Club et al., No. 401 at p. 1)
    In response, DOE conducts all appliance standards rulemakings in 
accordance with its authority under EPCA, which involves making its 
analyses publicly available and providing the public an opportunity to 
comment on the rulemaking. (42 U.S.C. 6295(m)(2)) As explained in the 
July 2022 NOPR, DOE initially found it necessary and appropriate to 
provide a 60-day comment period given the overdue statutory deadline 
and because the analytical methods used for the NOPR were similar to 
those used in previous rulemaking notices regarding the subject 
furnaces. 87 FR 40590, 40607 (July 7, 2022). DOE held a public meeting 
webinar to discuss the July 2022 NOPR on August 3, 2022. Subsequently, 
as stakeholders requested, DOE held a second public meeting webinar on 
September 6, 2022 focused on helping stakeholders understand and 
operate the Department's analytical models. DOE also extended the 
comment period by 30 days, which totaled 90 days for stakeholders to 
provide input. 87 FR 52861 (August 30, 2022). As mentioned, interested 
parties such as AHRI and Sierra Club, et al. attested to the adequacy 
of the comment opportunity which DOE provided. (AHRI, No. 414-1, at p. 
1; Sierra Club et al., No. 401, at p. 1) As a result, DOE concludes 
that stakeholders have had ample time and opportunity to provide input 
on the rulemaking analyses and process related to the amended energy 
conservation standards for NWGFs and MHGFs.
7. Federal Financial Assistance
    The Attorneys General commented that with new Federal funding 
available under the Infrastructure Investment and Jobs Act and the 
Inflation Reduction Act, the transition to more-efficient space heating 
will be cost-effective and affordable. (Attorneys General, No. 408 at 
p. 2) The Attorneys General added that the multibillion-dollar 
Congressional investment in weatherization, energy efficiency, and 
beneficial electrification programs will help alleviate equipment cost 
concerns for low- to moderate-income households and small businesses. 
(Id.) Similarly, Trane commented that aid should be provided through 
the Inflation Reduction Act to homeowners to offset any costs incurred 
from this standard due to increased purchase and installation costs. 
(Trane, No. 412 at pp. 1-2) Trane further stated that this assistance 
could help with the necessary advancements in venting technology that 
will accompany the standard. (Id.)
    The Joint Utilities commented that they believe DOE can help 
Americans achieve meaningful cost savings while benefitting the 
environment by establishing rebates and incentive programs that could 
be used to support State-regulated efficiency and rebate programs. 
Furthermore, the Joint Utilities stated that this would assist electric 
and natural gas customers by reducing the upfront costs of achieving 
greater home heating efficiency. (The Joint Utilities, No. 402 at p. 1)
    DOE agrees that Federal funding, specifically funding available 
through the Inflation Reduction Act, may be able to assist in the 
transition to more-efficient space heating. However, DOE also notes 
that such funding is separate from this rulemaking process and has yet 
to be fully implemented. Consequently, while DOE agrees that the costs 
of more-efficient furnaces could be reduced for certain consumers, DOE 
did not include impacts of any Federal funding in its reference case 
analysis. However, as discussed in section IV.F.10 of this document, 
DOE performed a sensitivity analysis in which tax credits significantly 
reduce the cost of a heat pump system as an alternative space-heating 
option, thereby incentivizing some consumers to switch from gas 
furnaces to heat pumps. The results of this sensitivity analysis are 
available in appendices 8J and 10E of the final rule TSD. Additionally, 
any potential incentives for more-efficient gas furnaces would only 
improve the consumer benefits as determined in the final rule analysis. 
Therefore, as discussed in section V of this document, DOE concludes 
that the amended standards are justified, and this decision is not 
dependent on whether additional Federal subsidies or investments are 
available.
8. Standby Mode and Off Mode Power Consumption Standards
    As discussed in section II.A of this document, EPCA requires any 
final rule for new or amended energy conservation standards promulgated 
after July 1, 2010, to address standby mode and off mode energy use. 
(42 U.S.C. 6295(gg)(3))
    ``Standby mode'' and ``off mode'' energy use are defined in the DOE 
test procedure for residential furnaces and boilers (i.e., ``Uniform 
Test Method for Measuring the Energy Consumption of Consumer Furnaces 
Other Than Boilers,'' 10 CFR part 430, subpart B, appendix N). In that 
test procedure, DOE defines ``standby mode'' as any mode in which the 
furnace is connected to a mains power source and offers one or more of 
the following space heating functions that may persist: (a) To 
facilitate the activation of other modes (including activation or 
deactivation of active mode) by remote switch (including thermostat or 
remote control), internal or external sensors, and/or timer; and (b) 
Continuous functions, including information or status displays or 
sensor based functions. 10 CFR part 430, subpart B, appendix N, section 
2. ``Off mode'' for consumer furnaces is defined as a mode in which the 
furnace is connected to a mains power source and is not providing any 
active mode or standby mode function, and where the mode may persist 
for an indefinite time. The existence of an off switch in off position 
(a disconnected circuit) is included within the classification of off 
mode. 10 CFR part 430, subpart B, appendix N, section 2. An ``off 
switch'' is defined as the switch on the furnace that, when activated, 
results in a measurable change in energy consumption between the 
standby and off modes. 10 CFR part 430, subpart B, appendix N, section 
2. As discussed previously, DOE does not currently prescribe standby 
mode or off mode standards for NWGFs and MHGFs.
    In the July 2022 NOPR, DOE analyzed new standby mode and off mode 
power standards for NWGFs and MHGFs and proposed that the maximum 
allowable standby mode and off mode power consumption should be 8.5 W 
for NWGFs and MHGFs. 87 FR 40590, 40592 (July 7, 2022). Table IV.5 of 
the July 2022 NOPR shows the standby mode and off mode efficiency 
levels that DOE analyzed, along with a description of the design 
options anticipated to be used to achieve each efficiency level above 
baseline. The baseline efficiency level was determined to be 11 W, and 
it corresponds to the use of a linear power supply and a 40VA linear 
transformer (LTX). Other technology options that were analyzed to 
achieve efficiency levels above baseline include a low-loss LTX (``LL-
LTX'') and two types of switching mode power supply (SMPS). 87 FR 
40590, 40619 (July 7, 2022).
    In response to DOE's proposed technology options and watt levels 
associated with each efficiency level for standby mode and off mode 
standards, Carrier commented that it agreed with DOE's statement that 
most furnaces use 40VA transformers, and further described that 40VA 
transformers provide power to sensors and components in the furnace, as 
well as a

[[Page 87524]]

variety of external devices. (Carrier, No. 377 at p. 2) Carrier also 
commented that it does not believe the use of an SMPS will lower the 
transformer size without limiting the external devices and sensors that 
can be powered by the furnace, which would impact consumer experience 
and product performance. The commenter stated that DOE only considered 
thermostats, but noted that there are other devices that could be 
powered by the transformer. (Carrier, No. 377 at pp. 2-3) Carrier 
encouraged DOE to defer the standby mode and off mode power standards, 
asserting that the 8.5W level has the potential to reduce the utility 
of consumer furnaces, and therefore would not meet the requirements of 
42 U.S.C. 6295(o)(2)(B)(iv). (Carrier, No. 377 at pp. 1-2) Carrier 
asserted that its analysis found that a maximum standby watt limit of 
8.5 is achievable in only their furnaces with the lowest AFUE 
efficiency and least features. (Carriers, No. 377 at p. 2) Carrier 
argued that products that incorporate a 20VA transformer do not meet 
DOE's screening criteria of product utility or availability, nor will 
they have the ability to support the safety sensors that will or could 
be required in the future such as those that may be needed due to the 
Consumer Protection Safety Commission's stated intention to establish a 
requirement for carbon monoxide sensors on furnaces. (Carrier, No. 377 
at p. 3) Carrier explained that efficiency level (EL) 1 is the only 
feasible technology option to support the safety sensors that will be 
required in the future. (Carrier, No. 377 at pp. 3-4) Carrier explained 
that potential requirements for new safety sensors would mean that a 
standard lower than 11 W could create an adverse impact on product 
utility. (Carrier, No. 377 at pp. 3-4) Carrier asserted that 
contractors would need to install larger transformers to maintain 
utility, which defeats the purpose of having a standby power limit and 
adds additional installation complexity. (Carrier, No. 377 at pp. 2-3) 
Therefore, Carrier commented that it opposed DOE's proposed 8.5W 
standby mode and off mode power standard for NWGFs. (Carrier, No. 377 
at pp. 1-2) Carrier explained that it conducted an analysis of standby 
mode and off mode power on their furnaces and found that the limit of 
8.5W is achievable for their lower-efficiency furnaces, but not for 
their mid-tier and deluxe furnaces without lessening the utility. 
(Carrier, No. 377 at p. 2) Overall, Carrier recommended that DOE defer 
standby mode and off mode power standards until further testing and 
analysis is conducted. (Carrier, No. 377 at pp. 3-4)
    Trane also commented that DOE's assumption that furnaces would 
transition to a 20VA transformer at standby mode and off mode ELs 2 and 
3 is inaccurate, because the transformer supplies power not only to the 
furnace but also to the attached air conditioner or heat pump, as well 
as the thermostat and other accessories. (Trane, No. 412 at p. 2) Trane 
commented that setting the standard at 8.5W would result in 
manufacturers adding transformers to supply power to the needed 
features; therefore, Trane recommended maintaining a standard of 11W. 
(Id.)
    Lennox stated that 40VA transformers are utilized to provide 
adequate low voltage power for components and accessory items. (Lennox, 
No. 389 at pp. 4-5) Lennox commented that it offers transformers 
ranging up to 70VA to accommodate situations where several accessories 
are included in the HVAC system. (Lennox, No. 389 at p. 4) Lennox 
argued that DOE's assumption of a unit with SMPS having a transformer 
sized at 20VA is incorrect, since a 20VA transformer often does not 
provide sufficient power capability to drive the internal components 
necessary for all furnace/air conditioner/heat pump functions and a 
thermostat. (Lennox, No. 389 at p. 4) Lennox explained that SMPS are 
currently used in Lennox products controls, and the company is not 
aware of ways to further reduce standby mode and off mode power 
consumption. (Id.) Lennox also stated that the proposed standby mode 
and off mode standard level would inhibit implementation of additional 
safety features. (Lennox, No. 389 at pp. 3-4)
    Lennox commented that the 8.5W limit for consumer furnaces will 
prevent advances in communicating controls, installation and diagnostic 
features, and zoning. (Lennox, No. 389 at p. 4) Lennox further stated 
that programs, including ENERGY STAR, are considering measures that 
would require these monitoring, diagnostic, and prognostic features 
that would require additional standby power, but would save more energy 
overall. (Id.) The commenter argued that future innovations and safety 
requirements (e.g., thermostats, WiFi controls, extra power supplies) 
may force the power usage to rise above the 11W limit. (Lennox, No. 389 
at p. 6) Lennox commented that DOE should not mandate standby mode and 
off mode power levels with de minimis energy savings that prevent the 
integration of controls and other features that enable significantly 
larger energy savings at the furnace and HVAC systems level. (Lennox, 
No. 389 at pp. 4-5) Lennox commented that DOE should not only 
reconsider the proposed standby mode and off mode standard of 8.5W but 
should also consider whether an 11W baseline would be sufficient. 
(Lennox, No. 389 at p. 6) Lennox further commented that the analysis 
for DOE's proposed standard for standby mode and off mode also does not 
consider system level impacts. (Lennox, No. 389 at p. 5)
    Nortek commented that DOE should not implement a standby mode and 
off mode standard lower than 11W. (Nortek, No. 406 at pp. 1-2) Nortek 
commented that they do not support DOE's proposed standard of 8.5 W for 
standby mode and off mode, as it would limit necessary innovation in 
furnace controls, programming and usage displays, thermostats, and 
other devices. (Nortek, No. 406 at p. 1)
    Rheem commented that DOE should adjust its proposed standby mode 
and off mode energy standards for NWGF. Rheem asserted that 8.5W may be 
overly limiting due to the previously mentioned shift toward smart 
products, and the shift to low global warming potential (GWP) 
refrigerants that require additional power for supporting communication 
and safety controls. The commenter warned that reductions in standby 
wattage limits potential diagnostic and installation functionality, 
advancements which could also result in energy savings. (Rheem, No. 394 
at p. 1) Rheem commented that DOE should maintain a baseline standby 
mode and off mode power level of 11W, as would allow future 
improvements such as safety and communicating controls to be 
incorporated into future furnace designs. (Rheem, No. 394 at p. 2)
    Daikin commented that it does not support DOE's proposed 8.5W 
standard for standby mode and off mode. (Daikin, No. 416 at p. 1) 
Daikin also stated that DOE has significantly underestimated the 
incremental MPCs for each of the standby mode and off mode efficiency 
levels, and that the cost increase for a Low-Loss Linear Transformer is 
more likely to be five to ten times higher than DOE's estimate. (Id. at 
p. 4) Daikin noted that many manufacturers offer a 70VA transformer as 
an accessory or service part to provide adequate low voltage power to 
all system components, and that manufacturers would likely need to 
limit accessory items to meet the proposed standby mode/off mode 
standards. (Id. at p. 5) Daikin recommended that DOE establish a 
standby mode and off mode criteria of 15W for condensing NWGFs with

[[Page 87525]]

communicating features, multiple heating stages, ultra-low 
NOX, an electrically commutated (ECM) motor, and controls 
associated with alternate refrigerants. (Daikin, No. 416 at p. 6)
    AHRI explained that a maximum level of 8.5W of standby power would 
limit necessary innovation in furnaces and related connected devices 
powered through the furnace and could possibly prohibit significant 
energy-saving features. (AHRI, No. 414-1 at p. 2) AHRI stated that DOE 
should reconsider the standby mode and off mode energy standards 
proposed for NWGFs, as well as the max-tech level based upon the use of 
a 20VA low-loss linear transformer (``LL-LTX'') and SMPS. (AHRI, No. 
414-1 at p. 3)
    AHRI also noted that the NAS Peer Review Report \40\ mentions the 
need to not stifle innovation, particularly regarding connected 
products. (AHRI, No. 414-1 at p. 2) AHRI stated that if the standby 
mode and off mode standards for furnaces are set too low, then 
connected products such as thermostats and Wi-Fi controls will use add-
on power supplies, mentioning that such auxiliary power supplies are 
already available on the market. (AHRI, No. 414-1 at p. 3) AHRI 
expressed concern that the current baseline value of 11W may need to be 
adjusted in the future to remove the effects of safety and other 
control measures. (AHRI, No. 414-1 at p. 3)
---------------------------------------------------------------------------

    \40\ National Academies of Sciences, Engineering, and Medicine, 
Review of Methods Used by the U.S. Department of Energy in Setting 
Appliance and Equipment Standards. (2021) Washington, DC: The 
National Academies Press. pp. 2-3; 111-113. doi.org/10.17226/25992.
---------------------------------------------------------------------------

    AHRI likewise stated that DOE should reconsider the standby mode 
and off mode energy standards proposed for MHGFs, referencing the 
comments it submitted for NWGFs. Specifically, AHRI stated that the 
proposed maximum of 8.5 watts would stifle innovation and could reduce 
energy savings from connected products, and is inadequate to power 
safety and communication controls necessary for consumer utility. 
(AHRI, No. 414-2 at p. 3) Mortex commented that DOE's proposed 8.5W 
limit for standby mode and off mode would not be adequate to power 
safety and communicating controls necessary for consumer utility and 
that 11W should be retained. (Mortex, No. 410 at p. 4)
    JCI commented that the 8.5W limit for standby mode and off mode 
power of NWGFs and MHGFs is too restrictive due to the additional 
requirements associated with the new A2L refrigerant requirement and 
other future communication and monitoring advancements. (JCI, No. 411 
at p. 3)
    Several commenters argued that furnaces will need to incorporate 
safety sensors for controlling components such as carbon monoxide, 
carbon dioxide, refrigerant leak detectors and/or low GWP along with 
other changes in the future, and they noted that such functionalities 
must be accounted for in meeting the currently proposed limit for 
standby mode and off mode power. (Lennox, No. 389 at pp. 4-5; Rheem, 
No. 394 at pp. 1-2; Carrier, No. 377 at pp. 3-4; Daikin, No. 416 at pp. 
5-6; AHRI, No. 414-1 at pp. 2-3)
    Daikin, Lennox, Trane and AHRI listed numerous components that are 
powered by transformers in consumer furnaces. The combined list of 
components includes: integrated furnace control board, indoor and 
outdoor air conditioning/heat pump (AC/HP) fan motors, gas valves, 
combustion air inducers, thermostats, ultraviolet (UV) germicidal 
lights, humidifiers, AC/HP outdoor control board, AC/HP defrost 
controls, AC/HP heat pump reversing valve, indoor air circulating 
blowers, indoor and outdoor electronic expansion valves, condensate 
pumps, communicating controls that aid in proper commissioning, AC/HP 
IoT devices, system performance monitoring and reporting, 
identification of faults, zoning systems consumer interface, 
temperature sensors, air pressure sensors, refrigerant pressure 
sensors, gas pressure sensors, proprietary diagnostic sensors, 
refrigerant leak detection systems for A2L refrigerants, carbon 
monoxide (CO) sensors, CO2 sensors, and dual fuel HPs that 
require more power. (Daikin, No. 416 at p. 6; Lennox, No. 389 at pp. 4-
5; Trane, No. 412 at p. 2; AHRI, No. 414-1 at pp. 2-3) AHRI stated that 
it is impossible at this time to determine the power draw from these 
components that may be added to furnaces in the future and suggested 
that DOE reevaluate these proposed standards for NWGFs in the next 
round of standards. (AHRI, No. 414-1 at p. 3) Trane argued that a 20VA 
transformer is inadequate to power all these items. (Trane, No. 412 at 
p. 2) Daikin recommended taking these future requirements into account, 
as these standards will not come into effect until after the new A2L 
refrigerant is required. (Daikin, No. 416 at pp. 5-6)
    The CA IOUs commented that they analyzed the dataset of ten 
consumer furnaces shared by AHRI in which they found that 50 percent of 
the furnaces with AFUEs of 97 or higher would not meet the proposed 
standby mode and off mode requirement. They further stated that 70 
percent would meet a standard of 9 W and that 100 percent would meet a 
standard of 10 W. (The CA IOUs, No. 400 at p. 3)
    The CA IOUs requested that DOE confirm that the proposed standby 
mode and off mode energy conservation standard would not significantly 
reduce the market availability of the most efficient consumer furnaces 
and would preserve design flexibility for future products. The CA IOUs 
suggested that these design flexibilities could include diagnostic 
features to verify installation and monitor ongoing performance or 
additional safety features or reduce consumer costs through higher 
operational energy savings. The CA IOUs suggested that DOE should 
consider a separate standby mode and off mode adder for furnaces with 
higher energy efficiency than baseline furnaces. (The CA IOUs, No. 400 
at p. 3)
    The CA IOUs commented in support of a standby mode and off mode 
energy conservation standard; however, they stated that, in their 
experience, products with higher operational efficiencies sometimes 
have higher standby mode and off mode energy requirements. (The CA 
IOUs, No. 400 at pp. 2-3) They commented that, as an example, furnace 
fans with ECMs have higher standby mode energy consumption compared 
with furnaces fans outfitted with lower efficiency motors. (Id.)
    CEC commented that consumer products in the marketplace already 
meet the proposed DOE standard of 8.5W in standby mode. The commenter 
conducted an analysis on AHRI's condensing data set, which showed 74 
percent of condensing furnaces as using an ECM motor, and only 8 
percent of those furnaces were shown to have a standby energy 
consumption greater than 8.5W. CEC stated that the average of this data 
was 6.1W and that the median was 5.7W for condensing furnaces with ECM 
motors. Therefore, CEC claimed that the 8.5W limit is both realistic 
and leaves room for additional functionality to be added. (CEC, No. 382 
at p. 3)
    NYSERDA expressed support for DOE's proposed standards for standby 
mode and off mode power consumption and agreed with DOE's findings that 
more-efficient transformers are realistic and attainable. (NYSERDA, No. 
379 at pp. 7-8) NYSERDA also noted that the sample of condensing 
furnaces from the data set provided by AHRI to DOE in 2018 \41\ 
supports DOE's proposed standby mode and off mode power

[[Page 87526]]

standards. (NYSERDA, No. 379 at p. 8) According to NYSERDA, the 
majority of models tested at the time had standby mode and off mode 
power efficiencies at or below the proposed standard levels, thereby 
demonstrating the proposed standards to be technologically feasible and 
readily available. (Id.)
---------------------------------------------------------------------------

    \41\ The comment submitted by AHRI was in response to a separate 
proceeding, and can be found at: www.regulations.gov/document/EERE-2018-BT-PET-0017-0002.
---------------------------------------------------------------------------

    After considering this feedback, DOE understands that typical and 
baseline levels of power consumption of NWGFs and MHGFs in standby mode 
or off mode are likely to increase in the future as manufacturers 
continue to build increasingly complex controls into consumer furnaces, 
and that many of the likely changes are related to features such as 
safety sensors or to other improvements in functionality that would 
provide utility for the consumer. In addition, DOE understands that 
manufacturers may be introducing more sophisticated controls for 
furnaces that are intended to get paired with central heat pumps in the 
field, whose operation can be optimized for efficient performance. DOE 
takes Carrier's point that such innovations could contribute to the 
overall utility or performance of the covered product, an important 
consideration when assessing the economic justification of a potential 
standard (see 42 U.S.C. 6295(o)(2)(B)(i)(IV)). However, DOE further 
notes that this one EPCA factor in isolation is not dispositive of a 
potential standard's economic justification or lack thereof, but 
instead, the Department must weigh all seven factors under 42 U.S.C. 
6295(o)(2)(B)(i) before setting any standby mode and off mode power 
standards.
    Based on the totality of these comments, DOE has found that there 
is some degree of uncertainty that exists with respect to the 
appropriateness of the standby mode/off mode efficiency levels analyzed 
in the July 2022 NOPR--particularly for products that are in 
development but also possibly in some products already on the market. 
Consequently, DOE has determined that it lacks the necessary 
information to set appropriate standby mode and off mode standards 
pursuant to 42 U.S.C. 6295(gg)(3) at this time. Particularly since some 
of the functionalities at issue could have significant safety or 
energy-savings benefits, DOE does not wish to stymie such developments 
through well-intentioned but ultimately counterproductive standby mode/
off mode standards. Instead, DOE needs to have a better understanding 
of the legitimate power consumption needs of the subject furnaces when 
operating in these modes. The Department has concluded that it does not 
currently have the requisite evidence to support standby mode and off 
mode standards under the applicable statutory criteria in 42 U.S.C. 
6295(o)(2)(B)(i). Therefore, DOE is not adopting the standby mode/off 
mode power standards for NWGFs/MHGFs proposed in the July 2022 NOPR at 
this time, but instead, the Department will continue to investigate 
these issues and may consider such standards in a future rulemaking. In 
summary, based on the stakeholder feedback received, DOE concludes that 
more data is necessary to determine the appropriate baseline level for 
standby mode and off mode energy usage to allow for safety features, 
features that reduce active mode energy use, or other features that 
would provide additional functionality for consumers.
    In response to the July 2022 NOPR, Daikin commented that it does 
not support DOE's proposed standby mode and off mode standard because 
the consumer life-cycle savings are negligible, the energy savings 
potential is extremely small, the burden on manufacturers is high, and 
there is a need to address low-voltage power supply for components in 
the future. (Daikin, No. 416 at p. 4) Similarly, PHCC commented that 
standby mode and off mode energy use cannot be considered in comparison 
to the overall energy consumption of the equipment because those 
potential savings are de minimis. (PHCC, No. 403 at p. 2)
    Daikin disagreed with DOE's statement that current mounting 
brackets are sufficient to support the slight increase in size and 
weight of an LL-LTX. The commenter asserted that, according to ASTM 
D4728 (Standard Test Method for Random Vibration Testing of Shipping 
Containers and Systems), even small increases in mass can cause breaks, 
cracks, and deformation that mandate strengthening supports and 
brackets. Finally, Daikin stated that such modifications would lead to 
significant cost increases. (Daikin, No. 416 at p. 4)
    As discussed previously in this section, DOE is not finalizing its 
previous proposal to set new standby mode and off mode power standards 
for NWGFs and MHGFs in this final rule. However, DOE will continue to 
monitor the standby mode and off mode power consumption of the subject 
consumer furnaces and may address such standards in a future 
rulemaking. The Department may consider these comments further at that 
time, as appropriate.

B. Product Classes and Scope of Coverage

    When evaluating and establishing energy conservation standards for 
a type (or class) of covered products, DOE divides covered products 
into product classes by the type of energy used, or by capacity or 
other performance-related features which other products within such 
type (or class) do not have and that justify differing standards. In 
making a determination whether a performance-related feature justifies 
a different standard, DOE must consider such factors as the utility of 
the feature to the consumer and other factors DOE determines are 
appropriate. (42 U.S.C. 6295(q))
    In this rule, DOE is only analyzing a subset of consumer furnace 
classes. DOE agreed to the partial vacatur and remand of the June 2011 
direct final rule (DFR), specifically as it related to energy 
conservation standards for NWGFs and MHGFs in the settlement agreement 
to resolve the litigation in American Public Gas Ass'n v. U.S. Dept. of 
Energy (No. 11-1485, D.C. Cir. Filed Dec. 23, 2011). 80 FR 13120, 
13130-13132 (March 12, 2015). Therefore, in this rule, DOE is only 
amending the energy conservation standards for NWGFs and for MHGFs. See 
section IV.A.1 of this document for a more detailed discussion of the 
product classes analyzed in this final rule.

C. Test Procedure

    EPCA sets forth generally applicable criteria and procedures for 
DOE's adoption and amendment of test procedures. (42 U.S.C. 6293) 
Manufacturers of covered products must use these test procedures to 
certify to DOE that their product complies with energy conservation 
standards and to quantify the efficiency of their product. (42 U.S.C. 
6295(s)) DOE's current energy conservation standards for consumer 
furnaces are expressed in terms of AFUE. (See 10 CFR 430.32(e)(1)) AFUE 
is an annualized fuel efficiency metric that accounts for fossil fuel 
consumption in active, standby, and off modes. The existing DOE test 
procedure for determining the AFUE of consumer furnaces is located at 
10 CFR part 430, subpart B, appendix N. The DOE test procedure for 
consumer furnaces was originally established by a May 12, 1997, final 
rule, which incorporates by reference the American Society of Heating, 
Refrigerating and Air-Conditioning Engineers (ASHRAE)/American National 
Standards Institute (ANSI) Standard 103-1993, Method of Testing for 
Annual Fuel Utilization Efficiency of Residential Central Furnaces and 
Boilers (1993). 62 FR 26140, 26157.
    Since the initial adoption of the consumer furnaces test procedure, 
DOE has undertaken a number of additional

[[Page 87527]]

rulemakings related to that test procedure, including ones to account 
for measurement of standby mode and off mode energy use (see 75 FR 
64621 (Oct. 20, 2010); 77 FR 76831 (Dec. 31, 2012)) and to supply 
necessary equations related to optional heat-up and cool-down tests 
(see 78 FR 41265 (July 10, 2013)).
    Most recently, DOE published a final rule in the Federal Register 
on January 15, 2016, that further amended the test procedure (TP) for 
consumer furnaces (January 2016 TP Final Rule). 81 FR 2628. The 
revisions included:
    1. Clarification of the electrical power term ``PE'';
    2. Adoption of a smoke stick test for determining use of minimum 
default draft factors;
    3. Allowance for the measurement of condensate under steady-state 
conditions;
    4. Reference to manufacturer's installation and operation manual 
and clarifications for when that manual does not specify test set-up;
    5. Specification of duct-work requirements for units that are 
installed without a return duct; and
    6. Revision of the requirements regarding AFUE reporting precision.

81 FR 2628, 2629-2630.

    As such, the most current version of the test procedure (published 
in January 2016) has now been in place for several years.
    Daikin commented that the test procedure should add clarity for the 
terms ``electrical auxiliaries'' and ``single auxiliary.'' (Daikin, No. 
416 at p. 6) In response, DOE notes that amendments to the test 
procedure, including associated terminology, are not in scope for this 
analysis of amended energy conservation standards. However, DOE may 
consider this issue further in its next review of the consumer furnaces 
test procedure, which would occur in a separate test procedure 
rulemaking proceeding.

D. Technological Feasibility

1. General
    In each energy conservation standards rulemaking, DOE conducts a 
screening analysis based on information gathered on all current 
technology options and prototype designs that could improve the 
efficiency of the products or equipment that are the subject of the 
rulemaking. As the first step in such an analysis, DOE develops a list 
of technology options for consideration in consultation with 
manufacturers, design engineers, and other interested parties. DOE then 
determines which of those means for improving efficiency are 
technologically feasible. DOE considers technologies incorporated in 
commercially-available products or in working prototypes to be 
technologically feasible. See 10 CFR part 430, subpart C, appendix A 
(Process Rule), sections 6(b)(3)(i) and 7(b)(1).
    After DOE has determined that particular technology options are 
technologically feasible, it further evaluates each technology option 
in light of the following additional screening criteria: (1) 
practicability to manufacture, install, and service; (2) adverse 
impacts on product utility or availability; (3) adverse impacts on 
health or safety, and (4) unique-pathway proprietary technologies. 
Sections 6(b)(3)(ii)-(v) and 7(b)(2)-(5) of the Process Rule. Section 
IV.B of this document discusses the results of the screening analysis 
for NWGFs and MHGFs, particularly the designs DOE considered, those it 
screened out, and those that are the basis for the standards considered 
in this rulemaking. For further details on the screening analysis for 
this rulemaking, see chapter 4 of the final rule TSD.
2. Maximum Technologically Feasible Levels
    When DOE proposes to adopt an amended standard for a type or class 
of covered product, it must determine the maximum improvement in energy 
efficiency or maximum reduction in energy use that is technologically 
feasible for such product. (42 U.S.C. 6295(p)(1)) Accordingly, in the 
engineering analysis, DOE determined the maximum technologically 
feasible (``max-tech'') improvements in energy efficiency for NWGFs and 
MHGFs, using the design parameters for the most efficient products 
available on the market or in working prototypes. The max-tech levels 
that DOE determined for this rulemaking are described in section IV.C 
of this final rule and in chapter 5 of the final rule TSD.

E. Energy Savings

1. Determination of Savings
    For each trial standard level (TSL), DOE projected energy savings 
from application of the TSL to NWGFs and MHGFs purchased in the 30-year 
period that begins in the expected first year of compliance with the 
amended standards (2029-2058).\42\ The savings are measured over the 
entire lifetime of products purchased in the 30-year analysis period. 
DOE quantified the energy savings attributable to each TSL as the 
difference in energy consumption between each standards case and the 
no-new-standards case. The no-new-standards case represents a 
projection of energy consumption that reflects how the market for a 
product would likely evolve in the absence of amended energy 
conservation standards.
---------------------------------------------------------------------------

    \42\ DOE also presents a sensitivity analysis that considers 
impacts for products shipped in a 9-year period.
---------------------------------------------------------------------------

    DOE used its national impact analysis (NIA) spreadsheet models to 
estimate national energy savings (NES) from potential amended standards 
for NWGFs and MHGFs. The NIA spreadsheet model (described in section 
IV.H of this document) calculates energy savings in terms of site 
energy, which is the energy directly consumed by products at the 
locations where they are used. For electricity, DOE reports national 
energy savings in terms of primary (source) energy savings, which is 
the savings in the energy that is used to generate and transmit the 
site electricity. For natural gas, the primary energy savings are 
considered to be equal to the site energy savings. To calculate the 
primary energy impacts, DOE derives annual conversion factors from the 
model used to prepare the Energy Information Administration's (EIA) 
most recent Annual Energy Outlook (AEO) currently AEO2023. DOE also 
calculates NES in terms of FFC energy savings. The FFC metric includes 
the energy consumed in extracting, processing, and transporting primary 
fuels (i.e., coal, natural gas, petroleum), and, thus, presents a more 
complete picture of the impacts of energy conservation standards.\43\ 
DOE's approach is based on the calculation of an FFC multiplier for 
each of the energy types used by covered products or equipment. For 
more information on FFC energy savings, see section IV.H.2 of this 
document.
---------------------------------------------------------------------------

    \43\ The FFC metric is discussed in DOE's statement of policy 
and notice of policy amendment. 76 FR 51282 (August 18, 2011), as 
amended at 77 FR 49701 (August 17, 2012).
---------------------------------------------------------------------------

2. Significance of Savings
    To adopt any new or amended standards for a covered product, DOE 
must determine that such action would result in significant energy 
savings. (42 U.S.C. 6295(o)(3)(B))
    The significance of energy savings offered by a new or amended 
energy conservation standard cannot be determined without knowledge of 
the specific circumstances surrounding a given rulemaking. For example, 
some covered products and equipment have most of their energy 
consumption occur during periods of peak energy demand. The impacts of 
these products on the

[[Page 87528]]

energy infrastructure can be more pronounced than products with 
relatively constant demand. Accordingly, DOE evaluates the significance 
of energy savings on a case-by-case basis, taking into account the 
significance of cumulative FFC national energy savings, the cumulative 
FFC emissions reductions, and the need to confront the global climate 
crisis, among other factors.
    The standard levels adopted in this final rule are projected to 
result in national energy savings of 4.77 quad (FFC) over 30 years of 
shipments, with GHG emissions savings equivalent to the energy use of 
42 million homes in one year.\44\ Based on the amount of FFC savings, 
the corresponding reduction in emissions, and need to confront the 
global climate crisis, DOE has determined (based on the methodology 
described in section IV.E of this document and the analytical results 
presented in section V.B.3.a of this document) that there is 
substantial evidence that the energy savings from the standard levels 
adopted in this final rule are ``significant'' within the meaning of 42 
U.S.C. 6295(o)(3)(B).
---------------------------------------------------------------------------

    \44\ Equivalencies based on: www.epa.gov/energy/greenhouse-gas-equivalencies-calculator (last accessed Sept. 15, 2023).
---------------------------------------------------------------------------

    APGA commented that the purpose of EPCA is to reduce energy 
consumption. APGA stated that the energy savings for the proposed TSL 8 
(of 5.48 quad) was significantly higher than all other TSLs except TSL 
9. APGA stated that the analysis is extremely complex, but even with 
that complexity, the estimated savings represents just 3.5 percent 
relative to the energy use of these products in the no-new-standards 
case. APGA also added that DOE's estimates of energy savings are 
tainted based on flawed modeling in the LCC analysis. (APGA, No. 387 at 
p. 28)
    DOE addresses APGA's comments with regard to the modeling 
assumptions in the LCC analysis in section IV.F of this document. With 
regard to the significance of savings, DOE is not required to consider 
the percentage of savings when considering significance. In particular, 
42 U.S.C. 6295(o)(2)(B)(i)(III) refers to the total projected amount of 
energy savings, not the percentage savings. While those percentage 
savings have previously been considered as a test when overall energy 
savings are small, in this case, overall energy savings are quite 
large, particularly when aggregated over the 30-year analysis period. 
Therefore, DOE continues to maintain that the energy savings estimated 
for this final rule of 4.77 quads are significant.
    The DCA commented that the unpredictable nature of renewable energy 
sources, such as solar and wind, demonstrate that these energy sources 
alone will not meet current and future demand. (DCA, No. 372 at pp. 1-
2) The DCA commented that the United States will not be able to achieve 
its clean energy ambitions without substantial growth of natural gas 
production and a large expansion of natural gas distribution pipelines. 
(Id.) The DCA commented that natural gas enables the use of renewable 
energy sources. (Id. at p. 2)
    With respect to DCA's comment regarding the mix of fuels needed to 
meet future energy demand, DOE notes that the EIA's AEO2023 projects 
natural gas to account for 35 percent of all domestic energy production 
in 2050.\45\ AEO's projections of future energy systems in the U.S. are 
based on a robust and comprehensive macroeconomic model, taking into 
account a wealth of factors and data, and those projections are the 
best available to DOE.
---------------------------------------------------------------------------

    \45\ Energy Information Administration, Annual Energy Outlook 
2023, Table 1 (available at: www.eia.gov/outlooks/aeo/tables_ref.php).
---------------------------------------------------------------------------

F. Economic Justification

1. Specific Criteria
    As noted previously, EPCA provides seven factors to be evaluated in 
determining whether a potential energy conservation standard is 
economically justified. (42 U.S.C. 6295(o)(2)(B)(i)(I)-(VII)) The 
following sections discuss how DOE has addressed each of those seven 
factors in this rulemaking.
a. Economic Impact on Manufacturers and Consumers
    In determining the impacts of potential amended standards on 
manufacturers, DOE conducts a manufacturer impact analysis (``MIA''), 
as discussed in section IV.J of this document. DOE first uses an annual 
cash-flow approach to determine the quantitative impacts. This step 
includes both a short-term assessment--based on the cost and capital 
requirements during the period between when a regulation is issued and 
when entities must comply with the regulation--and a long-term 
assessment over a 30-year period. The industry-wide impacts analyzed 
include: (1) INPV, which values the industry on the basis of expected 
future cash flows; (2) cash flows by year; (3) changes in revenue and 
income; and (4) other measures of impact, as appropriate. Second, DOE 
analyzes and reports the impacts on different types of manufacturers, 
including impacts on small manufacturers. Third, DOE considers the 
impact of standards on domestic manufacturer employment and 
manufacturing capacity, as well as the potential for standards to 
result in plant closures and loss of capital investment. Finally, DOE 
takes into account cumulative impacts of various DOE regulations and 
other regulatory requirements on manufacturers.
    For individual consumers, measures of economic impact include the 
changes in LCC and PBP associated with new or amended standards. These 
measures are discussed further in the following section. For consumers 
in the aggregate, DOE also calculates the national net present value of 
the consumer costs and benefits expected to result from particular 
standards. DOE also evaluates the LCC impacts of potential standards on 
identifiable subgroups of consumers that may be affected 
disproportionately by a standard.
b. Savings in Operating Costs Compared To Increase in Price (LCC and 
PBP)
    EPCA requires DOE to consider the savings in operating costs 
throughout the estimated average life of the covered product in the 
type (or class) compared to any increase in the price of, or in the 
initial charges for, or maintenance expenses of, the covered product 
that are likely to result from a standard. (42 U.S.C. 
6295(o)(2)(B)(i)(II)) DOE conducts this comparison in its LCC and PBP 
analysis.
    The LCC is the sum of the purchase price of a product (including 
its installation) and the operating cost (including energy, 
maintenance, and repair expenditures) discounted over the lifetime of 
the product. The LCC analysis requires a variety of inputs, such as 
product prices, product energy consumption, energy prices, maintenance 
and repair costs, product lifetime, and discount rates appropriate for 
consumers. To account for uncertainty and variability in specific 
inputs, such as product lifetime and discount rate, DOE uses a 
distribution of values, with probabilities attached to each value.
    The PBP is the estimated amount of time (in years) it takes 
consumers to recover the increased purchase cost (including 
installation) of a more-efficient product through lower operating 
costs. DOE calculates the PBP by dividing the change in purchase cost 
due to a more-stringent standard by the change in annual operating cost 
for the year that standards are assumed to take effect.
    The LCC and PBP analyses focus on consumers who will purchase the 
covered products in the first year of

[[Page 87529]]

compliance with new or amended standards. The LCC savings for the 
considered efficiency levels are calculated relative to the case that 
reflects projected market trends in the absence of new or amended 
standards. DOE's LCC and PBP analysis is discussed in further detail in 
section IV.F of this document.
c. Energy Savings
    Although significant conservation of energy is a separate statutory 
requirement for adopting an energy conservation standard, EPCA requires 
DOE, in determining the economic justification of a standard, to 
consider the total projected energy savings that are expected to result 
directly from the standard. (42 U.S.C. 6295(o)(2)(B)(i)(III)) As 
discussed in section IV.H of this document, DOE uses the NIA 
spreadsheet models to project national energy savings.
d. Lessening of Utility or Performance of Products
    In establishing product classes, and in evaluating design options 
and the impact of potential standard levels, DOE evaluates potential 
standards that would not lessen the utility or performance of the 
considered products. (42 U.S.C. 6295(o)(2)(B)(i)(IV)) Based on data 
available to DOE, the standards adopted in this document would not 
reduce the utility or performance of the products under consideration 
in this rulemaking.
e. Impact of Any Lessening of Competition
    EPCA directs DOE to consider the impact of any lessening of 
competition, as determined in writing by the Attorney General, that is 
likely to result from a standard. (42 U.S.C. 6295(o)(2)(B)(i)(V)) It 
also directs the Attorney General to determine the impact, if any, of 
any lessening of competition likely to result from a standard and to 
transmit such determination to the Secretary within 60 days of the 
publication of a proposed rule, together with an analysis of the nature 
and extent of the impact. (42 U.S.C. 6295(o)(2)(B)(ii)) To assist the 
Department of Justice (DOJ) in making such a determination, DOE 
transmitted copies of its proposed rule and the NOPR TSD to the 
Attorney General for review, with a request that the DOJ provide its 
determination on this issue. In its assessment letter responding to 
DOE, DOJ concluded that the proposed energy conservation standards for 
NWGFs and MHGFs are unlikely to substantially lessen competition in any 
particular product or geographic market. DOJ added that in the course 
of its review, it was told that the MHGF market may be more highly 
concentrated than DOE's analysis suggests. DOJ stated that given the 
necessarily short time-frame for its review, it is not in a position to 
confirm the level of concentration increase that may be caused by the 
rule, but it encouraged DOE to closely examine and consider potential 
competitive issues that commenters may raise with respect to this 
rulemaking. The Department is publishing the Attorney General's 
assessment at the end of this final rule. DOE notes that it has 
carefully considered the issues mentioned by DOJ in arriving at the 
standards adopted in this final rule.
    NGA of Georgia stated that the NOPR analysis indicated that nearly 
32 percent of current furnaces in Georgia would be converted to an 
alternate fuel source under the proposed standard, which would have 
implications for the competitive balance of natural gas utilities, 
contractors that specialize in gas piping and appliances, and 
manufacturers that only make gas equipment or venting. (NGA of Georgia, 
No. 380 at p. 3) GAS asserted that DOE has ignored anti-competitive 
effects of its energy conservation standards rulemakings. (GAS, No. 385 
at p. 6) APGA commented that the rulemaking record created by DOE does 
not do a good job of quantifying the impact on competition, and noted 
that APGA addressed the competition issue in comments to the Department 
of Justice dated August 19, 2022. (APGA, No. 387 at pp. 64-65) APGA 
asserted that establishing a 95-percent AFUE standard could have a 
profound impact on competition, as consumers may shift to alternative 
methods of home heating equipment due to the higher up-front cost of a 
95-percent AFUE furnace (compared to a 90-percent AFUE furnace). (APGA, 
No. 387 at p. 65) Spencer and Dayaratna asserted that the proposed 
standard ``would effectively remove a technology from the marketplace 
and reduce competition.'' (Spencer and Dayaratna, No. 390 at p. 2) They 
claim that the proposed standard will remove an entire technology from 
the market, limiting the incentive for condensing furnace manufacturers 
to lower prices or to increase efficiency further. (Id. at 3) Mortex 
submitted written comments specific to competition in the MHGF 
marketplace, asserting that one MHGF manufacturer is dominant and sells 
both to mobile home manufacturers and into the replacement market. 
Additionally, Mortex raised concerns about the availability of 20'' 
wide and 24'' deep MHGFs if DOE adopts a condensing standard and the 
financial impacts that lessened competition in the MHGF market could 
have on low-income consumers. (Mortex, No. 410 at pp. 3-4) In addition 
to dimensional differences between MHGFs and NWGFs, JCI stated that 
there are product configuration differences (i.e., MHGFs typically 
utilize a downflow configuration and NWGFs typically utilize an upflow 
configuration). JCI raised concerns about the availability of downflow 
condensing MHGFs. JCI questioned the feasibility of retrofitting an 
upflow MHGF into a manufactured home constructed to make use of a 
downflow furnace. Specifically, JCI asserted that the costs of 
reconfiguring ductwork, filling voids, and making other necessary 
structural changes would prevent such a change. (JCI, No. 411 at pp. 2-
3)
    In response to stakeholders' comments and DOJ's comment regarding 
the MHGF industry, DOE reviewed the manufacturer landscape of NWGFs and 
the manufacturer landscape of MHGFs separately. In the NWGF market, DOE 
notes that the 10 original equipment manufacturers (OEMs) of non-
condensing NWGFs also manufacture condensing NWGFs that meet or exceed 
the adopted level (95-percent AFUE). Additionally, DOE identified three 
OEMs that only manufacture condensing NWGFs. These three NWGF OEMs also 
all offer models that meet or exceed the adopted level. Thus, a variety 
of companies already participate in the condensing NWGF market. Given 
that the number of competitors is not decreased at the adopted levels, 
DOE does not anticipate lessening of competition in the NWGF market. 
Compared to the NWGF market, the MHGF market is smaller (i.e., lower 
annual shipments) and is served by fewer OEMs. DOE estimates that NWGFs 
account for approximately 97 percent of shipments covered by this 
rulemaking (around 3.1 million units in 2029) and that MHGFs account 
for the remaining 3 percent of shipments (around 0.1 million units in 
2029). In the July 2022 NOPR, DOE identified seven OEMs of MHGFs. For 
this final rule, DOE further researched the furnace market and 
refreshed its database of model listings to include the most up-to-date 
information on NWGF and MHGF models currently available on the market. 
Through its review of the updated product database and other public 
sources, DOE determined that one MHGF OEM no longer offers products 
covered by this rulemaking. At the time of the July 2022 NOPR, this

[[Page 87530]]

OEM offered one condensing MHGF model, which has since been 
discontinued. Therefore, through its careful review of the MHGF market, 
DOE has determined that six OEMs manufacture MHGFs for the U.S. market. 
Of these six OEMs, one OEM only manufactures non-condensing MHGFs, two 
OEMs only manufacture condensing MHGFs, and the remaining three OEMs 
manufacture both non-condensing and condensing MHGFs. All five OEMs of 
condensing MHGFs offer models that meet or exceed the adopted level 
(95-percent AFUE). Furthermore, all OEMs of condensing MHGFs offer 
downflow condensing models. Given the existing availability of downflow 
condensing models, DOE finds that a market shift to condensing furnaces 
would not eliminate downflow configurations from the market. Similarly, 
DOE found a range of condensing MHGF models that fit into compact 
footprints. The availability of such models from Burnham Holdings 
(Thermo Pride) and Madison Industries (Nortek) suggest there is no 
technical constraint to offering condensing MHGFs that fit a compact 
footprint. DOE recognizes that one manufacturer dominates the MHGF 
space in sales volume, and the remaining competitors have small market 
shares. As a result, the MHGF market is concentrated. However, DOE does 
not expect the adopted standard would significantly alter the level of 
concentration. DOE notes that consumers have access to a range of 
alternate heating solutions and that those alternatives limit price 
increases in a market where one manufacturer already dominates the 
space. As discussed earlier in this section, in a September 6, 2022, 
letter written in response to the NOPR, DOJ stated that ``[b]ased on 
our review of the information currently available, we do not believe 
that the proposed energy conservation standards for consumer furnaces 
are likely to substantially lessen competition in any particular 
product or geographic market.''
f. Need for National Energy Conservation
    DOE also considers the need for national energy and water 
conservation in determining whether a new or amended standard is 
economically justified. (42 U.S.C. 6295(o)(2)(B)(i)(VI))
    Spencer and Dayaratna asserted that DOE's NOPR fails to establish 
the need for national energy conservation as would justify the proposed 
standard under 42 U.S.C. 6295(o)(2)(B)(i)(VI). These commenters argued 
that there is not a current and pressing problem concerning 
conservation, as the United States is in a time of energy abundance 
(citing EIA estimates of U.S. oil and gas reserves equating to nearly 
100 years of supply, uranium reserves, as well as the potential for new 
energy discoveries such as oil shale). Spencer and Dayaratna also 
challenged the proposed standards' anticipated reductions in toxic air 
emissions as a weak reason for showing the need for national energy 
conservation; the commenters argued that air pollutant concentration 
levels have declined significantly since 1990, so with the air clean 
and getting cleaner, they asserted that the costs and benefits of the 
regulation are outweighed by its impacts on consumer choice, family 
finances, and broad inconvenience. (Spencer and Dayaratna, No. 390 at 
pp. 4-6)
    DOE disagrees with this comment from Spencer and Dayaratna. DOE 
finds this comment to start from the flawed premise that further 
improvements in energy efficiency and reduced emissions are unnecessary 
or would not provide substantial benefits to consumers and the Nation. 
As discussed in section I.C of this final rule, the amended standards 
for the subject consumer furnaces are expected to save 4.77 quad of 
energy over 30 years and the cumulative NPV of total consumer benefits 
of the amended standards for NWGFs and MHGFs ranges from $4.8 billion 
(at a 7-percent discount rate) to $16.3 billion (at a 3-percent 
discount rate) over the same time period. In DOE's view, the presence 
of an abundant energy supply neither precludes DOE's approach nor 
justifies the approach suggested by the commenters, which would result 
in waste of significant amounts of energy when more-efficient options 
are technologically feasible and economically justified.
    Likewise, DOE does not agree that the Nation and its citizens 
(particularly children) would not benefit from the reduction in toxic 
air emissions associated with the amended energy conservation standards 
for the subject consumer furnaces. Despite the Nation's substantial 
progress in reducing emissions in recent years, DOE does not believe 
that further efforts in terms of environmental and human health 
protection are unnecessary. DOE maintains that environmental and public 
health benefits associated with the more efficient use of energy are 
important to take into account when considering the need for national 
energy conservation. The adopted standards are likely to result in 
environmental benefits in the form of reduced emissions of air 
pollutants and greenhouse gases (GHGs) associated with energy 
production and use. DOE conducts an emissions analysis to estimate how 
potential standards may affect these emissions, as discussed in section 
IV.K of this document; the estimated emissions impacts are reported in 
section V.B.6 of this document. DOE also estimates the economic value 
of emissions reductions resulting from the considered TSLs, as 
discussed in section IV.L of this document. These positive economic and 
health benefits are set forth in detail in section V.B.6 of this 
document.
    Furthermore, DOE notes that the energy savings from the adopted 
standards are likely to provide improvements to the security and 
reliability of the Nation's energy system. Reductions in the demand for 
electricity also may result in reduced costs for maintaining the 
reliability of the Nation's electricity system. DOE conducts a utility 
impact analysis to estimate how standards may affect the Nation's 
needed power generation capacity, as discussed in section IV.M of this 
document.
g. Other Factors
    In determining whether an energy conservation standard is 
economically justified, DOE may consider any other factors that the 
Secretary deems to be relevant. (42 U.S.C. 6295(o)(2)(B)(i)(VII)) To 
the extent DOE identifies any relevant information regarding economic 
justification that does not fit into the other categories described 
previously, DOE could consider such information under ``other 
factors.''
    Spencer and Dayaratna stated that one other factor to consider is 
how the proposed standard meaningfully advances EPCA's intent, given 
the abundant energy sources that the United States enjoys today that 
were not contemplated in 1975. (Spencer and Dayaratna, No. 390 at p. 
11) They add that given the change in the value proposition for energy 
efficiency since 1975, setting efficiency standards no longer has the 
same impact on energy availability as it did during times of perceived 
energy scarcity, concluding that the proposed standards do not 
meaningfully advance the intent of EPCA and do not justify the 
restrictions that they state the proposed rule will impose on consumer 
choice. (Id. at p. 11-12)
    DOE's response here is similar to that made in the preceding 
section in response to Spencer and Dayaratna's argument regarding 
establishing the need for national energy conservation. Again, DOE 
disagrees with the commenters' assertion that an abundant energy supply 
somehow ends DOE's statutory mandate to pursue further

[[Page 87531]]

improvements in energy efficiency and reduced emissions, despite the 
fact that such actions would provide substantial benefits to consumers 
and the Nation. Additionally, the consideration of total projected 
energy savings is only one of the seven factors enumerated in EPCA. (42 
U.S.C. 6295(o)(2)(B)(i)). Energy savings have value both in times of 
scarcity and abundance, and particularly in light of the EPCA 
amendments in recent years mandating review of existing conservation 
standards on a six-year cycle,\46\ it is apparent that Congress intends 
for DOE to continue to pursue energy efficiency gains that meet the 
applicable statutory criteria--even in times of energy abundance. As 
discussed in section I.C of this final rule, the amended standards for 
the subject consumer furnaces are expected to save 4.77 quad of energy 
over 30 years and the cumulative NPV of total consumer benefits of the 
amended standards for NWGFs and MHGFs ranges from $4.8 billion (at a 7-
percent discount rate) to $16.3 billion (at a 3-percent discount rate) 
over the same period. DOE has determined that the full measure of 
anticipated energy and cost savings from amended energy conservation 
standards for the subject furnaces are unlikely to be realized in the 
absence of amended standards. Furthermore, as discussed in section 
III.F.1.f of this document, DOE maintains that environmental and public 
health benefits associated with the more efficient use of energy are 
important to take into account. Again, in DOE's view, the presence of 
an abundant energy supply neither precludes DOE's approach nor 
justifies the approach suggested by the commenters, which would result 
in waste of significant amounts of energy when more-efficient options 
are technologically feasible and economically justified.
---------------------------------------------------------------------------

    \46\ See amendments to EPCA contained in the Energy Independence 
and Security Act of 2007 (EISA 2007), Public Law 110-140 (enacted 
Dec. 19, 2007), and in the American Energy Manufacturing Technical 
Corrections Act (AEMTCA), Public Law 112-210 (enacted Dec. 18, 
2012).
---------------------------------------------------------------------------

2. Rebuttable Presumption
    As set forth in 42 U.S.C. 6295(o)(2)(B)(iii), EPCA creates a 
rebuttable presumption that an energy conservation standard is 
economically justified if the additional cost to the consumer of a 
product that meets the standard is less than three times the value of 
the first year's energy savings resulting from the standard, as 
calculated under the applicable DOE test procedure. DOE's LCC and PBP 
analyses generate values used to calculate the effect potential amended 
energy conservation standards would have on the payback period for 
consumers. These analyses include, but are not limited to, the three-
year payback period contemplated under the rebuttable-presumption test. 
In addition, DOE routinely conducts an economic analysis that considers 
the full range of impacts to consumers, manufacturers, the Nation, and 
the environment, as required under 42 U.S.C. 6295(o)(2)(B)(i). The 
results of this analysis serve as the basis for DOE's evaluation of the 
economic justification for a potential standard level (thereby 
supporting or rebutting the results of any preliminary determination of 
economic justification). The rebuttable presumption payback calculation 
is discussed in section IV.F of this final rule.

G. Compliance Date

    In the July 2022 NOPR, DOE discussed in some detail the relevant 
provisions of EPCA related to calculation of the requisite lead time 
between publication of a final rule and compliance with amended 
standards, and the Department ultimately proposed a five-year lead time 
for compliance with any amended energy conservation standards for NWGFs 
and MHGFs. 87 FR 40590, 40611 (July 7, 2022). Additionally, as 
explained in the July 2022 NOPR, furnaces and furnace fans are separate 
products under EPCA, and, therefore, the required six-year period under 
42 U.S.C. 6295(m)(4)(B) is not relevant because it applies only in the 
context of standards directly pertinent to the product in question. As 
such, the energy conservation standards for furnace fans are not a 
consideration when applying the six-year spacing period to new or 
amended standards for furnaces. Id. at 87 FR 40611-40612. DOE did not 
receive any comments related to the proposed five-year lead time for 
compliance presented in the July 2022 NOPR and is adopting a five-year 
lead time in this final rule.

H. Impact From Other Rulemakings

    Veiga commented that home appliances have energy-efficiency 
standards that collectively make homes more expensive. (Veiga, No. 326 
at p. 1) Lennox commented that DOE needs to consider the total 
cumulative regulatory burden for consumer furnaces, as there are 
multiple concurrent DOE, Environmental Protection Agency (EPA), and 
other regulatory actions undergoing updates. (Lennox, No. 389 at p. 8) 
Lennox stated that the NOPR's cumulative regulatory burden analysis was 
inadequate and did not include all relevant regulations. The commenter 
provided the following list of relevant regulations: ``2023 DOE Energy 
Conservation Standards (``ECS'') change for central air conditioners; 
2023 DOE Energy Conservation Standard change for commercial air 
conditioners; 2023 DOE ECS change for commercial warm air furnaces 
(``CWAFs''); EPA phase-down to lower GWP refrigerants to meet the 
American Innovation and Manufacturing (``AIM'') Act objectives; 
National and Regional Cold Climate Heat Pump Specifications; 2025 DOE 
ECS change for Three-Phase, Below 65,000 Btu/h; DOE Test procedure for 
VRF [Variable Refrigerant Flow] Systems; EPA Energy Star 6.0+ for 
Residential HVAC; EPA Energy Star 4.0 for Light Commercial HVAC, and 
DOE ECS changes for electric motors, commercial fans and blowers, 
furnace fans, oil and weatherized gas furnaces, and walk-in coolers and 
freezers''. (Id.) Lennox stated that the significant cumulative 
regulatory burdens are stressing technical and laboratory resources 
within the industry. (Id. at p. 9)
    Many of the rules listed by Lennox are not finalized. Regulations 
that are not yet finalized are not considered in cumulative regulatory 
burden, as the timing, cost, and impacts of unfinalized rules are 
speculative. However, to aid stakeholders in identifying potential 
cumulative regulatory burden, DOE does list rulemakings that have 
proposed rules, which have tentative compliance dates, compliance 
levels, and compliance cost estimates. In addition, the commercial fans 
and blowers, furnace fans, and oil and weatherized gas furnaces, and 
air-cooled unitary air conditioners rulemakings identified by Lennox 
have not yet been proposed. The walk-in coolers and freezer (``WICF'') 
rulemaking was not proposed at the time of the July 2022 NOPR. A 
proposed rule for WICFs has since been published, and DOE added the 
WICF ECS NOPR rulemaking to its list of appliance standards that could 
contribute to cumulative regulatory burden in section V.B.2.e of this 
document. 88 FR 60746 (Sept. 5, 2023). The expanded scope electric 
motors (ESEMs) rulemaking was also still in development at the time of 
the July 2022 NOPR.\47\ In the ESEM rulemaking, DOE is considering 
including expanded scope electric motors including certain permanent 
split capacitor (PSC) motors that exceed 0.25 horsepower and are 
single-speed. DOE understands that the

[[Page 87532]]

vast majority of furnace fans used in MHGFs use either electrically 
commutated motors (i.e., ``ECMs'' which are also referred to as BPM 
motors in this rulemaking) or are multiple-speed PSC motors, both of 
which are out of the preliminary scope of the ESEM rulemaking. Thus, 
furnace fans used in MHGFs are not likely to be impacted by the ESEM 
rulemaking. In addition, DOE does not expect that any potential 
efficiency standard for ESEMs would impact NWGFs because the furnace 
fans used in those products use BPM motors, for which standards were 
not analyzed in the ESEMs rulemaking.
---------------------------------------------------------------------------

    \47\ See Docket EERE-2020-BT-STD-0007. DOE initially used the 
term small, non-small electric motors (SNEMs) to designate ESEMs.
---------------------------------------------------------------------------

    As discussed in section IV.C.2.c. of this document, the MHGF MPCs 
that were developed for this analysis were normalized to represent the 
cost of the furnace units with furnace fans that include improved PSC 
motors \48\ at all ELs. Using the same furnace fan motor at all ELs 
ensures that the incremental costs between ELs are proportional only to 
the addition of the specific technologies associated with achieving 
each next-higher EL. Thus, should a baseline technology for SNEMs be 
finalized that is higher than the assumed improved PSC motors, this new 
technology would be implemented at each efficiency level. Any changes 
in furnace fan motor costs would impact the cost of each efficiency 
level for MHGFs equally. Therefore, while DOE acknowledges the 
potential for a small increase in MPCs for MHGFs as a result of the 
SNEMs rulemaking (if finalized), DOE expects that the incremental costs 
of MHGFs between ELs would not be impacted. Similarly, installed costs 
for consumers would likely increase slightly due to the increased motor 
cost, but an equivalent impact would be expected across all efficiency 
levels. Additionally, an increase in furnace fan motor efficiency would 
decrease the total electrical energy consumption of each MHGF in the 
field, but it is not expected to impact the performance of the overall 
furnace as measured by AFUE, and, therefore, the efficiency levels 
included in this analysis would not be impacted. Therefore, the 
conclusion of economic justification for the amended standards adopted 
in this final rule would be unchanged by a potential new standard for 
SNEMs.
---------------------------------------------------------------------------

    \48\ In this analysis, DOE uses ``improved PSC motors'' to refer 
to PSC motors with at least three airflow-control settings.
---------------------------------------------------------------------------

    In the analysis of cumulative regulatory burden, DOE considers 
Federal, product-specific regulations that have compliance dates within 
three years of one another. The compliance date for this final rule is 
in 2029. The compliance dates for the central air conditioners in 2023, 
commercial unitary air conditioners standards in 2023, commercial warm 
air furnace standards in 2023, VRF system test procedures in 2024, and 
the ``air-cooled, three-phase equipment with cooling capacity less than 
65,000 Btu/h'' in 2025 occur outside the cumulative regulatory burden 
timeframe and are not explicitly considered in the selection of the 
adopted standard. The EPA ENERGY STAR programs for residential HVAC and 
light commercial HVAC, as well as the ENERGY STAR Cold Climate Heat 
Pump Controls Verification Procedure, are voluntary programs and are 
not considered in DOE's analysis of cumulative regulatory burden. See 
section V.B.2.e of this document or chapter 12 of the final rule TSD 
for additional information on cumulative regulatory burden.
    HARDI commented that the proposed standards also do not meet the 
requirements under the Regulatory Flexibility Act, as DOE only assessed 
the impact on four small manufacturers, but not on distributors, 
contractors, or manufacturers of furnace supplies. HARDI stated that 
there are a number of small businesses that serve as furnace suppliers. 
(HARDI, No. 384 at pp. 3-4) NGA of Georgia similarly stated that the 
proposal fails to capture the negative effects on small businesses that 
manufacture venting and accessories for non-condensing furnaces. (NGA 
of Georgia, No. 380 at p. 2)
    In response, DOE conducted an initial regulatory flexibility 
analysis in support of the July 2022 NOPR. See 87 FR 40590, 40698-40701 
(July 7, 2022). However, NGA of Georgia and HARDI have misinterpreted 
the requirements of the Regulatory Flexibility Act, which requires an 
agency to perform a regulatory flexibility analysis of small entity 
impacts when a rule directly regulates the small entities, rather than 
a broader array of entities which may be indirectly impacted. This 
final rule regulates manufacturers of consumer furnaces, not the other 
types of businesses to which NGA of Georgia and HARDI refer. The 
impacts on small manufacturers of the subject consumer furnaces are 
presented in the final regulatory flexibility analysis, found in 
section VI.B of this document.

IV. Methodology and Discussion of Related Comments

    This section addresses the analyses DOE has performed for this 
rulemaking with regard to NWGFs and MHGFs. Separate subsections address 
each component of DOE's analyses. Comments on the methodology and DOE's 
responses are presented in each section.
    DOE used several analytical tools to estimate the impact of the 
standards considered in this document on consumers and manufacturers. 
The first tool is a spreadsheet that calculates the LCC savings and PBP 
of potential amended or new energy conservation standards. The national 
impacts analysis uses a second spreadsheet set that provides shipments 
projections and calculates national energy savings and net present 
value of total consumer costs and savings expected to result from 
potential energy conservation standards. DOE uses the third spreadsheet 
tool, the Government Regulatory Impact Model (GRIM), to assess 
manufacturer impacts of potential standards. These three spreadsheet 
tools are available on the DOE website for this rulemaking: 
www1.eere.energy.gov/buildings/appliance_standards/standards.aspx?productid=59&action=viewlive. Additionally, DOE used 
output from the latest version of the EIA's Annual Energy Outlook for 
the emissions and utility impact analyses.

A. Market and Technology Assessment

    DOE develops information in the market and technology assessment 
that provides an overall picture of the market for the products 
concerned, including the purpose of the products, the industry 
structure, manufacturers, market characteristics, and technologies used 
in the products. This activity includes both quantitative and 
qualitative assessments, based primarily on publicly-available 
information. The subjects addressed in the market and technology 
assessment for this rulemaking include: (1) a determination of the 
scope of the rulemaking and product classes; (2) manufacturers and 
industry structure; (3) existing efficiency programs; (4) shipments 
information; (5) market and industry trends, and (6) technologies or 
design options that could improve the energy efficiency of NWGFs and 
MHGFs. The key findings of DOE's market assessment are summarized in 
the following sections. See chapter 3 of the final rule TSD for further 
discussion of the market and technology assessment.
1. Scope of Coverage and Product Classes
a. General Approach
    EPCA defines a ``furnace'' as a product which utilizes only single-
phase electric current, or single-phase electric current or DC current 
in conjunction with natural gas, propane, or home heating oil, and 
which:

[[Page 87533]]

    (1) Is designed to be the principal heating source for the living 
space of a residence;
    (2) Is not contained within the same cabinet with a central air 
conditioner whose rated cooling capacity is above 65,000 Btu per hour;
    (3) Is an electric central furnace, electric boiler, forced-air 
central furnace, gravity central furnace, or low pressure steam or hot 
water boiler; and
    (4) Has a heat input rate of less than 300,000 Btu per hour for 
electric boilers and low pressure steam or hot water boilers and less 
than 225,000 Btu per hour for forced-air central furnaces, gravity 
central furnaces, and electric central furnaces.

(42 U.S.C. 6291(23))

    DOE has incorporated this definition into its regulations in the 
Code of Federal Regulations (CFR) at 10 CFR 430.2.
    EPCA's definition of a ``furnace'' covers the following types of 
products: (1) gas furnaces (non-weatherized and weatherized); (2) oil-
fired furnaces (non-weatherized and weatherized); (3) mobile home 
furnaces (gas and oil-fired); (4) electric resistance furnaces; (5) hot 
water boilers (gas and oil-fired); (6) steam boilers (gas and oil-
fired), and (7) combination space/water heating appliances (water-
heater/fancoil combination units and boiler/tankless coil combination 
units). As discussed in section II.B.2 of this document, DOE agreed to 
the partial vacatur and remand of the June 2011 DFR, specifically as it 
related to energy conservation standards for NWGFs and MHGFs in the 
settlement agreement to resolve the litigation in American Public Gas 
Ass'n v. U.S. Dept. of Energy (No. 11-1485, D.C. Cir. Filed Dec. 23, 
2011). For a more complete discussion of the history of this litigation 
and its impacts on this rulemaking, see 80 FR 13120, 13130-13132 (March 
12, 2015). Therefore, in this rulemaking, DOE is only amending the 
energy conservation standards for these two product classes of 
residential furnaces (i.e., NWGFs and MHGFs).
    When evaluating and establishing energy conservation standards, DOE 
divides covered products into product classes by the type of energy 
used. DOE will also establish separate product classes if a group of 
products has a capacity or other performance-related feature that other 
products within such type do not have and such feature justifies a 
different standard. (42 U.S.C. 6295(q)) In determining whether a 
performance-related feature justifies a different standard, DOE 
considers such factors as the utility to the consumers of the feature 
and other factors DOE determines are appropriate.
    At various rulemaking stages, interested parties have raised 
concerns pertaining to potential impacts of a nation-wide standard 
corresponding to condensing efficiency levels for NWGFs and MHGFs on 
certain consumers as a result of either increased installation costs 
(due to the increased cost of the condensing furnace itself and/or 
related venting modifications) or switching to electric heat 
(potentially resulting in higher monthly bills). In response to these 
concerns, DOE first published the September 2015 NODA, which contained 
analyses examining the potential impacts of a separate product class 
for furnaces with a lower input capacity, one of the statutory bases 
for establishing a separate product class. Such an approach was 
suggested by stakeholders as a potential way to reduce negative impacts 
on some furnace consumers while maintaining the overall economic and 
environmental benefits of amended standards for consumer furnaces. 80 
FR 55038, 55038-55039 (Sept. 14, 2015). In response to the September 
2015 NODA, DOE received further comments from several stakeholders 
recommending that DOE establish separate product classes based on 
furnace capacity in order to preserve the availability of non-
condensing NWGFs for buildings with lower heating loads, thereby 
helping to alleviate the negative impacts of the proposed standards. 
DOE responded to these comments in the since withdrawn September 2016 
SNOPR, in which DOE tentatively concluded that the establishment of a 
small furnace class would have merit. Accordingly, after considering 
the energy savings and economic benefits of several potential input 
capacity thresholds, DOE proposed to establish a separate product class 
for small NWGFs, defined as those furnaces with a certified input 
capacity of less than or equal to 55 kBtu/h, and DOE proposed to retain 
a minimum standard of 80-percent AFUE for this class. 81 FR 65720, 
65752 and 65837 (Sept. 23, 2016).
    For the July 2022 NOPR analysis, DOE again considered whether a 
``small furnace'' product class would be justified for NWGFs and MHGFs 
and evaluated several input capacity thresholds, including the 55 kBtu/
h threshold that was proposed in the withdrawn September 2016 SNOPR, 
along with several others. However, DOE did not propose to divide 
furnace product classes by capacity. 87 FR 40590, 40665 and 40706 (July 
7, 2022).
    NCP commented that 95-percent AFUE standards for large NWGFs and 
80-percent AFUE for small NWGFs will lead to significant energy savings 
while reducing the number of consumers that would experience net costs. 
NCP pointed to the withdrawn September 2016 SNOPR as rationale for 
splitting NWGFs into these two groups, where large NWGFs with input 
capacities greater than 55 kBtu/h have a 95-percent AFUE standard and 
small NWGFs with input capacities less than 55 kBtu/h have a standard 
of 80 percent. (NCP, No. 370 at pp. 2-3) PHCC commented that after the 
litigation against these regional standards, several stakeholders came 
to the consensus that there should be a category of small capacity non-
condensing furnaces, as well as a category of larger-capacity 
condensing furnaces. PHCC commented that the industry submitted a 
proposal regarding this issue, but that the NOPR does not place much 
value on this proposal. (Id.)
    For the current final rule analysis, DOE again considered whether a 
``small furnace'' product class is justified for NWGFs and MHGFs and 
evaluated several input capacity thresholds, including at 55 kBtu/h. 
DOE analyzed a range of potential input capacity cut-offs and 
considered the benefits and burdens of each. As discussed in section 
V.C.1 of this document, after considering the benefits and burdens of 
the various approaches, DOE is finalizing its proposal to adopt a 
single standard level for NWGFs and a single standard level MHGFs that 
cover all capacities within the scope of each class.
b. Through-the-Wall Units
    In response to the July 2022 NOPR, NCP commented that if DOE 
concludes that the separate levels for large and small NWGFs are not 
justified, there should be a separate class for space-constrained 
through-the-wall units to accommodate unique conditions for multi-
family buildings. (NCP, No. 370 at p. 3) NCP noted that space-
constrained through-the-wall systems are often 55 kBtu/h or less, and 
are installed in unique, often more expensive ways. NCP asserted that 
multi-family buildings with space-constrained through-the-wall HVAC 
systems have their condensate stacks plumbed to grade for drainage of 
the air conditioning portion of the unit in cooling mode and are not 
set up for condensate removal during heating in cold ambient 
conditions. NCP commented that the modifications necessary for 
condensing furnaces would not be feasible in new or existing multi-
family constructions. (Id. at pp. 2-3) Additionally, NCP stated that 
while it makes space-constrained through-the-wall HVAC systems at 95-
percent

[[Page 87534]]

AFUE, such systems are relatively early in their commercialization 
phase and cannot be used in all applications. Also, NCP commented that 
these systems are a relatively new technology that originated in 2015-
2016. Since 2016, NCP noted that it has encountered several challenges 
with this technology, including freezing in low temperatures and high 
wind conditions. (Id. at p. 3)
    Napoleon commented that DOE should align its standards for new 
installations with NRCAN's standards and create a separate category for 
``through the wall'' furnaces. Napoleon suggested that DOE should 
require a minimum efficiency of 90-percent AFUE for these products 
because of their cabinet size limitations. (Napoleon, No. 374 at p. 2) 
Napoleon stated that it is not reasonable to require the same 
efficiency from ``through the wall furnaces with integrated cooling 
module'' products as other products that have larger cabinets because 
these products would likely not have the ability to produce the higher 
airflows that are necessary for higher efficiencies. (Id.)
    In response, DOE notes that through-the-wall furnaces are currently 
included within the broader consumer furnace product classes to the 
extent that they meet the definitions for consumer furnaces discussed 
in section IV.A.1.a of this document. As discussed in section III.B of 
this document, when evaluating and establishing energy conservation 
standards, DOE may establish separate standards for a group of covered 
products (i.e., establish a separate product class) if DOE determines 
that separate standards are justified based on the type of energy used, 
or if DOE determines that a product has a capacity or other 
performance-related feature that other products within such type (or 
class) do not have and such feature justifies a different standard. In 
making a determination of whether a performance-related feature 
justifies a different standard, DOE must consider factors such as the 
utility to the consumer of the feature and other factors DOE determines 
are appropriate. (42 U.S.C. 6295(q)(1)) Historically, DOE has viewed 
utility as an aspect of the product that is accessible to the layperson 
and is based on user operation and interaction with the product.
    DOE has identified through-the-wall furnaces rated above 96 percent 
AFUE that have the same dimensions as comparable non-condensing (i.e., 
80 percent AFUE) through-the-wall furnaces and that are marketed for 
the same applications.\49\ Therefore, DOE concludes that 80-percent 
AFUE units could be readily replaced with 95-percent AFUE units (i.e., 
the minimum efficiency level adopted in this final rule) because 
substitutes are available on the market having the same cabinet size. 
Regarding NCP's concerns about the technical challenges associated with 
condensate drainage and freezing, DOE notes that while certain multi-
family applications may be difficult, there are installation methods to 
avoid freezing such as using heat tape. As discussed in section 
IV.F.2.b of this document, DOE accounted for additional costs for 
condensate drainage in these difficult installations. Consequently, DOE 
is not creating a separate product class for through-the-wall furnaces.
---------------------------------------------------------------------------

    \49\ See app.salsify.com/catalogs/73d44623-0667-454c-a453-3b3faaf8d4d1/products/P-S26A-F12A-A and app.salsify.com/catalogs/73d44623-0667-454c-a453-3b3faaf8d4d1/products/P-C50A-F18A-A (last 
accessed May 31, 2023).
---------------------------------------------------------------------------

c. Condensing and Non-Condensing Furnaces
    In response to the July 2022 NOPR, APGA, AGA, and NPGA all stated 
that DOE's failure to establish a separate product class for non-
condensing residential natural gas furnaces is a violation of EPCA. 
(APGA, No. 387 at pp. 42-45; AGA, No. 405 at pp. 46-49; NPGA, No. 395 
at p. 19) APGA expressed that it disagreed with the NOPR's conclusion 
to set standards at condensing levels because the legal interpretation 
upon which the NOPR relies to avoid EPCA's Unavailability Provisions is 
unreasonable and contrary to law. APGA instead argued that, if 
standards specific to condensing products are justified, DOE should 
recognize that the compatibility of a NWGF with existing atmospheric 
venting systems is a ``performance-related feature'' that requires 
separate standards for condensing and non[hyphen]condensing furnaces. 
(APGA, No. 387 at pp. 42-45) APGA further cited EPCA provisions 
requiring that the standards not deprive purchasers of ``product 
choices and characteristics, features, sizes, etc.,'' and that energy 
savings are achieved ``without sacrificing the utility or convenience 
of appliances to consumers.'' (APGA, No. 387 at p. 42-45) AGA commented 
that the new proposed rule wrongfully asserts that the differing 
constraints and functionality between condensing and non-condensing 
appliances do not constitute performance-related features. AGA further 
urged DOE to correct its ``flawed interpretation'' of EPCA to treat 
condensing and non-condensing products as being in the same class. 
(AGA, No. 405 at pp. 32-38) AGA encouraged DOE to follow its past 
practices by continuing to recognize non-condensing furnaces that 
function in homes constrained by existing exhaust and plumbing systems 
as a separate class from condensing products. (AGA, No. 405 at pp. 46-
49) NPGA stated that there have been other instances of DOE creating 
separate product classes where standards would otherwise deprive 
purchasers of products that could not be installed without the need to 
change the space provided for an appliance and cited these as precedent 
for separate non-condensing and condensing product classes (e.g., 
``space-constrained'' central air conditioners, package terminal air 
conditioners (PTACs), and ventless clothes dryers). (NPGA, No. 395 at 
pp. 21-22) NPGA stated that the NOPR sets a de facto standard for 
building design by requiring the alteration of building venting 
systems, which is beyond the scope of DOE's statutory authority. (NPGA, 
No. 395 at p. 22) NPGA suggested that the proposed standard will make 
furnaces incompatible with millions of homes without substantial 
renovations. (NPGA, No. 395 at pp. 9-10)
    Spire commented that DOE should recognize that the compatibility of 
a product with existing atmospheric venting systems is a ``performance-
related feature,'' which would require separate standards for 
condensing and non-condensing products if standards specific to 
condensing products are justified. (Spire, No. 413 at p. 21) Spire and 
AGA formally requested that any final rule in this proceeding include a 
written finding that interested persons have established that the 
proposed standards are likely to result in the unavailability in the 
United States of residential furnaces with ``performance 
characteristics (including reliability, features, sizes, capacities, 
and volumes) that are substantially the same as those generally 
available in the United States.'' (Spire, No. 413 at p. 20; AGA, No. 
405 at pp. 49-50)
    HARDI commented that the proposed standards will have an adverse 
impact on consumers in terms of utility. (HARDI, No. 384 at p. 4) HARDI 
stated its opposition to DOE's decision to revert to its prior 
interpretation related to non-condensing technology (and associated 
venting), as expressed in the December 2021 Final Interpretive Rule. 
(Id.) HARDI commented that, for many existing homes and some new 
construction applications, condensing furnaces provide negative utility 
for consumers because the venting system will need to be changed, 
which, in turn,

[[Page 87535]]

changes the living spaces; HARDI stated that this could negatively 
impact consumers. HARDI also commented that non-condensing furnaces 
prevent the consumer from needing heat tape and other freeze-mitigation 
equipment, and added that the need to constantly heat the venting 
system would be impractical for consumers who only use heating 
equipment part-time. (HARDI, No. 384 at pp. 4-5)
    The Joint Market and Consumer Organizations also commented that 
they oppose the elimination of non-condensing products and stated that 
EPCA prohibits any new or amended standard if the Secretary finds, by a 
preponderance of evidence, that it is ``likely to result in the 
unavailability in the United States. . . of performance characteristics 
(including reliability), features, sizes, capacities, and volumes that 
are substantially the same as those generally available in the United 
States at the time of the Secretary Finding.'' \50\ (Joint Market and 
Consumer Organizations, No. 373 at p. 3) The Joint Market and Consumer 
Organizations stated that this provision can be interpreted to disallow 
natural gas furnace standards so stringent that they effectively force 
non-condensing versions off the market in favor of condensing furnaces 
with very different characteristics that make them incompatible with 
some homes. (Id. at p. 3) AGA, Spire, and the Marley Companies also 
stated a belief that EPCA 42 U.S.C. 6295(o)(4) prohibits the 
elimination of non-condensing fuel-fired appliances. (AGA No. 405 at 
pp. 49-50; Spire, No. 413 at pp. 2-5; The Marley Companies, No. 386 at 
p. 5) Spire commented that the proposed standards would ultimately 
require efficiencies that only condensing furnaces can achieve and 
claimed that the proposed rulemaking would also violate EPCA 42 U.S.C. 
6295(o)(2). (Spire, No. 413 at pp. 2-5) Spire also noted that the 
Unavailability Provision of EPCA cannot be avoided by simply adjusting 
installation costs within the economic analysis. (Spire, No. 413 at pp. 
20-21) The Marley Companies commented that non-condensing products 
utilizing natural draft venting provide advantages and must remain 
available for several reasons related to product continuity, utility, 
and availability. (The Marley Companies, No. 386 at p. 5)
---------------------------------------------------------------------------

    \50\ The commenter included a citation to 42 U.S.C. 6295(o)(4) 
for the referenced provision.
---------------------------------------------------------------------------

    With respect to product availability, the Marley Companies 
commented that many residential applications cannot support upgrading 
the existing venting system as would be required for non-natural draft 
venting or higher-efficiency products. (The Marley Companies, No. 386 
at p. 5) PHCC commented that it opposes the elimination of non-
condensing products due to venting issues, difficult installations, and 
some questions PHCC has regarding the accuracy of DOE's analysis. 
(PHCC, No. 403 at p. 6) The Coalition commented that the need to use 
condensing furnaces will require physical design changes of some 
housing types that can become more problematic in multifamily and 
entry-level homes. (The Coalition, No. 378 at p. 4) The Coalition added 
that condensing furnaces typically require larger cabinets, different 
and larger venting/combustion air intake systems, and condensate drain 
systems. (Id.) APGA and Spire commented they have demonstrated that 
condensing products are incompatible with many existing buildings in 
which non-condensing natural gas furnaces are installed. (APGA, No. 387 
at p. 43-45; Spire, No. 413 at p. 3)
    In response, when evaluating and establishing energy conservation 
standards, DOE is required to establish product classes based on: (1) 
the type of energy used; and (2) capacity or other performance-related 
feature which other products within such type (or class) do not have 
and that DOE determines justify a different standard. In making a 
determination of whether a performance-related feature justifies a 
different standard, the Department must consider factors such as the 
utility to the consumer of the feature and other factors DOE determines 
are appropriate. (42 U.S.C. 6295(q))
    With respect to commenters' statements that category I venting 
itself is a performance-related feature that justifies a separate 
product class, DOE first notes that venting, like a gas burner or heat 
exchanger, is one of the basic components found in every gas-fired 
furnace (condensing or noncondensing). As such, assuming venting is a 
performance-related feature, it's a feature that all gas-fired furnaces 
possess. As a result, it cannot be the basis for a product class. See 
42 U.S.C. 6295(q)(1)(B). Thus, in order to meet the product class 
requirements in 42 U.S.C. 6295(q)(1)(B), APGA and other commenters are 
requesting DOE determine that a specific type of venting is a 
performance-related feature.
    In response, DOE first notes that almost every component of a 
covered product could be broken down further by any of a number of 
factors. For example, heat exchangers, which are used in a variety of 
covered products, could be divided further by geometry or material; 
refrigerator compressors could be further divided by single-speed or 
variable-speed, and air-conditioning refrigerants could be further 
divided by global warming potential. As a general matter, energy 
conservation standards save energy by removing the least-efficient 
technologies and designs from the market. For example, DOE set energy 
conservation standards for furnace fans at a level that effectively 
eliminated permanent split capacitor (PSC) motors from several product 
classes, but which could be met by brushless permanent magnet (BPM) 
motors, which are more efficient. 79 FR 38130 (July 3, 2014). As 
another example, DOE set energy conservation standards for microwave 
oven standby mode and off mode at a level that effectively eliminated 
the use of linear power supplies, but which could be met by switch-mode 
power supplies, which exhibit significantly lower standby mode and off 
mode power consumption. 78 FR 36316 (June 17, 2013). The energy-saving 
purposes of EPCA would be completely frustrated if DOE were required to 
set standards that maintain less-efficient covered products and 
equipment in the market based simply on the fact that they use a 
specific type of (less efficient) heat exchanger, motor, power supply, 
etc.
    As discussed in the December 2021 final interpretive rule, DOE 
believes that a consumer would be aware of performance-related features 
of a covered product or equipment and would recognize such features as 
providing additional benefits during operation of the covered product 
or equipment. 86 FR 73955. Using the previous example of furnace fan 
motors, if an interested person had wanted to preserve furnace fans 
with PSC motors in the market, they would have had to show that furnace 
fans with PSC motors offered some additional benefit during operation 
as compared to furnace fans with BPM motors. Refrigerator-freezers, on 
the other hand, are an example of where DOE determined that a specific 
type of performance-related feature offered additional benefit during 
operation. Some refrigerator-freezers have automatic icemakers. 
Additionally, some automatic icemakers offer through-the-door ice 
service, which provides consumers with an additional benefit during 
operation. As such, DOE further divided refrigerator-freezers into 
product classes based on the specific type of automatic icemaker (i.e., 
whether the automatic icemaker offers through-the-door ice service). 
See 10 CFR 430.32(a).

[[Page 87536]]

    Commenters have not pointed to any additional benefits during 
operation offered by furnaces that use category I venting as compared 
to furnaces that use other types of venting. Instead, these commenters 
generally cite compatibility with existing venting and other economic 
considerations as reasons why category I venting should be considered a 
performance-related feature for the purposes of EPCA's product class 
provision. unavailability provision.
    As stated previously, DOE's performance-related feature analysis is 
not based on considerations (including design parameters) that do not 
provide the consumer additional benefit during operation. Nor does it 
account for costs that anyone, including the consumer, manufacturer, 
installer, or utility companies, may bear. DOE has reasoned that this 
approach is consistent with EPCA's requirement for a separate and 
extensive analysis of economic justification for the adoption of any 
new or amended energy conservation standard (see 42 U.S.C. 
6295(o)(2)(A)-(B) and (3)). Specifically with regard to venting, DOE 
has determined that differences in cost or complexity of installation 
between different methods of venting (e.g., a condensing furnace versus 
a non-condensing furnace) do not make specific methods of venting a 
performance-related feature under 42 U.S.C. 6295(o)(4), as would 
justify separating the products/equipment into different product/
equipment classes under 42 U.S.C. 6295(q)(1). 86 FR 73947, 73951 (Dec. 
29, 2021). Accordingly, because DOE views the issues related to 
condensing vs. noncondensing technology (and associated methods of 
venting) to be matters of cost, the Department finds it appropriate 
under the statute to address these issues through the rulemaking's 
economic analysis. 86 FR 73947, 73951 (Dec. 29, 2021). This 
interpretation is consistent with EPCA's requirement for a separate and 
extensive analysis of economic justification for the adoption of any 
new or amended energy conservation standard (see 42 U.S.C. 6295(o)(2)-
(3); 42 U.S.C. 6313(a)(6)(A)-(C); 42 U.S.C. 6316(a)). Comments on the 
July 2022 Furnaces NOPR have provided no new arguments or other 
information that were not already considered as part of the December 
2021 Final Interpretive Rule. As such, DOE continues to find that there 
is no basis for altering the Department's approach regarding the 
establishment of product classes for this rulemaking.
    DOE has found in its analysis of installation costs (as discussed 
in further detail in section IV.F.2 of this document) that thanks to 
various technological solutions, virtually all homes can accommodate a 
condensing furnace, although some small percentage may face significant 
installation costs. DOE accounts for these costs in its economic 
analysis. In all cases, consumers have a variety of choices to meet 
their space-heating needs, and the standards promulgated in this final 
rule do not eliminate any ``performance-related features.''
    Thus, for the reasons previously explained, DOE declines the 
requests of AGA and Spire that in this final rule the agency include a 
written finding that interested persons have established by a 
preponderance of the evidence that the proposed standards are likely to 
result in the unavailability in the U.S. of residential furnaces with 
performance characteristics (including reliability), features, sizes, 
capacities, and volumes that are substantially the same as those 
generally available in the United States on the date any such rule 
issues, because that burden of proof has not been met in the present 
case. See 42 U.S.C. 6295(o)(4). For similar reasons, DOE declines 
Spire's request that DOE recognize that the compatibility of a product 
with existing atmospheric venting systems is a ``performance-related 
feature'' that would require separate standards for condensing and non-
condensing products. Because DOE has determined that non-condensing 
technology (and associated venting) does not constitute a performance-
related feature for consumer furnaces, such actions would not be 
appropriate pursuant to EPCA.
    As DOE has stated previously, EPCA directs DOE to regulate the 
energy efficiency of a multitude of disparate covered products and 
equipment that are not always directly comparable. Consequently, 
consideration of class-setting and performance-related features tends 
to be product-specific. NPGA's assertion that DOE's proposed furnace 
standards would amount to a de facto building design standard is 
incorrect and a mischaracterization of DOE's rulemaking, as is its 
contention that furnace installation costs are different in nature from 
those of other appliances. Installation costs are always unique to 
location, and DOE has a well-developed methodology for estimation of 
installation costs that has been used for many years (see chapter 8 and 
appendix 8D of the final rule TSD). DOE has concluded that in most 
cases, a condensing furnace may be installed with reasonable 
installation costs, and there would almost always be a technological 
solution to accomplish that (e.g., such as through use of DuraVent 
FasNSeal or a draft inducer paired with a chimney liner). In cases 
where the consumer perceives such costs to be too high, the consumer 
may opt to convert to another type of space-heating appliance (e.g., a 
heat pump or electric resistance heating).
    As mentioned, NPGA has pointed to other DOE rulemakings involving 
space-constrained products and equipment (e.g., central air 
conditioners, package terminal air conditioners (PTACs), and ventless 
clothes dryers) as analogous to consumer furnaces. AGA similarly 
mentioned DOE's prior furnace fans rulemaking as analogous. However, 
the present case of non-condensing gas-fired residential furnaces is 
distinguishable from these other products cited by these commenters for 
the reasons that follow.
    Regarding ventless clothes dryers, DOE established separate product 
classes because some clothes dryers had a performance-related feature 
(ventless operation) that other clothes dryers (vented) did not, and 
such feature justified a different standard. As stated previously, 
condensing and non-condensing gas furnaces both require venting. As 
such, establishing separate product classes for vented and ventless 
clothes dryers is simply not analogous to establishing separate product 
classes for gas furnaces based on specific types of venting.
    With regard to compact clothes dryers, the ``compact'' delineation 
relates directly to the size and capacity of the product--two 
attributes explicitly listed in the ``features'' provision. (See 42 
U.S.C. 6295(o)(4)) This difference in size and capacity is recognized 
by the consumer in operation of the product (i.e., by limiting the 
amount of wet clothes which can be processed per cycle). Moreover, DOE 
determined that compact-size clothes dryers have inherently different 
energy consumption than standard-size clothes dryers. 76 FR 22454, 
22485 (April 21, 2011). Consistent with the specific recognition that 
size and capacity are relevant features, DOE has routinely set product 
classes based on size or capacity, including standards for consumer 
water heaters, 10 CFR 430.32(d), which separate standards by storage 
volume and input capacity; standards for room air conditioners, 10 CFR 
430.32(b), which distinguish several product classes by cooling 
capacity; and standards for dishwashers and clothes washers, 10 CFR 
430.32(f) and (g), respectively, which both distinguish between 
standard and compact products.
    In establishing a separate product class for space-constrained 
central air conditioners, DOE recognized the space constraints faced by 
these products and

[[Page 87537]]

that the efficiency of such products is limited by physical dimensions 
that are rigidly constrained by the intended application. 76 FR 37408, 
37446 (June 27, 2011). Space-constrained central air conditioners have 
an indoor or outdoor unit that is limited in size due to the location 
in which the unit operates. As a result, space-constrained central air 
conditioners lack the flexibility of other central air conditioners to 
increase the physical size of the unit, thereby limiting the ability of 
space-constrained units to achieve improved efficiency through use of a 
larger coil. Id. In establishing standards for space-constrained 
central air conditioners, DOE discussed the expense of modifying an 
exterior opening to accommodate a larger unit, but such discussion did 
not abrogate DOE's determination that space-constrained central air 
conditioners provide centralized air conditioning in locations with 
space constraints that would preclude the use of other types of central 
air conditioners. Id. In contrast, the subject non-condensing 
residential furnaces are not significantly different in overall 
footprint, size, or heating capacity from their condensing counterparts 
\51\ (although the composition of the venting used may be different), 
and the energy efficiency differences are a result of the technology 
used, a design parameter that is dictated by considerations other than 
size.
---------------------------------------------------------------------------

    \51\ DOE surveyed the dimensions of consumer furnaces and found 
the height and diameter dimensions comparable. See chapter 5 of the 
TSD.
---------------------------------------------------------------------------

    With regard to the equipment classes for PTACs, in its prior 
rulemaking, DOE found that the size of the heat exchanger directly 
affects the energy efficiency of the equipment. 73 FR 58772, 58782 
(Oct. 7, 2008). Like space-constrained central air conditioners, the 
location of operation of a PTAC directly influences the size of the 
equipment, which impacts the size of the heat exchanger and has a 
corresponding direct effect on the energy efficiency of the equipment. 
Id. DOE acknowledged the potentially high costs that would be 
associated with installing a non-standard sized PTAC in an existing 
building due to the need to increase the wall opening (i.e., the wall 
sleeve) in which a replacement PTAC is installed. Id. As explained in a 
subsequent rulemaking for PTACs, DOE further clarified that it accounts 
for installation costs in the life-cycle cost (LCC) and payback period 
(PBP) analyses used to evaluate increased standard levels, which is a 
separate and distinct consideration from whether separate product 
classes are justified. 80 FR 43162, 43167 (July 21, 2015). 
Consideration of installation costs in the LCC and PBP analysis used 
for evaluating an increased energy conservation standard level is 
consistent with the application of 42 U.S.C. 6295(o)(4) and 6295(q)(1) 
adopted in the December 2021 Final Interpretive Rule.
    The furnace fan product classes also are not analogous to 
residential furnaces that rely on non-condensing technology. Furnace 
fans are electrically powered devices used in consumer products for the 
purpose of circulating air through ductwork. 10 CFR 430.2. A furnace 
fan operates to allow the furnace in which it is installed to function. 
The references to condensing and non-condensing in the furnace fan 
product classes do not reflect a difference in utility between 
condensing and non-condensing furnaces, but rather reflect the 
differences between the operation of a furnace fan installed in a 
condensing furnace as compared to a furnace fan installed in a non-
condensing furnace. In establishing the energy conservation standards 
for furnace fans, DOE differentiated between furnace fan product 
classes based on internal structure and application-specific design 
differences that impact furnace fan energy consumption. 79 FR 38130, 
38142 (July 3, 2014). The internal structures differ for a furnace fan 
installed in a condensing furnace, as compared to a furnace fan 
installed in a non-condensing furnace. The presence of an evaporator 
coil or secondary heat exchanger, as in a condensing furnace, 
significantly impacts the internal structure of an HVAC product, and in 
turn, the energy performance of the furnace fan integrated in that HVAC 
product. Id. These differences result in different energy use profiles 
for furnace fans suitable for installation in condensing furnaces, as 
compared to furnace fans suitable for installation in non-condensing 
furnace, which justifies the separate product classes.
    Overall, the examples of ventless dryers, space-constrained air 
conditioners, PTACs, and furnace fans involved subsets of the product 
or equipment type in question that had different physical and energy-
consumption characteristics and that were designed to address specific 
applications. DOE determined that these situations met the applicable 
statutory requirements and, accordingly, warranted separate product/
equipment classes. In contrast, the consumer furnaces rulemaking 
involves products of essentially the same size that could operate in 
any space-heating application. Maintaining a separate product class for 
non-condensing furnaces would allow the less-efficient furnaces to 
remain available not only to consumers facing difficult installation 
situations, but to all consumers. Establishment of a separate product 
class for non-condensing furnaces would run counter to EPCA's purposes 
to ``conserve energy supplies'' and for ``improved energy efficiency of 
. . . major appliances.'' (42 U.S.C. 6201(4) and (5))
    NPGA, PHCC, the Coalition, Marley Companies, Spire, HARDI, and AGA 
have not provided estimates as to the number of installation situations 
they would consider to be problematic, instead choosing to focus on the 
qualitative impact of what DOE assesses to be a relatively small number 
of cases. DOE disagrees with AGA's assertion that the Department has 
not properly accounted for the necessary changes related to venting of 
consumer furnaces or common venting of multiples appliances, including 
consumer water heaters. Further details regarding DOE's estimates of 
total installation costs are provided in section IV.F.2 of this 
document and in chapter 8 and appendix 8D of the final rule TSD.
d. Mobile Home Gas Furnaces
    In response to the July 2022 NOPR, AHRI commented that several 
design differences between MHGFs and NWGFs make it possible for DOE to 
establish different AFUE standards for MHGFs and NWGFs without 
meaningful risk that MHGFs would be used outside of mobile homes or 
create a ``loophole'' for NWGFs. (AHRI, No. 414-2 at pp. 2-3) AHRI 
stated that MHGFs are specialized products meant to be operated only in 
mobile home applications under the U.S. Department of Housing and Urban 
Development (``HUD'') code, adding that no interior air is used for the 
combustion process and that non-condensing MHGFs are mostly all 
downflow. (AHRI, No. 414-2 at p. 2)
    Nortek encouraged DOE to withdraw the NOPR and consult with HUD, 
MHI, and the Manufactured Housing Consensus Committee (MHCC) in setting 
standards for MHGFs. (Nortek, No. 406 at p. 6) Nortek commented that it 
does not find a problem with different standard levels for manufactured 
housing and NWGFs because physical size differences prevent MHGFs from 
being installed in NWGF applications. Additionally, Nortek mentioned 
that the new M1 \52\ labeling requirements state that equipment 
designed for

[[Page 87538]]

manufactured housings must be labelled ``for installation only in HUD 
manufactured home[s]. . . .'' Nortek also stated that there are 
application differences between MHGFs and NWGFs (e.g., downflow versus 
upflow); therefore, Nortek is not concerned that manufactured home gas 
furnaces will be utilized in other residential applications if the 
minimum efficiency levels differ. (Nortek, No. 406 at pp. 4-5) JCI 
similarly commented that there are dimensional and configuration 
differences between MHGFs and NWGFs (upflow airflow versus downflow 
airflow). JCI provided an example, where the MHGF is 23 inches (in.) 
deep by 76 in. high by 19.5 in. wide and has a downflow configuration, 
but the NWGF is 29 in. deep by 33 in. high and between 14.5 in. and 
24.5 in. wide for various configurations. JCI asserted that NWGFs could 
not reasonably be applied in mobile home applications without 
overcoming significant structural barriers and voiding the warranty. 
(JCI, No. 411 at pp. 2-3) Mortex added that the typical downflow 
furnace footprint for MHGFs is 24 in. deep by 20 in. wide, which is 
very different from standard residential furnaces that tend to be 29 
in. deep by 17, 21, or 24 in. wide. (Mortex, No. 410 at p. 2)
---------------------------------------------------------------------------

    \52\ The commenter was referring to DOE's test method for 
measuring the energy consumption of central air conditioners and 
heat pumps, located at 10 CFR part 430, subpart B, appendix M1.
---------------------------------------------------------------------------

    The CA IOUs commented that a review of manufacturer literature on 
MHGFs suggests that the proposed standard level will not increase 
product size or adversely affect the range of available input 
capacities. (The CA IOUs, No. 400 at p. 2) Additionally, Sierra Club et 
al. commented that nothing in EPCA obligates DOE to seek input or 
approval from the Department of Housing and Urban Development or the 
Manufactured Housing Consensus Committee. Sierra Club et al. commented 
that any assertions to the contrary ignore DOE's obligation under EPCA 
to review and update its existing standards for mobile home gas 
furnaces. (Sierra Club et al., No. 401 at p. 3)
    DOE is aware of the different applications served by MHGFs and 
NWGFs and agrees with stakeholders that there are specific requirements 
that must be met for classification as an MHGF and that some MHGFs have 
a different footprint than is typical of NWGFs.\53\ Because NWGFs and 
MHGFs are separate product classes, they have been analyzed separately 
for this final rule. However, as discussed in section V.A DOE groups 
products into TSLs because use of TSLs allows DOE to identify and 
consider manufacturer cost interactions between the product classes, to 
the extent that there are such interactions, and national-level market 
cross-elasticity from consumer purchasing decisions that may change 
when different standard levels are set. In the present case, DOE 
evaluated similar levels in each TSL for NWGFs and MHGFs and considered 
the TSL as a whole, but also weighed the merits of the adopted 95-
percent AFUE levels for each class separately. Therefore, while DOE is 
cognizant of interactions between the classes, the primary motivation 
for adopting 95-percent AFUE for MHGFs was not to avoid a ``loophole'' 
whereby NWGF consumers would choose to install MHGFs if they were 
available at lower efficiencies and costs. Rather, it was because the 
95-percent AFUE level is technologically feasible and economically 
justified for both NWGFs and MHGFs. See section V of this document for 
further discussion on the selection of the final standard levels for 
this final rule.
---------------------------------------------------------------------------

    \53\ However, DOE has also identified MHGFs that are essentially 
identical to a corresponding NWGF model and require only a 
conversion kit to be installed as an MHGF.
---------------------------------------------------------------------------

    In response to comments regarding consultation with HUD, MHI, and 
MHCC, DOE notes that all stakeholders, including trade associations, 
have the opportunity to provide DOE with comments, data, and other 
input through both the public webinars and written comment periods 
throughout the duration of the rulemaking. DOE takes all input received 
into consideration in the analysis for amending standards, and 
therefore does not consult with individual groups in its rulemaking 
process.
2. Technology Options
    In the market analysis and technology assessment for the July 2022 
NOPR, DOE identified 12 technology options that would be expected to 
improve the AFUE efficiency of NWGFs and MHGFs, as measured by the DOE 
test procedure: (1) using a condensing secondary heat exchanger; (2) 
increasing the heat exchanger surface area; (3) heat exchanger baffles; 
(4) heat exchanger surface feature improvements; (5) two-stage 
combustion; (6) step-modulating combustion; (7) pulse combustion; (8) 
premix burners; (9) burner de-rating; (10) insulation improvements; 
(11) off-cycle dampers; and (12) direct venting. (In the July 2022 
NOPR, DOE also considered three technology options that could 
potentially reduce the standby mode and off mode energy consumption of 
NWGFs and MHGFs. However, for the reasons explained in section III.A.8 
of this document, DOE has determined that it cannot establish standby 
mode and off mode standards that meet the criteria of EPCA at this 
time, so such technologies and standards are not considered further in 
this final rule.) 87 FR 40590, 40615 (July 7, 2022). DOE did not 
identify any additional technology options between the publication of 
the July 2022 NOPR and this final rule. A detailed discussion of each 
technology option identified is contained in chapter 3 of the final 
rule TSD.
    DOE considered each technology further in the screening analysis 
(see section IV.B of this document or chapter 4 of the final rule TSD) 
to determine which could be considered further in the analysis and 
which should be eliminated.

B. Screening Analysis

    DOE uses the following five screening criteria to determine which 
technology options are suitable for further consideration in an energy 
conservation standards rulemaking:
    (1) Technological feasibility. Technologies that are not 
incorporated in commercial products or in commercially viable, existing 
prototypes will not be considered further.
    (2) Practicability to manufacture, install, and service. If it is 
determined that mass production of a technology in commercial products 
and reliable installation and servicing of the technology could not be 
achieved on the scale necessary to serve the relevant market at the 
time of the projected compliance date of the standard, then that 
technology will not be considered further.
    (3) Impacts on product utility. If a technology is determined to 
have a significant adverse impact on the utility of the product to 
subgroups of consumers, or result in the unavailability of any covered 
product type with performance characteristics (including reliability), 
features, sizes, capacities, and volumes that are substantially the 
same as products generally available in the United States at the time, 
it will not be considered further.
    (4) Safety of technologies. If it is determined that a technology 
would have significant adverse impacts on health or safety, it will not 
be considered further.
    (5) Unique-pathway proprietary technologies. If a technology has 
proprietary protection and represents a unique pathway to achieving a 
given efficiency level, it will not be considered further, due to the 
potential for monopolistic concerns.

10 CFR part 430, subpart C, appendix A, sections 6(b)(3) and 7(b).

[[Page 87539]]

    In sum, if DOE determines that a technology, or a combination of 
technologies, fails to meet one or more of the listed five criteria, it 
will be excluded from further consideration in the engineering 
analysis. The reasons for eliminating any technology are discussed in 
the following sections.
    The subsequent sections include DOE's evaluation of each technology 
option against the screening analysis criteria, and whether DOE 
determined that a technology option should be excluded (``screened 
out'') based on the screening criteria. DOE did not receive any 
comments pertaining to the screening analysis in response to the July 
2022 NOPR.
1. Screened-Out Technologies
    For this analysis of amended AFUE standards, DOE has screened out 
the following technologies: pulse combustion and burner de-rating. Each 
of these will be discussed in turn.
    Pulse combustion furnaces use self-sustaining pressure waves to 
draw a fresh fuel-air mixture into the combustion chamber, heat it by 
way of compression, and then ignite it using a spark. This technology 
option was screened out due to past reliability and safety issues, 
which have resulted in manufacturers generally not considering pulse 
combustion as a viable option to improve efficiency. In addition, 
furnace manufacturers can achieve similar or greater efficiencies 
through the use of other technologies that do not operate with positive 
pressure in the heat exchanger, such as those relying on induced draft.
    DOE also screened out burner de-rating. Burner de-rating reduces 
the burner firing rate while maintaining the same heat exchanger 
geometry/surface area and fuel-air ratio, which increases the ratio of 
heat transfer surface area to energy input, which increases efficiency. 
This technology option was screened out because it reduces the burner 
firing rate while maintaining the same heat exchanger geometry/surface 
area and fuel-air ratio, resulting in less heat being provided to the 
user than is provided using conventional burner firing rates.
    It is noted that in earlier rulemaking analyses (e.g., for the 
since withdrawn September 2016 SNOPR), DOE had screened out premix 
burners from further analysis because premix burners had not yet been 
successfully incorporated into a consumer furnace design, raising 
concerns about the technological feasibility of premix burners in 
furnaces. Incorporating this technology into furnaces on a large scale 
at that time would have required further research and development due 
to the technical constraints imposed by current furnace burner and heat 
exchanger design. However, in conducting the market and technology 
assessment and screening analysis for the July 2022 NOPR, DOE 
identified NWGF furnaces with premix burners on the market and, 
therefore, did not screen this technology option out of its analysis, 
because the technological feasibility and practicability to manufacture 
such designs has been demonstrated. However, DOE notes that the premix 
burner designs observed on the market were implemented in ultra low 
NOX \54\ models, indicating that the development of premix 
burner designs has been primarily driven by NOX 
requirements. The efficiencies of these models are the same as those 
achieved by more conventional non-premix burner designs used in 
furnaces. Therefore, while the use of premix burners was not screened 
out, it was not considered a primary driver for improving efficiency.
---------------------------------------------------------------------------

    \54\ ``Ultra low NOX'' furnaces produce no more than 
14 nanograms of NOX per Joule.
---------------------------------------------------------------------------

    The technology options assumed to be implemented to achieve each 
efficiency level are discussed further in section IV.C.1 of this finale 
rule. Chapter 4 of the TSD includes additional information on the 
screening analysis.
2. Remaining Technologies
    Through a review of each technology, DOE concludes that all of the 
other identified technologies listed in section IV.A.2 met all five 
screening criteria to be examined further as design options in DOE's 
final rule analysis. In summary, DOE did not screen out the following 
technology options to improve AFUE: (1) condensing secondary heat 
exchanger; (2) increased heat exchanger face area; (3) heat exchanger 
baffles; (4) heat exchanger surface feature improvements; (5) two-stage 
combustion; (6) step-modulating combustion; (7) insulation 
improvements; (8) off-cycle dampers; (9) direct venting; and (10) 
premix burners.
    DOE has determined that these technology options are 
technologically feasible because they are being used or have previously 
been used in commercially-available products or working prototypes. DOE 
also finds that all of the remaining technology options meet the other 
screening criteria (i.e., practicable to manufacture, install, and 
service and do not result in adverse impacts on consumer utility, 
product availability, health, or safety, and do not involve a 
proprietary technology that is a unique pathway to meeting a given 
efficiency level). For additional details, see chapter 4 of the final 
rule TSD.

C. Engineering Analysis

    The purpose of the engineering analysis is to establish the 
relationship between the efficiency and cost of NWGFs and MHGFs. There 
are two elements to consider in the engineering analysis: (1) the 
selection of efficiency levels to analyze (i.e., the ``efficiency 
analysis'') and (2) the determination of product cost at each 
efficiency level (i.e., the ``cost analysis''). In determining the 
performance of higher-efficiency products, DOE considers technologies 
and design option combinations not eliminated by the screening 
analysis. For each product class, DOE estimates the baseline cost,\55\ 
as well as the incremental cost for the product at efficiency levels 
above the baseline efficiency. The output of the engineering analysis 
is a set of cost-efficiency ``curves'' that are used in downstream 
analyses (i.e., the LCC and PBP analyses and the NIA).
---------------------------------------------------------------------------

    \55\ The baseline cost reflects the expenses associated with a 
baseline model. DOE defines a ``baseline model'' as a model in each 
product class that represents the characteristics of products 
typical of that class (e.g., capacity, physical size) and that has 
an efficiency equal to the current Federal energy conservation 
standard.
---------------------------------------------------------------------------

    The methodology for the efficiency analysis and the cost analysis 
is described in detail in the sections that immediately follow 
(sections IV.C.1 and IV.C.2, respectively, of this document). DOE uses 
its methodology, which consists of the engineering analysis and mark-
ups analysis (see section IV.D of this document), to determine the 
final price of the furnace to the consumer for several reasons. The 
sales prices of furnaces currently seen in the marketplace, which 
include both an MPC and various mark-ups applied through the 
distribution chain, are not necessarily indicative of what the sales 
prices of those furnaces would be following the implementation of a 
more-stringent energy conservation standard. At a given efficiency 
level, MPC depends in part on the production volume. In general, for 
efficiency levels above the current baseline efficiency, the price to 
the consumer at that level may be high relative to what it would be 
under a more-stringent standard, due to the increase in production 
volume (and, thus, improved economies of scale and purchasing power for 
furnace components), which would occur at that level if a Federal 
standard made it the new baseline efficiency.
    DOE notes that the engineering analysis incorporated both 
condensing furnaces without ``premium'' features

[[Page 87540]]

and condensing furnaces are more likely to be equipped with ``premium'' 
features in today's market. One would expect increased designs (and/or 
sales) with minimal ``premium'' features to cater to cost-sensitive 
consumers, as compared to the current market, and perhaps redesigns 
where possible, to minimize costs. In its analysis of AFUE levels, DOE 
sought to minimize or normalize the presence of additional designs or 
features that do not affect AFUE, as additional designs or features can 
increase costs while not affecting the measured AFUE efficiency. In 
other words, DOE's analysis of the cost-efficiency relationship is for 
a product that provides only the basic utility (i.e., heat) without 
other special features that consumers may find beneficial (e.g., sound 
reduction or humidity control). Although it may be possible to identify 
prices for products without premium features, simply aggregating a 
collection of current furnace sales price information could lead to a 
higher consumer price than would be expected under an amended-standards 
scenario, as many condensing products available on the market today are 
bundled with ``premium'' features, but under an amended-standards 
scenario, condensing products without as many ``premium'' features may 
become more common so to provide consumers with a lowest-cost option 
with only essential functionality. This approach aligns with feedback 
received during manufacturer interviews that manufacturers would 
continue to differentiate between premium and value units to best serve 
all segments of the market, and would invest in optimizing the cost of 
certain product offerings for consumers that are highly sensitive to 
the upfront cost. Therefore, DOE concluded that increasing AFUE energy 
conservation standards would not necessarily increase the presence of 
``premium'' features on furnaces in the market.
    DOE's analysis and decision are based, in part, on the aggregated 
data generated during the engineering analysis. The process by which 
the aggregated data have been generated is discussed in this document 
and is the result of the engineering analyses described in chapter 5 of 
the final rule TSD. The primary inputs to the engineering analysis are 
data from the market and technology assessment, input from 
manufacturers, furnace specifications, and production cost estimates 
developed based on teardown analysis and consultation with 
manufacturers. DOE's treatment of confidential business information is 
governed by the Freedom of Information Act (FOIA) and 10 CFR 1004.11 (5 
U.S.C. 552(b)(4)) Accordingly, bills of materials (BOMs) are generated 
by a DOE contractor using the manufacturer-specific and product-
specific data to estimate the industry-aggregate MPCs. DOE's contractor 
conducts interviews with manufacturers under non-disclosure agreements 
(``NDAs'') to determine whether the MPCs developed by the analysis 
reflect the industry average manufacturing costs. In addition, because 
the cost estimation methodology uses data supplied by manufacturers 
under the NDAs (such as raw material and purchased part prices), the 
resulting individual model cost estimates themselves cannot be 
published and are not released outside the aggregated form to DOE or 
its National Labs. This approach allows manufacturers to provide candid 
and detailed feedback under NDA, thereby improving the quality of the 
analysis. DOE notes that manufacturers that participated in 
manufacturer interviews had access to the raw material and purchased-
part price data underlying the MPC estimates for those models at the 
time the interviews were conducted. The data resulting from the 
engineering analysis and which DOE has used as inputs to its modeling 
were published in the July 2022 NOPR and available to the public for 
review and comment. 87 FR 40590, 40621 (July 7, 2022).
1. Efficiency Analysis
    DOE typically uses one of two approaches to develop energy 
efficiency levels for the engineering analysis: (1) relying on observed 
efficiency levels in the market (i.e., the efficiency-level approach), 
or (2) determining the incremental efficiency improvements associated 
with incorporating specific design options to a baseline model (i.e., 
the design-option approach). Using the efficiency-level approach, the 
efficiency levels established for the analysis are determined based on 
the market distribution of existing products (in other words, based on 
the range of efficiencies and efficiency level ``clusters'' that 
already exist on the market). Using the design option approach, the 
efficiency levels established for the analysis are determined through 
detailed engineering calculations and/or computer simulations of the 
efficiency improvements from implementing specific design options that 
have been identified in the technology assessment. DOE may also rely on 
a combination of these two approaches. For example, the efficiency-
level approach (based on actual products on the market) may be extended 
using the design option approach to interpolate to define ``gap fill'' 
levels (i.e., to bridge large gaps between other identified efficiency 
levels) and/or to extrapolate to the ``max-tech'' level (particularly 
in cases where the ``max-tech'' level exceeds the maximum efficiency 
level currently available on the market).
    For the AFUE engineering analysis, DOE generally employed an 
efficiency level approach, which identified the intermediate efficiency 
levels (i.e., levels between baseline and max-tech) for analysis based 
on the most common efficiency levels on the market. One exception is 
that DOE analyzed a 90-percent AFUE level for NWGFs and MHGFs despite 
relatively few models at that level, as it would serve as a minimum 
condensing level.
a. Baseline Efficiency Level and Product Characteristics
    For each product/equipment class, DOE generally selects a baseline 
model as a reference point for each class, and measures anticipated 
changes to the product resulting from potential energy conservation 
standards against the baseline model. The baseline model in each 
product/equipment class represents the characteristics of a product/
equipment typical of that class (e.g., capacity, physical size). 
Generally, a baseline model is one that just meets current energy 
conservation standards, or, if no standards are in place, the baseline 
is typically the most common or least-efficient unit on the market.
    DOE selected baseline units for the NWGF and MHGF product classes 
that include characteristics typical of the least-efficient 
commercially-available consumer furnaces. The baseline unit in each 
product class represents the basic characteristics of products in that 
class. Baseline units serve as reference points, against which DOE 
measures changes resulting from potential amended energy conservation 
standards. Additional details on the selection of baseline units are in 
chapter 5 of the final rule TSD.
    Table IV.1 presents the baseline AFUE levels identified for each 
product class of furnaces addressed by this rulemaking. The baseline 
AFUE levels are the same as the current Federal minimum AFUE standards 
for the subject furnaces, as established by the November 2007 Final 
Rule. 10 CFR 430.32(e)(1)(ii); 72 FR 65136, 65169 (Nov. 19, 2007).

[[Page 87541]]



     Table IV.1--Baseline Residential Furnace AFUE Efficiency Levels
------------------------------------------------------------------------
                      Product class                       AFUE (percent)
------------------------------------------------------------------------
Non-Weatherized Gas Furnaces............................              80
Mobile Home Gas Furnaces................................              80
------------------------------------------------------------------------

b. Higher Efficiency Levels
    As part of DOE's analysis, the maximum available efficiency level 
is the highest efficiency unit currently available on the market. DOE 
also defines a ``max-tech'' efficiency level to represent the maximum 
possible efficiency for a given product. Tables IV.2 and IV.3 show the 
efficiency levels DOE selected for analysis of amended AFUE standards 
for NWGFs and MHGFs, respectively, up to the maximum available 
efficiency level, along with a description of the typical technological 
change at each level. Since the July 2022 NOPR, DOE has identified new 
models of NWGFs certified in DOE's Compliance Certification Database 
(CCD) \56\ with efficiencies up to 99-percent AFUE and of MHGFs 
certified with efficiencies up to 97-percent AFUE. However, there is 
only one model of NWGF at 99-percent AFUE, at only one input size. 
Several other models from the same model family do not achieve 99-
percent AFUE. Therefore, at the time of this final rule analysis, it is 
unclear whether 99 percent would be an appropriate max-tech level for 
all NWGFs that is achievable across a range of input capacities, and, 
as a result, DOE maintained the same maximum efficiency level for NWGFs 
as in the July 2022 NOPR (i.e., 98-percent AFUE). Similarly, there are 
only two input capacities of MHGFs that would exceed a 97-percent 
efficiency level, and these models are from the same model line, but 
several other models at other input capacities within that same model 
line do not achieve 97-percent AFUE. Therefore, it is at present 
uncertain as to whether 97-percent AFUE would be an appropriate max-
tech level for all MHGFs, so DOE maintained the same maximum efficiency 
level for MHGFs as in the July 2022 NOPR (i.e., 96-percent AFUE). 
Therefore, the maximum efficiency level analyzed for both NWGFs and 
MHGFs has been maintained at a level representing the highest-
efficiency models available on the market when DOE began this analysis 
as outlined in chapter 3 of the final rule TSD.
---------------------------------------------------------------------------

    \56\ U.S. Department of Energy Compliance Certification 
Management System (``CCMS'') (available at www.regulations.doe.gov/certification-data/) (last accessed March 22, 2023).

   Table IV.2--AFUE Efficiency Levels for Non-Weatherized Gas Furnaces
------------------------------------------------------------------------
                                    AFUE
      Efficiency level (EL)         (%)          Technology options
------------------------------------------------------------------------
0--Baseline.....................       80  Baseline.
1...............................       90  EL 0 + Secondary condensing
                                            heat exchanger.
2...............................       92  EL 1 + Increased heat
                                            exchanger area.
3...............................       95  EL 2 + Increased heat
                                            exchanger area.
4--Max-Tech.....................       98  EL 3 + Increased heat
                                            exchanger area + Step-
                                            modulating combustion +
                                            Constant-airflow BPM blower
                                            motor.
------------------------------------------------------------------------


     Table IV.3--AFUE Efficiency Levels for Mobile Home Gas Furnaces
------------------------------------------------------------------------
                                    AFUE
      Efficiency level (EL)         (%)          Technology options
------------------------------------------------------------------------
0--Baseline.....................       80  Baseline.
1...............................       90  EL 0 + Secondary condensing
                                            heat exchanger.
2...............................       92  EL 1 + Increased heat
                                            exchanger area.
3...............................       95  EL 2 + Increased heat
                                            exchanger area.
4--Max-Tech.....................       96  EL 3 + Increased heat
                                            exchanger area.
------------------------------------------------------------------------

2. Cost Analysis
    The cost analysis portion of the engineering analysis is conducted 
using one or a combination of cost approaches. The selection of cost 
approach depends on a suite of factors, including the availability and 
reliability of public information, characteristics of the regulated 
product, and the availability and timeliness of purchasing the product 
on the market. The cost approaches are summarized as follows:
     Physical teardowns: Under this approach, DOE physically 
dismantles a commercially available product, component-by-component, to 
develop a detailed bill of materials for the product.
     Catalog teardowns: In lieu of physically deconstructing a 
product, DOE identifies each component using parts diagrams (available 
from manufacturer websites or appliance repair websites, for example) 
to develop the bill of materials for the product.
     Price surveys: If neither a physical nor catalog teardown 
is feasible (e.g., for tightly integrated products such as fluorescent 
lamps, which are infeasible to disassemble and for which parts diagrams 
are unavailable), cost-prohibitive, or otherwise impractical (e.g., 
large commercial boilers), DOE conducts price surveys using publicly-
available pricing data published on major online retailer websites and/
or by soliciting prices from distributors and other commercial 
channels.
    In the present case, DOE conducted its cost analysis using a 
combination of physical and catalog teardowns to assess how 
manufacturing costs change with increased product efficiency. Products 
were selected for physical teardown analysis that have characteristics 
of typical products on the market at a representative input capacity of 
80,000 Btu/h (determined based on market data and discussions with 
manufacturers). Selections spanned the range of efficiency levels 
analyzed and included most manufacturers. The teardown analysis allowed 
the creation of detailed BOMs for each product torn down, which 
included all components and processes used to manufacture the products. 
DOE used the BOMs from the teardowns as inputs to calculate the MPCs 
for products at various efficiency levels spanning the full range of

[[Page 87542]]

efficiencies from the baseline to the maximum technology achievable 
level.
    During the development of the since-withdrawn March 2015 NOPR, 
interviews were held with NWGF and MHGF manufacturers to gain insight 
into the residential furnace industry, and to request feedback on the 
engineering analysis. In advance of the July 2022 NOPR, a second round 
of interviews was held in 2021, in part to gain additional insight for 
updating the cost analysis to reflect current conditions. DOE used the 
information gathered from these interviews, along with the information 
obtained through the teardown analysis, to develop its updated MPC 
estimates. For this final rule, DOE updated its analysis to incorporate 
the most recent input data (e.g., raw materials, purchased components, 
labor) in its BOMs (and, correspondingly, in the MPC estimates derived 
from those BOMs). DOE performed an additional 23 physical teardowns for 
the July 2022 NOPR. DOE also incorporated additional physical teardowns 
from previous analyses into the analysis for this rulemaking when the 
designs and components of those units reflect those observed in 
products currently available on the market. For additional detail about 
the models used for teardowns, see chapter 5 of the final rule TSD.
    To account for manufacturers' non-production costs and profit 
margin, DOE applies a non-production cost multiplier (the manufacturer 
mark-up) to the MPC. The resulting manufacturer selling price (``MSP'') 
is the price at which the manufacturer distributes a unit into 
commerce. DOE initially developed an average manufacturer mark-up by 
examining the annual Securities and Exchange Commission (``SEC'') 10-K 
\57\ reports filed by publicly-traded manufacturers primarily engaged 
in consumer furnace manufacturing and whose product range includes 
NWGFs and MHGFs. DOE refined its understanding of manufacturer mark-ups 
by using information obtained during manufacturer interviews. The 
manufacturer mark-ups were used to convert the MPCs into MSPs. Further 
information on this analytical methodology is presented in the 
following subsections.
---------------------------------------------------------------------------

    \57\ U.S. Securities and Exchange Commission's Electronic Data 
Gathering, Analysis, and Retrieval system (EDGAR) database. 
(Available at: www.sec.gov/edgar/search/) (Last accessed Feb. 4, 
2022).
---------------------------------------------------------------------------

a. Teardown Analysis
    To assemble BOMs and to calculate manufacturing costs for the 
different components in residential furnaces, multiple units were 
disassembled into their base components, and DOE estimated the 
materials, processes, and labor required to manufacture each individual 
component, a process referred to as a ``physical teardown.'' Using the 
data gathered from the physical teardowns, each component was 
characterized according to its weight, dimensions, material, quantity, 
and the manufacturing processes used to fabricate and assemble it.
    For supplementary catalog teardowns, product data were gathered, 
such as dimensions, weight, and design features from publicly-available 
information, such as manufacturer catalogs. Such ``virtual teardowns'' 
allowed DOE to estimate the major physical differences between a 
product that was physically disassembled and a similar product that was 
not. For this final rule, data from physical and virtual teardowns of 
residential furnaces were used to calculate industry MPCs in the 
engineering analysis.
    The teardown analysis allowed DOE to identify the technologies that 
manufacturers typically incorporate into their products, along with the 
efficiency levels associated with each technology or combination of 
technologies. The end result of each teardown is a structured BOM that 
incorporates all materials, components, and fasteners (classified as 
either raw materials or purchased parts and assemblies), and 
characterizes the materials and components by weight, manufacturing 
processes used, dimensions, material, and quantity. The BOMs from the 
teardown analysis were then used as inputs to calculate the MPC for 
each product that was torn down. The MPCs resulting from the teardowns 
were then used to develop an industry average MPC for each efficiency 
level of each product class analyzed.
    As discussed in section IV.C.2.c of this document, DOE also 
performed several physical and catalog teardowns of units at input 
capacities other than the representative input capacity (i.e., 40, 60, 
100, and 120 kBtu/h in addition to 80 kBtu/h). These teardowns allowed 
DOE to develop cost-efficiency curves for NWGFs and MHGFs at different 
input capacities. For more detailed information on the teardown 
analysis, see chapter 5 of the final rule TSD.
b. Cost Estimation Method
    The costs of individual models are estimated using the content of 
the BOMs (i.e., relating to materials, fabrication, labor, and all 
other aspects that make up a production facility) to generate MPCs. The 
resulting MPCs include costs such as overhead and depreciation, in 
addition to materials and labor costs. DOE collected information on 
labor rates, tooling costs, raw material prices, and other factors to 
use as inputs into the cost estimates. For purchased parts, DOE 
estimates the purchase price based on volume-variable price quotations 
and detailed discussions with manufacturers and component suppliers.
    For parts fabricated in-house, the prices of the underlying ``raw'' 
metals (e.g., tube, sheet metal) are estimated on the basis of five-
year averages to smooth out spikes in demand. Other raw materials, such 
as plastic resins and insulation materials, are estimated on a current-
market basis. The costs of raw materials are determined based on 
manufacturer interviews, quotes from suppliers, and secondary research. 
Past results are updated periodically and/or inflated to present-day 
prices using indices from resources such as MEPS Intl.,\58\ 
PolymerUpdate,\59\ the U.S. geologic survey (``USGS''),\60\ and the 
Bureau of Labor Statistics (``BLS'').\61\ The cost of transforming the 
intermediate materials into finished parts is estimated based on 
current industry pricing.
---------------------------------------------------------------------------

    \58\ For more information on MEPS Intl, please visit 
www.mepsinternational.com/gb/en (last accessed March 21, 2023).
    \59\ For more information on PolymerUpdate, please visit 
www.polymerupdate.com (last accessed March 21, 2023).
    \60\ For more information on USGS metal price statistics, please 
visit www.usgs.gov/centers/national-minerals-information-center/commodity-statistics-and-information (last accessed March 21, 2023).
    \61\ For more information on the BLS producer price indices, 
please visit www.bls.gov/ppi/ (last accessed March 21, 2023).
---------------------------------------------------------------------------

c. Manufacturing Production Costs
    DOE estimated the MPC at each efficiency level considered for each 
product class, from the baseline through the max-tech, and then 
calculated the fractions of the MPC (in percentages) attributable to 
each cost component (i.e., materials, labor, depreciation, and 
overhead). These percentages were used to validate analytical inputs by 
comparing them to manufacturers' actual financial data published in 
annual reports, along with feedback obtained from manufacturers during 
interviews. DOE uses these production cost percentages in the MIA (see 
section IV.J of this document).
    Tables IV.4 and IV.5 present DOE's estimates of the MPCs by AFUE 
efficiency level at the representative input capacity (80 kBtu/h) for 
both NWGFs and MHGFs. The MPCs at each efficiency level incorporate the 
design characteristics of NWGFs and MHGFs shown in Tables IV.2 and 
IV.3. DOE

[[Page 87543]]

observed in its market analysis that products are available on the 
market with a mix of blower motor technologies, including constant 
torque brushless permanent magnet (``BPM'') motors, constant airflow 
BPM motors, and (for MHGFs), PSC motors. To account for the variety of 
blower motors available on the market, DOE developed cost adjustment 
factors (``adders'') for each type of blower motor and at each input 
capacity analyzed (i.e., 40, 60, 80, 100, and 120 kBtu/h) to normalize 
the blower costs between the individual units torn down and across 
efficiency levels and allow for estimation of the cost differences 
between models with different blower technologies. DOE normalized the 
costs of the blower assemblies in its teardown models, and then used 
these adders in its LCC analysis to account for the distribution of 
blower motor technologies expected to be sold on the market (see 
section IV.F of this document). For NWGFs, DOE used constant-torque BPM 
motors as the baseline design option for all efficiency levels except 
the max-tech level, which was always assumed to use a constant airflow 
BPM motor. All MHGFs were modeled with improved PSC motors as the 
normalized design option. These adders are discussed in more detail in 
chapter 5 of the TSD accompanying this rule.
    Similarly, in its market analysis and teardown analysis, DOE 
observed models with single-stage, two-stage, and modulating operation. 
Therefore, DOE normalized its engineering analysis costs to reflect 
single-stage designs (with the exception of max-tech NWGFs, which were 
all assumed to use modulating designs) but also developed a cost adder 
for two-stage and modulating combustion systems (as compared to single-
stage models) that was used in the LCC analysis to account for the 
distribution of models with two-stage and modulating combustion. The 
cost to change from a single-stage to a two-stage combustion system 
includes the cost of a two-stage gas valve, a two-speed inducer 
assembly, upgraded pressure switch/tubing assembly, and additional 
controls and wiring. Similarly, the cost to change from a single-stage 
to a modulating combustion system includes the cost of a modulating gas 
valve, an upgraded inducer assembly, upgraded pressure switch/tubing 
assembly, and additional controls and wiring. These cost adders are 
discussed in more detail in chapter 5 of the TSD. DOE similarly 
normalized the costs, when necessary, to account for the presence any 
premium controls or features that would increase cost but are not 
needed for improving efficiency.
    For MHGFs, DOE performed physical teardowns of several MHGF models 
and compared them to NWGF teardowns from a common manufacturer and 
similar design, in order to determine the typical design differences 
between the two product classes. (A detailed description of the typical 
differences between MHGF and NWGF is provided in chapter 5 of the final 
rule TSD.) Using this information, DOE then developed cost adders to 
reflect the cost difference between NWGF and MHGF models, and applied 
this cost adder to the NWGF MPCs in order to estimate the MPCs of MHGFs 
at each of the MHGF efficiency levels.
    Table IV.4 presents the MPCs for NWGFs with a constant-torque BPM 
and single-stage combustion (except for the max-tech level which, as 
previously noted, includes a constant airflow BPM and modulating 
combustion). Table IV.5 presents the MPCs for MHGFs with an improved 
PSC and single-stage combustion. DOE has determined that these designs 
are likely the most representative of furnaces on the current market, 
although DOE recognizes there are some exceptions. As discussed in this 
section, DOE has observed that a variety of blower motor technologies 
and burner system stages exist on the market, so DOE developed adders 
to translate MPCs across various technologies.

 Table IV.4--Manufacturer Production Cost for Non-Weatherized Gas Furnaces at the Representative Input Capacity
                                                  of 80 kBtu/h
----------------------------------------------------------------------------------------------------------------
                                                                                                    Incremental
                                                                    Efficiency                      cost above
                        Efficiency level                           level (AFUE)     MPC (2022$)      baseline
                                                                        (%)                           (2022$)
----------------------------------------------------------------------------------------------------------------
Baseline........................................................              80             335  ..............
EL1.............................................................              90             420              85
EL2.............................................................              92             428              93
EL3.............................................................              95             444             109
EL4.............................................................              98             572             216
----------------------------------------------------------------------------------------------------------------


Table IV.5--Manufacturer Production Cost for Mobile Home Gas Furnaces at the Representative Input Capacity of 80
                                                     kBtu/h
----------------------------------------------------------------------------------------------------------------
                                                                                                    Incremental
                                                                    Efficiency                      cost above
                        Efficiency level                           level (AFUE)     MPC (2022$)      baseline
                                                                        (%)                           (2022$)
----------------------------------------------------------------------------------------------------------------
Baseline........................................................              80             360  ..............
EL1.............................................................              90             441              81
EL2.............................................................              92             450              90
EL3.............................................................              95             466             106
EL4.............................................................              96             471             111
----------------------------------------------------------------------------------------------------------------

    JCI commented that DOE should work with MHI and HUD to get cost and 
buyer data for MHGF replacements and reevaluate whether a 95-percent 
AFUE standard is appropriate based on those findings. (JCI, No. 411 at 
p. 2)
    In response, DOE notes that it conducted the engineering analysis 
for this final rule using a combination of physical and catalog 
teardowns. As discussed in section IV.C.2 of this document, DOE only 
relies on price

[[Page 87544]]

surveys as the basis for the engineering analysis if neither physical 
nor catalog teardowns are feasible, or if these options are cost-
prohibitive and otherwise impractical. The resulting MPCs do not 
include manufacturer mark-ups and will not reflect prices seen by 
consumers. DOE estimates and applies additional markups to its MPCs, as 
discussed in sections IV.C.2.e and IV.D of this document. Additionally, 
as described in section IV.D of this document, under a more-stringent 
standard, the mark-ups incorporated into the sales price may also 
change relative to current mark-ups. Therefore, DOE has concluded that 
using prices of furnaces as currently seen in the marketplace, as JCI 
suggested, would not be an accurate method of estimating future furnace 
prices following an amended standard and, in turn, validating DOE's 
approach of conducting an engineering analysis and mark-ups analysis 
for this final rule.
    Daikin commented that there is a higher burden on manufacturers 
than DOE estimated because DOE does not consider that NWGFs with higher 
AFUE take more time to assemble due to: (1) more components, (2) higher 
complexity, (3) tighter assembly requirements, and (4) more end-of-line 
testing. (Daikin, No. 416 at p. 3)
    JCI commented that the DOE fan energy rating (FER) rule and recent 
supply chain issues have increased MHGF MPCs by more than 42 percent 
between 2018 and 2021, and by 36 percent for NWGFs. (JCI, No. 411 at p. 
2)
    Lennox commented that it found that DOE's MPCs generally reflect 
the correct costs in 2020, except for the difference between EL 2 at 
92-percent AFUE and EL 3 at 95-percent AFUE, which it believes to be 
too low. (Lennox, No. 389 at p. 7) Lennox stated that this cost 
difference should be increased by 50 to 70 percent. (Id.) Lennox 
further commented that inflation has increased these costs more than 15 
percent since 2020. (Id.)
    In response to Daikin, DOE notes that its estimates for labor costs 
associated with higher-efficiency NWGFs are based on available industry 
data, as well as manufacturer feedback received during confidential 
interviews. Increased assembly and fabrication time, different 
components and processes, and all other change associated with higher 
efficiency levels for NWGFs are accounted for and reflected in the cost 
estimates for labor and, in turn, the overall MPC estimates. In 
addition, DOE agrees with JCI and Lennox that furnace MPCs have 
increased in recent years, and notes that the MPCs developed for this 
NOPR are higher than those in the NOPR, primarily due to changes in 
component and raw material prices.
    In the July 2022 NOPR, DOE requested comment on the designs of the 
secondary heat exchanger (including any recent design changes), as well 
as the cost of AL29-4C stainless steel. 87 FR 40590, 40705 (July 7, 
2022). In response, Lennox stated that it regards AL29-4C stainless 
steel, which is used in Lennox condensing furnaces, as the standard for 
secondary heat exchangers due to its corrosive-resistant properties. 
(Lennox, No. 389 at p. 7) As discussed in chapter 5 of the TSD 
accompanying this final rule, DOE did assume AL29-4C is used in the 
construction of secondary heat exchangers for condensing furnaces. 
Because no additional comments were received, DOE did not make any 
changes to its cost models for condensing furnace heat exchangers 
compared to what was used for the July 2022 NOPR analysis, other than 
updating prices to reflect the most recent five-year average materials 
prices available.
    Chapter 5 of the final rule TSD presents more information regarding 
the development of DOE's estimates of the MPCs.
d. Cost-Efficiency Relationship
    DOE created cost-efficiency curves representing the cost-efficiency 
relationships for the product classes that it examined (i.e., NWGFs and 
MHGFs). To develop the cost-efficiency relationships for NWGFs at the 
representative capacity (80 kBtu/h), DOE calculated a market-share 
weighted average MPC for each efficiency level analyzed, based on the 
units torn down at that efficiency level. As discussed in section 
IV.C.2.a of this document, DOE performed several physical and catalog 
teardowns across a range of input capacities in order to develop cost-
efficiency curves for NWGFs and MHGFs that are representative of the 
various input capacities available on the market. These cost-efficiency 
curves were then used in the downstream analyses. The cost-efficiency 
curves developed for input capacities other than the representative 
input capacity are presented in chapter 5 of the final rule TSD. As 
discussed in section IV.C.2.c of this document, DOE used information 
from teardowns of MHGF and NWGF to developed cost adders for MHGF as 
compared to NWGF, which were applied to the NWGF MPCs to estimate the 
MPCs of MHGFs at each of the MHGF efficiency levels. Additional details 
on how DOE developed the cost-efficiency relationships and related 
results are available in chapter 5 of the final rule TSD.
    As displayed in Tables IV.4 and IV.5 of this document, the results 
show that the cost-efficiency relationships for NWGFs and MHGFs are 
nonlinear. For both product classes, the cost increase between the non-
condensing (80-percent AFUE) and condensing (90-percent AFUE) 
efficiency levels is due to the addition of a secondary heat exchanger, 
so there is a large step in both AFUE and MPC. For NWGFs, a significant 
cost increase also occurs between the 95-percent and 98-percent AFUE 
levels due to the addition of modulating combustion components paired 
with a constant airflow BPM indoor blower motor at 98-percent AFUE.
e. Manufacturer Markup
    DOE calculates the manufacturer selling price (MSP) by multiplying 
the MPC and the manufacturer markup. The MSP is the price the 
manufacturer charges its direct customer (e.g., a wholesaler). The MPC 
is the cost for the manufacturer to produce a single unit of product, 
accounting for material, labor, depreciation and overhead costs 
associated with the manufacturing facility. The manufacturer markup is 
a multiplier that accounts for manufacturers' production costs and 
revenue attributable to the product.
    DOE initially developed an average manufacturer mark-up by 
examining the annual Securities and Exchange Commission (``SEC'') 10-K 
reports filed by publicly-traded manufacturers primarily engaged in 
consumer furnace manufacturing and whose product range includes NWGFs 
and MHGFs. DOE refined its understanding of manufacturer mark-ups by 
using information obtained during manufacturer interviews. For 
additional detail on DOE's methodology to determine the no-new-
standards case manufacturer markup, see chapter 5 and chapter 12 of the 
final rule TSD.
f. Manufacturer Interviews
    Throughout the rulemaking process, DOE sought feedback and insight 
from interested parties that would improve the information used in its 
analyses. DOE first interviewed NWGF and MHGF manufacturers as a part 
of the manufacturer impact analysis for the since-withdrawn March 2015 
NOPR. During these interviews, DOE sought feedback on all aspects of 
its analyses for residential furnaces. DOE discussed the analytical 
assumptions and estimates, cost estimation method, and cost-efficiency 
curves with consumer furnace manufacturers. Subsequently, in

[[Page 87545]]

2021, DOE conducted a second series of interviews to obtain feedback on 
the updates to the cost analyses from the additional teardowns 
performed for the July 2022 NOPR. DOE considered all the information 
manufacturers provided while refining its cost estimates (and 
underlying data) and analytical assumptions. In order to avoid 
disclosing sensitive information about individual manufacturers' 
products or manufacturing processes, DOE incorporated equipment and 
manufacturing process figures into the analyses as averages. Additional 
information on manufacturer interviews can be found in chapter 12 of 
the final rule TSD.
g. Electric Furnaces
    In addition to NWGFs and MHGFs, DOE also estimated the MPCs of 
electric furnaces. This analysis was performed to develop accurate 
electric furnace cost data as an input to the product switching 
analysis (see section IV.F.10 of this document for additional 
information). To estimate the MPCs of electric furnaces, DOE used 
information obtained from the teardowns of three modular blower units, 
as well as a teardown of an electric heat kit assembly, which were all 
originally used as inputs to the engineering analysis performed for the 
2014 furnace fans rulemaking.\62\
---------------------------------------------------------------------------

    \62\ Modular blower units with electric heat kits are also 
referred to as ``electric furnaces.''
---------------------------------------------------------------------------

    The MPCs of electric furnaces were developed by calculating a 
market share-weighted MPC of the three modular blower units that were 
torn down, and then adding the MPC of the electric heat kit to the 
market share-weighted modular blower MPC. The MPC of the electric heat 
kit was scaled appropriately in order to approximate the MPCs of 
different input capacity electric furnaces. Similar to the engineering 
analysis performed for NWGFs, DOE estimated the MPCs of electric 
furnaces at input capacities of 40, 60, 80, 100, and 120 kBtu/h. All 
material prices have been updated since the July 2022 NOPR to reflect 
recent changes in the market. These MPCs are presented in Table IV.6.

                    Table IV.6--Electric Furnace MPCs
------------------------------------------------------------------------
                 Input capacity (kBtu/h)                    MPC (2022$)
------------------------------------------------------------------------
40......................................................             324
60......................................................             358
80......................................................             391
100.....................................................             405
120.....................................................             439
------------------------------------------------------------------------

    Further details regarding the methodology used to estimate electric 
furnace MPCs are provided in chapter 5 of the final rule TSD.

D. Markups Analysis

    The markups analysis develops appropriate markups (e.g., 
manufacturer markups, retailer markups, distributor markups, contractor 
markups) in the distribution chain and sales taxes to convert the MPC/
MSP estimates derived in the engineering analysis to consumer prices, 
which are then used in the LCC and PBP analysis. The markups are 
multiplicative factors applied to MPCs and MSPs. At each step in the 
distribution channel, companies mark up the price of the product to 
cover business costs and generate a profit margin. Before developing 
markups, DOE defines key market participants and identifies 
distribution channels.
    For consumer furnaces, the main parties in the distribution chain 
are: (1) manufacturers; (2) wholesalers or distributors; (3) retailers; 
(4) mechanical contractors; (5) builders; (6) manufactured home 
manufacturers, and (7) manufactured home dealers/retailers. See chapter 
6 and appendix 6A of the final rule TSD for a more detailed discussion 
about parties in the distribution chain.
    For the final rule, DOE maintained the same approach as in the 
NOPR. DOE characterized two distribution channel market segments to 
describe how NWGF and MHGF products pass from the manufacturer to 
residential and commercial consumers: \63\ (1) replacements and new 
owners \64\ and (2) new construction.
---------------------------------------------------------------------------

    \63\ DOE estimates that five percent of NWGFs are installed in 
commercial buildings. See section IV.G of this document for further 
discussion.
    \64\ New owners are new furnace installations in buildings that 
did not previously have a NWGF or MHGF or existing NWGF or MHGF 
owners that are adding an additional consumer furnace. They 
primarily consist of households that add or switch to NWGFs or MHGFs 
during a major remodel.
---------------------------------------------------------------------------

    The NWGF and MHGF replacement/new owners market distribution 
channel is primarily characterized as follows:

Manufacturer [rarr] Wholesaler [rarr] Mechanical Contractor [rarr] 
Consumer

    Based on a 2023 BRG report,\65\ 2019 Clear Seas Research HVAC 
contractor survey,\66\ and Decision Analyst's 2022 American Home 
Comfort Study,\67\ DOE determined that the retail distribution channel 
(including internet sales) has been growing significantly in the last 
five years (previously it was negligible). Based on these sources, DOE 
estimated that 15 percent of the replacement market distribution 
channel for NWGF and 20 percent for MHGF (including mobile home 
specialty retailer/dealer) will be going through this market channel as 
follows (including some consumers that purchase directly and then have 
contractors install it): \68\
---------------------------------------------------------------------------

    \65\ BRG Building Solutions, The North American Heating & 
Cooling Product Markets (2023 Edition). (Available at 
www.brgbuildingsolutions.com/reports-insights) (Last accessed August 
1, 2023).
    \66\ Clear Seas Research, 2019 Unitary Trends. (Available at 
clearseasresearch.com/?attachment_id=2311) (Last accessed August 1, 
2023).
    \67\ Decision Analyst, 2022 American Home Comfort Studies. 
(Available at www.decisionanalyst.com/syndicated/homecomfort/) (Last 
accessed August 1, 2023).
    \68\ The Do-It-Yourself (DIY) market is very small (only 
represents about 1-2 percent of the whole gas furnace market) and is 
not analyzed by DOE in this analysis.

Manufacturer [rarr] Retailer [rarr] Mechanical Contractor [rarr] 
---------------------------------------------------------------------------
Consumer

Manufacturer [rarr] Mobile Home Specialty Retailer/Dealer [rarr] 
Consumer

    The NWGF new construction distribution channel is characterized as 
follows, where DOE assumes that for 50 percent of installations, a 
larger builder has an in-house mechanical contractor:

Manufacturer [rarr] Wholesaler [rarr] Mechanical Contractor [rarr] 
Builder [rarr] Consumer

Manufacturer [rarr] Wholesaler [rarr] Builder [rarr] Consumer

    The MHGF new construction distribution channel is characterized as 
follows:

Manufacturer [rarr] Mobile Home Manufacturer [rarr] Mobile Home Dealer 
[rarr] Consumer

    For replacements, new owners, and new construction, DOE also 
considered the national accounts or direct-from-manufacturer 
distribution channel, where the manufacturer, through a wholesaler, 
sells directly to a consumer.\69\
---------------------------------------------------------------------------

    \69\ The national accounts channel where the buyer is the same 
as the consumer is mostly applicable to NWGFs installed in small to 
mid-size commercial buildings, where on-site contractors purchase 
equipment directly from wholesalers at lower prices due to the large 
volume of equipment purchased, and perform the installation 
themselves. Overall, DOE's analysis assumes that approximately 7 
percent of NWGFs installed in the residential and commercial sector 
use national accounts, based on the fraction of small to mid-sized 
commercial buildings with NWGFs relative to residential buildings 
with NWGFs in the 2023 BRG report.

---------------------------------------------------------------------------
Manufacturer [rarr] Wholesaler (National Account) [rarr] Consumer


[[Page 87546]]


    At each step in the distribution channel, companies mark up the 
price of the product to cover costs. DOE developed baseline and 
incremental mark-ups for each participant in the distribution chain to 
ultimately determine the consumer purchase cost. Baseline mark-ups are 
applied to the price of products with baseline efficiency, while 
incremental mark-ups are applied to the difference in price between 
baseline and higher-efficiency models (the incremental cost increase). 
The incremental mark-up is typically less than the baseline mark-up and 
is designed to maintain similar per-unit operating profit before and 
after new or amended standards.\70\
---------------------------------------------------------------------------

    \70\ Because the projected price of standards-compliant products 
is typically higher than the price of baseline products, using the 
same mark-up for the incremental cost and the baseline cost would 
result in higher per-unit operating profit. While such an outcome is 
possible, DOE maintains that in markets that are reasonably 
competitive, it is unlikely that standards would lead to a 
sustainable increase in profitability in the long run.
---------------------------------------------------------------------------

    To estimate average baseline and incremental mark-ups, DOE relied 
on several sources, including: (1) the 2017 Annual Wholesale Trade 
Survey \71\ (for wholesalers and distributors); (2) U.S. Census Bureau 
2017 Economic Census data \72\ on the residential and commercial 
building construction industry (for builders, mechanical contractors, 
and mobile home manufacturers); (3) SEC 10-K reports \73\ from Home 
Depot and Lowe's and 2017 Annual Retail Trade Survey \74\ (for 
retailers); (4) 2017 Economic Census and other sources (for mobile home 
dealers and retailers). In addition, DOE used the 2005 Air Conditioning 
Contractors of America's (``ACCA'') Financial Analysis on the Heating, 
Ventilation, Air-Conditioning, and Refrigeration (``HVACR'') 
contracting industry \75\ to disaggregate the mechanical contractor 
mark-ups into replacement and new construction markets and the HARDI 
2013 Profit Report \76\ to derive regional-to-national wholesaler 
markup ratio. DOE also used various sources for the derivation of the 
mobile home dealer mark-ups (see chapter 6 of the final rule TSD).
---------------------------------------------------------------------------

    \71\ U.S. Census Bureau, 2017 Annual Wholesale Trade Survey. 
(Available at www.census.gov/data/tables/2017/econ/awts/) (Last 
accessed August 1, 2023).
    \72\ U.S. Census Bureau, 2017 Economic Census Data. (Available 
at www.census.gov/econ/) (Last accessed August 1, 2023).
    \73\ U.S. Securities and Exchange Commission, SEC 10-K Reports 
(available at www.sec.gov/) (last accessed August 1, 2023).
    \74\ U.S. Census Bureau, 2017 Annual Retail Trade Survey Data 
(available at www.census.gov/programs-surveys/arts.html) (last 
accessed August 1, 2023).
    \75\ Air Conditioning Contractors of America (ACCA), Financial 
Analysis for the HVACR Contracting Industry (2005). (Available at 
www.acca.org/store) (Last accessed August 1, 2023).
    \76\ Heating, Air Conditioning & Refrigeration Distributors 
International (HARDI), 2013 HARDI Profit Report. (Available at 
www.hardinet.org/) (Last accessed August 1, 2023).
---------------------------------------------------------------------------

    Typically, contractors will mark up equipment and labor 
differently, with the labor mark-up being greater than the equipment 
mark-up. For the purposes of the analysis, DOE is treating the furnace 
installation work, including the equipment and labor components, as one 
job, and assumes that the mechanical contractors use the same mark-up 
to account for overhead and profit of the entire job. However, the 
determination of that overall markup accounts for the different 
components of the job. After reviewing the available 2017 economic 
census data,\77\ DOE adjusted the mechanical contractor mark-up to take 
into account that a fraction of the fringe costs related to the direct 
construction labor are part of the labor cost. This better matches the 
approach used in RS Means \78\ and other cost books \79\ on how the 
overall contractor mark-up is determined. Based on this methodology, 
the average baseline mark-up for mechanical contractors is 1.47 for 
replacements and 1.39 for new construction, while the incremental mark-
up for mechanical contractors is 1.27 for replacements and 1.20 for new 
construction. The overall baseline mark-up is 2.85 for NWGFs and 2.49 
for MHGFs, while the incremental mark-up is 2.09 for NWGFs and 1.91 for 
MHGFs. See chapter 6 and appendix 6A of the final rule TSD for more 
details.
---------------------------------------------------------------------------

    \77\ U.S. Census Bureau, 2017 Economic Census Data. (Available 
at www.census.gov/econ/) (Last accessed August 1, 2023).
    \78\ RS Means Company Inc., 2023 RS Means Mechanical Cost Data. 
Kingston, MA (2023). (Available at www.rsmeans.com/products/books/) 
(Last accessed August 1, 2022).
    \79\ Craftsman Book Company, 2023 National Construction 
Estimator, CA (2023). (Available at craftsman-book.com/books-and-software/shop-by-type/shop-estimating-books) (Last accessed August 
1, 2023).
---------------------------------------------------------------------------

    In addition to the mark-ups, DOE obtained State and local taxes 
from data provided by the Sales Tax Clearinghouse.\80\ These data 
represent weighted average taxes that include county and city rates. 
DOE derived shipment-weighted average tax values for each region 
considered in the analysis.
---------------------------------------------------------------------------

    \80\ Sales Tax Clearinghouse Inc., State Sales Tax Rates Along 
with Combined Average City and County Rates (June 14, 2023). 
(Available at www.thestc.com/STrates.stm) (Last accessed August 1, 
2023).
---------------------------------------------------------------------------

    DOE acknowledges that there is uncertainty regarding the 
appropriate mark-ups to use, so the Department conducted a sensitivity 
analysis in which the same average mark-up is applied to baseline and 
higher-efficiency products. Appendix 8N of the final rule TSD describes 
this analysis and how the associated LCC results differ from the 
results using the incremental mark-up approach. The relative comparison 
of the different efficiency levels remains similar, however, and the 
proposed energy conservation standard level remains economically 
justified regardless of which mark-up scenario is utilized.
    Lennox commented that the assumption that the incremental markup 
would be lower for condensing than for non-condensing furnace standard 
levels is incorrect, as the installed cost difference between EL 2 and 
EL 3 is less than the difference between the MPC and MSP for these two 
levels. (Lennox, No. 389 at p. 2) Lennox further asserted that the 
incremental markup should be consistent for condensing and non-
condensing levels. (Id.)
    DOE clarifies that the incremental mark-up is used for efficiency 
levels above the baseline, applied to those costs above the baseline 
cost. In the case of consumer furnaces, all condensing furnaces have an 
efficiency above the baseline, and, therefore, they all share the same 
incremental mark-up factor (absolute mark-up will vary based on the 
incremental cost). Baseline, non-condensing furnaces are characterized 
with a baseline mark-up only. Chapter 6 of the final rule TSD provides 
details on DOE's development of markups for NWGFs and MHGFs.

E. Energy Use Analysis

    The purpose of the energy use analysis is to determine the annual 
energy consumption of NWGFs and MHGFs at different efficiencies in 
representative U.S. single-family homes, multi-family residences, 
mobile homes, and commercial buildings, and to assess the energy 
savings potential of increased furnace efficiency. The energy use 
analysis estimates the range of energy use of NWGFs and MHGFs in the 
field (i.e., as they are actually used by consumers). The energy use 
analysis provides the basis for other analyses DOE performed, 
particularly assessments of the energy savings and the savings in 
consumer operating costs that could result from adoption of amended or 
new standards.
    DOE estimated the annual energy consumption of NWGFs and MHGFs at 
specific energy efficiency levels across a range of climate zones, 
building characteristics, and heating applications. The annual energy 
consumption includes the natural gas,

[[Page 87547]]

liquid petroleum gas (LPG), and electricity used by the furnace.
    Chapter 7 of the final rule TSD provides details on DOE's energy 
use analysis for NWGFs and MHGFs.
1. Building Sample
    To determine the field energy use of NWGFs and MHGFs used in 
residential housing units and commercial buildings, DOE established a 
sample of households using EIA's 2020 Residential Energy Consumption 
Survey (RECS 2020) \81\ and sample of commercial buildings using EIA's 
2018 Commercial Building Energy Consumption Survey (CBECS 2018), which 
were the most recent such surveys that were available at that time.\82\ 
The RECS and CBECS data provide information on the vintage of the home 
or building, as well as heating energy use in each housing unit or 
building. DOE used the housing and building samples not only to 
determine existing furnace's annual energy consumption, but also as the 
basis for conducting the LCC and PBP analyses. RECS and CBECS includes 
weights for each housing unit or commercial building in order to 
produce housing and commercial building population estimates to 
represent all housing units and commercial buildings, including those 
not in the survey sample. DOE used these RECS and CBECS weights along 
with furnace shipments data and furnace sample criteria to develop the 
projected furnace sample shipment weights in 2029, the first year of 
compliance with any amended or new energy conservation standards for 
NWGFs and MHGFs, used in the analysis. To characterize future new homes 
and buildings, DOE used a subset of housing units and commercial 
buildings in RECS and CBECS that were built after 2000.
---------------------------------------------------------------------------

    \81\ Energy Information Administration (EIA), 2020 Residential 
Energy Consumption Survey (RECS). (Available at: www.eia.gov/consumption/residential/) (Last accessed August 1, 2023).
    \82\ U.S. Department of Energy: Energy Information 
Administration, Commercial Buildings Energy Consumption Survey 
(2018). (Available at: www.eia.gov/consumption/commercial/) (Last 
accessed August 1, 2023).
---------------------------------------------------------------------------

    APGA argued that with DOE's usage of EIA's RECS 2015, DOE is 
imputing to over 120 million households characteristics based upon a 
survey of a few hundred. APGA further argued that RECS surveys are 
suspect because they rely on respondents knowing precisely the 
appliance that heats their house and for how long that has been. (APGA, 
No. 387 at p.11) DOE notes that this characterization is incorrect. 
RECS 2015 is based on a nationally representative sample of 5,686 
households, not a few hundred. RECS 2020 had 18,496 respondents 
complete the survey. Furthermore, EIA employs a number of different 
data collection modes, including in-person interviews with detailed 
measurements of the housing unit, as well as collecting fuel billing 
and delivery data from energy suppliers. There are a number of cross-
checks and quality control steps to ensure the robustness of the 
survey, as detailed in the RECS technical documentation.
    APGA claimed that DOE relied on stale data from EIA's RECS 2015 in 
the NOPR. APGA argued that DOE should incorporate RECS 2020 data and 
run its analysis again, allowing public comment in a supplemental NOPR. 
(APGA, No. 387 at p. 61)
    In response, DOE notes that the energy use analysis relies on the 
energy consumption and expenditures microdata from RECS, which at the 
time of the NOPR analysis were not yet published for RECS 2020. Only 
the preliminary housing characteristics statistics tables from RECS 
2020 were available at the time of the NOPR analysis. However, it is 
common practice for DOE to include updated data in its analyses when 
they become available. The RECS 2020 final version of the microdata 
(including energy consumption and expenditures data) have since been 
published, and DOE has updated its analysis for the final rule to 
include the latest RECS 2020 data. DOE has also updated its analysis 
for the final rule to include the latest CBECS 2018 data. See appendix 
7A of the final rule TSD for details regarding the sample.
    JCI commented that manufactured home applications are not 
specifically addressed in RECS data after 1974. The commenter asserted 
that manufactured home applications are instead categorized in single-
family homes. JCI argued that replacements in manufactured homes are, 
therefore, not accurately represented in DOE's analysis, and that 
manufactured homes would be disproportionately negatively impacted by a 
95-percent AFUE standard. (JCI, No. 411 at p. 2)
    In response, DOE clarifies that RECS does include survey responses 
from households in manufactured homes. They are labeled as ``mobile 
homes'' and are included in DOE's analysis. These are the households 
that would be representative of MHGF installations and energy 
consumption.
    The CA IOUs cited the U.S. Energy Information Administration's 2015 
Residential Energy Consumption Survey to report that only 26 percent of 
mobile homes use natural gas and propane MHGFs for space heating, while 
55 percent of mobile homes use electricity for space heating. (The CA 
IOUs, No. 400 at p. 2) In response, DOE notes that in the NOPR, it used 
2015 RECS data directly, and, therefore, this breakdown of energy usage 
was reflected in DOE's NOPR analysis, and the current breakdown of 
energy use from 2020 RECS data is reflected in DOE's final rule 
analysis.
2. Furnace Sizing
    DOE assigned an input capacity for the existing NWGF or MHGF of 
each housing unit or building based on an algorithm that correlates the 
calculated design heating load served by the furnace with furnace 
shipments data by input capacity. DOE used ACCA's Manual J \83\ and 
Manual N \84\ calculation methods to more accurately determine the 
design heating load requirements for each sampled housing unit or 
building based primarily on RECS 2020 and CBECS 2018 building 
characteristics (including heated square footage, the outdoor design 
temperature for heating,\85\ wall type, insulation type, year built, 
roof type, number of floors, availability of an attic, basement, or 
crawlspace, etc.). The ACCA Manual J and Manual N process is the most 
widely accepted method to calculate heating and cooling requirements 
for a house by using well-documented values and building codes, based 
on experimental data and extreme conditions (worst-case assumptions). 
DOE distributed the input capacities based on shipments data by input 
capacity bins provided by AHRI from 1995-2014,\86\ HARDI shipments data 
by capacity and region from 2013-2022,\87\ BRG report shipments data by 
capacity from 2014-2022,\88\ and manufacturer

[[Page 87548]]

input from manufacturer interviews. The shipments data by input 
capacity were further disaggregated into 5-kBtu/h bins based on a set 
of non-repetitive or unique models from DOE's 2023 Compliance 
Certification Management System database for furnaces \89\ and from 
AHRI's 2023 residential furnace certification directory.\90\ The 
households' calculated design heating load values are then rank ordered 
to match actual shipments distributions to determine the assigned 
furnace input capacity. DOE assumed that for the new furnace 
installation, the output capacity would remain similar to the output 
capacity for the existing furnace.
---------------------------------------------------------------------------

    \83\ Air Conditioning Contractors of America Association (ACCA). 
Manual J--Residential Load Calculation (available at: www.acca.org/standards/technical-manuals/manual-j) (last accessed August 1, 
2023).
    \84\ Air Conditioning Contractors of America Association (ACCA). 
Manual N--Commercial Load Calculation (available at: www.acca.org/standards/technical-manuals/manual-n) (last accessed August 1, 
2023).
    \85\ This is the dry-bulb design temperature that is expected to 
be exceeded ninety-nine percent of the time.
    \86\ AHRI, Attachment A: Percentage of Residential Gas Furnace 
Shipments by Input Ranges, 20 Year Average (1995-2014) (October 14, 
2015) (available at: www.regulations.gov/comment/EERE-2014-BT-STD-0031-0181) (last accessed August 1, 2023).
    \87\ Heating, Air-conditioning and Refrigeration Distributors 
International (HARDI), DRIVE portal (HARDI Visualization Tool 
managed by D+R International until 2022), proprietary Gas Furnace 
Shipments Data from 2013-2022 provided to Lawrence Berkeley National 
Laboratory (LBNL).
    \88\ BRG Building Solutions, The North American Heating & 
Cooling Product Markets (2023 Edition) (available at: 
www.brgbuildingsolutions.com/reports-insights) (last accessed August 
3, 2023).
    \89\ U.S. Department of Energy, Compliance Certification 
Management System (available at: www.regulations.doe.gov/certification-data/) (last accessed August 1, 2023).
    \90\ AHRI, Directory of Certified Product Performance: 
Residential Furnaces (available at: www.ahridirectory.org/Search/QuickSearch?category=8&searchTypeId=3&producttype=32) (last accessed 
August 1, 2023).
---------------------------------------------------------------------------

    This sizing methodology takes into account the actual field 
conditions where some households have a greater oversizing factor than 
recommended by ACCA, which could occur due to old furnaces being 
replaced by a much more efficient furnace and/or improvements to the 
building shell since the last furnace installation. For example, this 
methodology, applied to both NWGFs and MHGFs, allows for older, less-
insulated homes to be assigned larger furnaces compared to similar 
newly-built homes. This methodology also accounts for regional 
differences in building shells, which show that, on average, southern 
homes are not as well insulated as northern homes. Regional differences 
in design heating load are also captured in the sizing methodology by 
using the outdoor design temperature that best matches the household 
location and climate characteristics.
    DOE also accounted for the air conditioning sizing when determining 
the input capacity size of the furnace. DOE acknowledges that 
currently, there are few low-input-capacity furnace models with large 
furnace fans. For some installations, particularly in the South, a 
large furnace fan is required to meet the cooling requirements. DOE 
accounted for the fact that some furnace installations in the South 
have a larger input capacity than determined by the design heating load 
calculations by calculating the size of the furnace fan required to 
meet the cooling requirements of the household by using the AHRI 
shipments data by input capacity \91\ and the HARDI furnace shipments 
by input capacity and region.\92\ DOE notes that this will primarily 
affect furnaces located in warmer areas of the country (with higher 
cooling loads), which potentially leads to a higher amount of 
oversizing than is assumed in the analysis for these households. DOE 
notes that the Federal furnace fan standards that took effect in July 
2019 require fan motor designs that can more efficiently adjust the 
amount of air depending on both heating and cooling requirements. Thus, 
the size of the furnace fan (and the furnace capacity) will be able to 
better match both the heating and cooling requirements of the house. 
DOE acknowledges that, in the future, there might be greater 
availability of small furnaces with larger furnace fans, but for this 
final rule, DOE made a conservative assumption that larger furnace 
input capacities will be necessary to satisfy these cooling 
requirements because smaller capacity furnaces with larger fans are not 
commonly available in the market. If smaller capacity furnaces with 
larger fans become more common, the costs to replace these furnaces 
would be lower, increasing the net consumer benefits. See chapter 7 and 
appendix 7B of the final rule TSD for further detail.
---------------------------------------------------------------------------

    \91\ AHRI, Attachment A: Percentage of Residential Gas Furnace 
Shipments by Input Ranges, 20 Year Average (1995-2014) (Oct. 14, 
2015) (available at: www.regulations.gov/comment/EERE-2014-BT-STD-0031-0181) (last accessed August 1, 2023).
    \92\ Heating, Air-conditioning and Refrigeration Distributors 
International (HARDI), DRIVE portal (HARDI Visualization Tool 
managed by D+R International until 2022), proprietary Gas Furnace 
Shipments Data from 2013-2022 provided to Lawrence Berkeley National 
Laboratory (LBNL).
---------------------------------------------------------------------------

3. Furnace Active Mode Energy Use
    To estimate the annual energy consumption in active mode of 
furnaces meeting the considered efficiency levels, DOE first calculated 
the annual housing unit or building heating load using the RECS 2020 
and CBECS 2018 estimates of housing unit or building furnace annual 
energy consumption,\93\ the existing furnace's estimated capacity and 
efficiency (AFUE), and the heat generated from the electrical 
components. The analysis assumes that some homes have two or more 
furnaces, with the heating load split evenly between them. DOE also 
took into account any secondary heating that might be present, 
utilizing the same fuel as the NWGF or MHGF, by reducing the heating 
load covered by the NWGF or MHGF. The estimation of furnace capacity is 
discussed in the previous section. The AFUE of the existing furnaces 
was estimated using the furnace vintage (the year of installation) 
provided by RECS or CBECS and historical data on the market share of 
furnaces by AFUE by region (see appendix 7B of the final rule TSD). DOE 
then used the housing unit or building heating load to calculate the 
burner operating hours at each considered efficiency level, which were 
then used to calculate the fuel and electricity consumption based on 
the DOE consumer furnace test procedure.
---------------------------------------------------------------------------

    \93\ EIA estimated the equipment's annual energy consumption 
from the household's or buildings utility bills using conditional 
demand analysis. To learn more, see www.eia.gov/consumption/residential/data/2020/pdf/2020%20RECS%20CE%20Methodology_Final.pdf. 
(Last accessed August 1, 2023).
---------------------------------------------------------------------------

a. Adjustments to Energy Use Estimates
    DOE adjusted the energy use estimates in RECS 2020 (for the year 
2020) and in CBECS 2018 (for the year 2018) to ``normal'' weather using 
long-term heating degree-day (HDD) data for each geographical 
region.\94\ For this final rule, DOE then applied an HDD correction 
factor from AEO2023 \95\ that accounts for projected population 
migrations across the Nation and continues any realized historical 
changes in HDD at the State level.
---------------------------------------------------------------------------

    \94\ National Oceanic and Atmospheric Administration (NOAA), 
NNDC Climate Data Online (available at: www.ncdc.noaa.gov/cdo-web/search) (last accessed August 1, 2023).
    \95\ U.S. Department of Energy, Energy Information 
Administration, Annual Energy Outlook 2023 (available at: 
www.eia.gov/outlooks/aeo/) (last accessed August 1, 2023).
---------------------------------------------------------------------------

    DOE also accounted for changes in building shell efficiency between 
2020 (for RECS 2020) or 2018 (for CBECS 2018) and the compliance year 
by applying the shell integrity indexes associated with AEO2023. The 
indexes consider projected improvements in building shell efficiency 
due to improvements in home insulation and other thermal efficiency 
practices. EIA provides separate indexes for new buildings and existing 
buildings for a given year, for both residential homes and commercial 
buildings. For the year 2029, the factor applied for homes is 0.91 for 
residential replacements and 0.77 for residential new construction 
relative to the 2022 building shell efficiency. The factor applied for 
commercial building replacements depend on building type and Census 
Division, ranging from 0.82 to 0.97 relative to the 2018 building shell 
efficiency. For new construction commercial buildings, the factor used 
ranged from 0.31 to 0.86, depending on building type and Census 
Division relative to the 2020 building shell

[[Page 87549]]

efficiency. See chapter 7 of the final rule TSD for more details.
    Building codes and building practices vary widely across the U.S. 
For example, as of August 2023, more than half of the States were still 
under the 2009 International Energy Conservation Code (``IECC'') or 
older codes instead of the 2015 IECC, 2018 IECC, or 2021 IECC.\96\ 
EIA's building shell index for new construction takes into account 
regional differences in building codes and building practices by 
including both homes that meet IECC requirements and homes that are 
built with the most efficient shell components, as well as non-
compliant homes that fail to meet IECC requirements. The building shell 
index also accounts for the impact of incentive programs in improving 
building shell efficiency. It is uncertain how these building codes and 
building practices will change over time, so EIA uses technical and 
economic factors to project change in the building shell integrity 
indexes. For new home construction, EIA determined the building shell 
efficiency by using the relative costs and energy bill savings in 
conjunction with the building shell attributes. For commercial 
buildings, the shell efficiency factors vary by building type and 
region, and they take into account significant improvements to the 
commercial building shell, particularly in new commercial buildings.
---------------------------------------------------------------------------

    \96\ DOE Building Energy Codes Program, Status of State Energy 
Code Adoption (available at: www.energycodes.gov/status) (last 
accessed August 1, 2023).
---------------------------------------------------------------------------

    AHRI stated that DOE did not consider changes to Manufactured 
Housing Efficiency Standards in its analysis of proposed efficiency 
standards for MHGFs, adding that the new standards were promulgated by 
DOE in May 2022 and will take effect on May 31, 2023. AHRI commented 
that the new requirements will enhance the thermal efficiency of the 
building envelope of new manufactured homes, which will in turn reduce 
the heating demand for furnaces. AHRI added that the reduced heating 
demand for furnaces will then reduce the cost justification (in 
particular, LCC savings) for the proposed standards. Additionally, AHRI 
stated that DOE cannot double-count energy savings produced by a more-
efficient building envelope and from improved furnace efficiency. 
(AHRI, No. 414-2 at pp. 1-3) Along these same lines, MHI commented that 
it does not think DOE considered the increased energy efficiency caused 
by the May 2022 ECS Final Rule for manufactured housing in its 
technical models. (MHI, No. 365 at p. 3)
    Mortex similarly commented that the standards for manufactured 
homes will lead to less usage and average input of furnaces, which 
weakens the cost justification for amending the furnaces standard. The 
commenter stated that these standards will reduce heating season gas 
demand and energy usage by approximately 15 percent, which means that 
there will be fewer energy savings to offset the increased up-front 
costs if a 95-percent AFUE furnace. (Mortex, No. 410 at p. 3)
    Mortex further commented that this rulemaking double-counts energy 
savings between this rulemaking and the manufactured housing 
rulemaking. The company also pointed to the manufactured housing 
rulemaking and the tiered approach such that requirements for single-
section manufactured homes imposed less of a cost than requirements for 
multi-section manufactured homes in consideration of affordability of 
housing for mobile home residents. Mortex commented that such 
considerations should also be taken into account by DOE in the 
rulemaking for MHGFs. (Mortex, No. 410 at p. 3)
    In response, DOE notes that the NOPR analysis was performed using 
AEO2022, which was developed before promulgation of the May 2022 final 
rule for manufactured housing (87 FR 32728). AEO projections only 
include the impacts of finalized regulations and, thus, do not include 
DOE's May 2022 manufactured housing rule. However, it is common 
practice for DOE to include updated data in its analyses when they 
become available. For the final rule, DOE used the latest AEO2023 
building shell efficiency projections, which take into account all 
finalized rules in 2022, including the May 2022 final rule for 
manufactured housing, as well as other incentives to improve building 
shell efficiency. These projections result in a decrease in the 
estimated space heating energy use in the final rule. The updated 
analysis eliminates any potential double-counting. DOE's conclusion of 
economic justification for MHGFs from the NOPR remains unchanged. With 
respect to affordability, DOE notes that smaller-capacity furnaces, 
which would be used in smaller mobile homes, have lower incremental 
costs.
    Sierra Club et al. mentioned that the rule for energy efficiency 
standards for new manufactured homes was based in part on the 
requirements of the 2021 IECC, though DOE declined to consider IECC 
requirements in setting minimum efficiency levels for heating 
appliances installed in such homes due to the coverage of these 
products under EPCA's appliance efficiency standards program. 87 FR 
32728, 32774 (May 31, 2022). Sierra Club et al. stated that another 
stakeholder's comments on the NOPR--claiming that DOE is extending the 
IECC's requirements to mobile home gas furnaces--have an unclear basis. 
(Sierra Club et al., No. 401 at pp. 2-3)
    In response, DOE acknowledges that coverage under EPCA for MHGFs is 
under consumer furnaces provisions of EPCA and not under the 
manufactured housing rulemaking. DOE agrees with Sierra Club et al. 
that it is not extending IECC requirements. Instead, DOE is 
independently evaluating the technological feasibility and economic 
justification of amended energy conservation standards for MHGFs by 
conducting its own analysis.
4. Furnace Electricity Use
    DOE's analysis of furnace electricity consumption takes into 
account the electricity used by the furnace's electrical components 
(e.g., blower, draft inducer, and ignitor). DOE determined furnace fan 
electricity consumption using field data on static pressures of duct 
systems and furnace fan performance data from manufacturer literature. 
As noted in section IV.C of this document, the furnace designs used in 
DOE's analysis incorporate furnace fans that meet the energy 
conservation standards for those covered products that took effect in 
2019.\97\ DOE accounted for furnace fan energy use during heating mode, 
as well as for the difference in furnace fan electricity use between a 
baseline furnace (80-percent AFUE) and a more-efficient furnace during 
cooling and continuous fan circulation. DOE also accounted for 
increased furnace fan energy use in condensing furnaces to produce the 
equivalent airflow output compared to a similar non-condensing furnace, 
since condensing furnaces tend to have a more restricted airflow path 
than non-condensing furnaces due to the presence of a secondary heat 
exchanger. To calculate electricity consumption for the inducer fan, 
ignition device, gas valve, and controls, DOE used the calculation 
described in DOE's furnaces test procedure,\98\ as well as in DOE's 
2023 unique furnace model dataset and manufacturer product literature. 
The electricity consumption of condensing furnaces also reflects the 
use of condensate pumps and heat tape.
---------------------------------------------------------------------------

    \97\ See 10 CFR 430.32(y).
    \98\ Found in 10 CFR part 430, subpart B, appendix N, section 
10.

---------------------------------------------------------------------------

[[Page 87550]]

    DOE accounts for the increased electricity use of condensing 
furnaces in heating, cooling, and continuous fan circulation due to 
larger internal static pressure (a more restricted airflow path due to 
the presence of a secondary heat exchanger). DOE notes that the furnace 
fan energy conservation standards that took effect in 2019 (for both 
non-condensing and condensing NWGFs \99\) can be met using constant-
torque BPM motors, which do not require increasing the size of an 
undersized duct since the speed of the motor is kept constant with 
increased static pressure. DOE also accounts for higher energy use for 
a fraction of installations that include a constant airflow BPM 
(variable speed motor) that can increase the speed of the motor to 
compensate for high static pressures. See appendix 7C of the final rule 
TSD for more details.
---------------------------------------------------------------------------

    \99\ The furnace fan energy conservation standards relevant to 
condensing and non-condensing MHGFs can be met using improved PSC 
motors and, therefore, these considerations do not apply.
---------------------------------------------------------------------------

    As stated previously, a condensing furnace uses more electricity 
than an equivalent non-condensing furnace but uses significantly less 
natural gas or LPG. DOE accounted for the additional heat released by 
the furnace fan motor, which must be compensated by the central air 
conditioner during the cooling season, based on analysis in the October 
2022 Preliminary Analysis for consumer furnace fans.\100\ DOE also 
accounted for additional electricity use by the furnace fan during 
continuous fan operation.
---------------------------------------------------------------------------

    \100\ U.S. Department of Energy--Office of Energy Efficiency and 
Renewable Energy, Energy Conservation Program for Consumer Products: 
Technical Support Document: Energy Efficiency Standards for Consumer 
Products: Consumer Furnace Fans (October 2022) (available at: 
www.regulations.gov/document/EERE-2021-BT-STD-0029-0014) (last 
accessed August 1, 2023).
---------------------------------------------------------------------------

F. Life-Cycle Cost and Payback Period Analysis

    DOE conducted LCC and PBP analyses to evaluate the economic impacts 
on individual consumers of potential energy conservation standards for 
NWGFs and MHGFs. The effect of new or amended energy conservation 
standards on individual consumers usually involves a reduction in 
operating cost and an increase in purchase cost. DOE used the following 
two metrics to measure consumer impacts:
     Life-Cycle Cost (LCC) is the total consumer expense of an 
appliance or product over the life of that product, consisting of total 
installed cost (manufacturer selling price, distribution chain markups, 
sales tax, and installation costs) plus operating costs (expenses for 
energy use, maintenance, and repair). To compute the operating costs, 
DOE discounts future operating costs to the time of purchase and sums 
them over the lifetime of the product.
     Payback Period (PBP) is the estimated amount of time (in 
years) it takes consumers to recover the increased purchase cost 
(including installation) of a more-efficient product through lower 
operating costs. DOE calculates the PBP by dividing the change in 
purchase cost at higher efficiency levels by the change in annual 
operating cost for the year that amended or new standards are assumed 
to take effect.
    For any given efficiency level, DOE measures the change in LCC 
relative to the LCC in the no-new-standards case, which reflects the 
estimated efficiency distribution of NWGFs and MHGFs in the absence of 
new or amended energy conservation standards. In contrast, the PBP for 
a given efficiency level is measured relative to the baseline product.
    For each considered efficiency level in each product class, DOE 
calculated the LCC and PBP for a nationally representative set of 
housing units and, for NWGFs, also commercial buildings. As stated 
previously, DOE developed household samples from 2020 RECS and CBECS 
2018. For each sample household, DOE determined the energy consumption 
of the furnace and the appropriate natural gas, LPG, and electricity 
price. By developing a representative sample of households, the 
analysis captured the variability in energy consumption and energy 
prices associated with the use of NWGFs and MHGFs.
    Inputs to the LCC calculation include the installed cost to the 
consumer, operating expenses, the lifetime of the product, and a 
discount rate. Inputs to the calculation of total installed cost 
include the cost of the product--which includes MPCs, manufacturer 
markups, product price projections, wholesaler and contractor markups, 
and sales taxes (where appropriate)--and installation costs. Inputs to 
the calculation of operating expenses include annual energy 
consumption, energy prices and price projections, repair and 
maintenance costs, product lifetimes, and discount rates. Inputs to the 
payback period calculation include the installed cost to the consumer 
and first year operating expenses. DOE created distributions of values 
for installation cost, repair and maintenance, product lifetime, and 
discount rates with probabilities attached to each value, to account 
for their uncertainty and variability. In addition, DOE established the 
efficiency in the no-new-standards case using a distribution of furnace 
efficiencies.
    In regard to DOE's cost calculations, GAS commented that DOE is 
defying its own intent to use ``transparent and robust analytical 
methods.'' Instead, GAS commented, DOE games its analytical methods 
through undue complexity to declare some level of (usually minimal) 
positive LCC savings necessary to clear the low hurdle rate established 
by EPCA. GAS commented that DOE ``grossly inflates'' its LCC savings 
estimates by opaque methodologies that defy independent validation. 
(GAS, No. 385 at pp. 4-5)
    Trampe commented that a long-term study is needed where total costs 
(initial and maintenance) of furnaces with different efficiencies are 
compared. The commenter added that this study should cover different 
States and temperatures. Trampe stated that HVAC installers, repairers, 
distributors, and manufacturers can provide their input on what these 
total costs would be. (Trampe, No. 361 at p. 1)
    In response, DOE conducts all appliance standards rulemakings 
through the public notice-and-comment process, in which all members of 
the public are given the opportunity to comment on the rulemaking, and 
all documents are made publicly available at www.regulations.gov. 
Additionally, all benefits and burdens of the rulemaking are carefully 
considered by DOE. Section IV.F of this document explains DOE's 
rationale regarding cost impacts and LCC models. As part of this 
rulemaking, DOE also hosted a number of public meetings, including one 
focused on its analytical models, in order to increase the transparency 
of its process. DOE currently works with manufacturers to determine 
appropriate costs, as Trampe suggested. Although predicted future and 
long-term costs are calculated and considered, a long-term study 
regarding total costs of furnaces at various efficiencies will not be 
conducted as part of this rulemaking because DOE has determined that 
its current methodology captures the elements which the commenter 
suggests. However, because DOE consistently strives to improve its 
analytical processes, the Department may consider Trampe's comment as a 
topic for possible continued future research.
    The computer model DOE uses to calculate the LCC relies on a Monte 
Carlo simulation to incorporate uncertainty and variability into the 
analysis. The Monte Carlo simulations randomly sample input values from 
the probability distributions and NGWF and

[[Page 87551]]

MHGF user samples. For this rulemaking, the Monte Carlo approach is 
implemented in MS Excel together with the Crystal Ball\TM\ add-on.\101\ 
Details regarding the various inputs to the model are discussed in the 
subsections below. The model calculated the LCC and PBP for products at 
each efficiency level for 10,000 furnace installations per simulation 
run. The analytical results include a distribution of 10,000 data 
points showing the range of LCC savings for a given efficiency level 
relative to the no-new-standards case efficiency distribution. In 
performing an iteration of the Monte Carlo simulation for a given 
consumer, product efficiency is chosen based on its probability. If the 
chosen product efficiency is greater than or equal to the efficiency of 
the standard level under consideration, the LCC calculation reveals 
that a consumer is not impacted by the standard level. By accounting 
for consumers who are projected to purchase more-efficient furnaces 
than the baseline furnace in the no-new-standards case, DOE avoids 
overstating the potential benefits from increasing product efficiency. 
DOE calculated the LCC and PBP for consumers of NWGFs and MHGFs as if 
each were to purchase a new product in the first year of required 
compliance with new or amended standards. Any amended standards apply 
to NWGFs and MHGFs manufactured five years after the date on which any 
new or amended standard is published in the Federal Register. (42 
U.S.C. 6295(f)(4)(C)) Therefore, DOE used 2029 as the first year of 
compliance with any amended standards for NWGFs and MHGFs.
---------------------------------------------------------------------------

    \101\ Crystal Ball\TM\ is a commercially-available software tool 
to facilitate the creation of these types of models by generating 
probability distributions and summarizing results within Excel 
(available at: https://www.oracle.com/middleware/technologies/crystalball.html) (last accessed Aug. 3, 2023).
---------------------------------------------------------------------------

    DOE recognizes the uncertainties associated with some of the 
parameters used in the analysis. To assess these uncertainties, DOE has 
performed sensitivity analyses for key parameters such as energy 
prices, condensing furnace market penetration, consumer discount rates, 
lifetime, installation costs, downsizing criteria, and product 
switching criteria. DOE notes that the analysis is based on a Monte 
Carlo simulation approach, which uses the Crystal Ball\TM\ add-on as a 
tool to more easily apply probability distributions to various 
parameters in the analysis. See appendix 8B of the final rule TSD and 
relevant analytical sections of this document for further details about 
uncertainty, variability, and sensitivity analyses in the LCC analysis.
    DOE's LCC analysis results at a given efficiency level account for 
the households that will not install condensing NWGFs unless the 
standard is changed, based on the no-new-standards case efficiency 
distribution described in section IV.F.8 of this document. This 
approach reflects the fact that some consumers may purchase products 
with efficiencies greater than the baseline levels.
    DOE's analysis models the expected product lifetime, not the 
expected period of homeownership. DOE recognizes that the lifetime of a 
gas furnace and the residence time of the purchaser may not always 
overlap. However, EPCA requires DOE to consider the savings in 
operating costs throughout the estimated average life of the covered 
product compared to any increase in the price of, or in the initial 
charges for, or maintenance expenses of, the covered product that are 
likely to result from a standard. (42 U.S.C. 6295(o)(2)(B)(i)(II)) In 
the context of this requirement, the expected product lifetime, not the 
expected period of homeownership, is the appropriate modeling period 
for the LCC, as energy cost savings will continue to accrue to the new 
owner/occupant of a home after its sale. If some of the price premium 
for a more-efficient furnace is passed on in the price of the home, 
there would be a reasonable matching of costs and benefits between the 
original purchaser and the home buyer. To the extent this does not 
occur, the home buyer would gain at the expense of the original 
purchaser.
    As discussed in section IV.F.10 of this document, in its LCC 
analysis, DOE considered the possibility that some consumers may switch 
to alternative heating systems under a standard that requires 
condensing technology in its LCC analysis. The LCC analysis showed that 
some consumers who switch end up with a reduction in the LCC relative 
to their projected purchase in the no-new-standards case.
    As part of the determination of whether a potential standard is 
economically justified, EPCA directs DOE to consider, to the greatest 
extent practicable, the savings in operating costs throughout the 
estimated average life of the covered product in the type (or class) 
compared to any increase in the price of, or in the initial charges 
for, or maintenance expenses of, the covered products which are likely 
to result from imposition of the standard. (42 U.S.C. 
6295(o)(2)(B)(i)(II)) EPCA does not expressly limit consideration of 
the covered product or covered products likely to result under an 
amended standard to the covered product type (or class) (i.e., no 
prohibition on consideration of the potential for product switching due 
to new or amended standards). EPCA indicates that the timeframe of the 
LCC analysis is based on the estimated average life of the covered 
product subject to the standard under consideration for amendment. 
(Id.) However, the use of ``covered products'' in the plural for what 
is to be considered as resulting from an amended standard suggests that 
DOE could consider covered products other than that subject to the 
standard. In the present case, DOE has found it unnecessary to decide 
whether EPCA allows DOE to consider the benefits from this standard 
rule on consumers of other covered products (e.g., electric heat 
pumps). However, in this analysis, DOE has accounted for the expected 
effect that these standards will have on consumers' decisions to switch 
from home heating via a gas-fired furnace to home heating via electric 
alternatives. As explained in detail below, were DOE not to consider 
the potential for consumers switching products in response to an 
amended standard, the analysis would not capture what could be expected 
to occur in actual practice. Given that understanding, DOE performed a 
sensitivity analysis with and without product switching for the LCC 
analysis (presented in section V.B.1.a of this document and in appendix 
8J of the final rule TSD) and for the NIA as well (presented in 
sections V.B.3.a and V.B.3.b of this document and in appendix 10E of 
the final rule TSD). The economic justifications for the considered 
energy conservation standards for NWGFs and MHGFs are similar with 
either no product switching or with product switching, and the relative 
comparison between the TSLs remains similar.
    EPCA also establishes, as noted in section III.F.2 of this 
document, a rebuttable presumption that a standard is economically 
justified if the Secretary finds that the additional cost to the 
consumer of purchasing a product complying with an energy conservation 
standard level will be less than three times the value of the energy 
(and, as applicable, water) savings during the first year that the 
consumer will receive as a result of the standard. (42 U.S.C. 
6295(o)(2)(B)(iii)) As with the LCC analysis, accounting for the 
potential for switching in the PBP analysis provides a payback that is 
representative across consumers.
    Table IV.7 summarizes the approach and data DOE used to derive 
inputs to the LCC and PBP calculations. The

[[Page 87552]]

subsections that follow provide further discussion. Details of the 
spreadsheet model, and of all the inputs to the LCC and PBP analyses, 
are contained in chapter 8 of the final rule TSD and its appendices.

Table IV.7--Summary of Inputs and Methods for the LCC and PBP Analysis *
------------------------------------------------------------------------
            Inputs                           Source/method
------------------------------------------------------------------------
Product Cost.................  Derived by multiplying MPCs by
                                manufacturer, wholesaler, and contractor
                                mark-ups and sales tax, as appropriate.
                                Used historical data to derive a price
                                scaling index to forecast product costs.
Installation Costs...........  Baseline installation cost determined
                                with data from 2022 RS Means. Assumed
                                variation in cost with efficiency level.
Annual Energy Use............  Total annual energy use based on the
                                annual heating load, derived from the
                                building samples. Electricity
                                consumption based on field energy use
                                data.
                               Variability: Based on the RECS 2020 and
                                CBECS 2018.
Energy Prices................  Natural Gas: Based on EIA's Natural Gas
                                Navigator data for 2022 and RECS 2020
                                and CBECS 2018 billing data.
                               Propane: Based on EIA's State Energy Data
                                System (``SEDS'') for 2021.
                               Electricity: Based on EIA's Form 861 data
                                for 2022 and RECS 2020 and CBECS 2018
                                billing data.
                               Variability: State energy prices
                                determined for residential and
                                commercial applications.
                               Marginal prices used for natural gas,
                                propane, and electricity prices.
Energy Price Trends..........  Based on AEO2023 price projections.
Repair and Maintenance Costs.  Based on 2023 RS Means data and other
                                sources. Assumed variation in cost by
                                efficiency.
Product Lifetime.............  Based on shipments data, multi-year RECS,
                                American Housing Survey, American Home
                                Comfort Survey data. Mean lifetime of
                                21.5 years.
Discount Rates...............  Residential: approach involves
                                identifying all possible debt or asset
                                classes that might be used to purchase
                                the considered appliances, or might be
                                affected indirectly. Primary data source
                                was the Federal Reserve Board's Survey
                                of Consumer Finances.
                               Commercial: Calculated as the weighted
                                average cost of capital for businesses
                                purchasing NWGFs. Primary data source
                                was Damodaran Online.
Compliance Date..............  2029.
------------------------------------------------------------------------
* Note: References for the data sources mentioned in this table are
  provided in the sections following the table or in chapter 8 of the
  final rule TSD.

    A number of commenters expressed opposition to the proposed rule 
based on the LCC and PBP results. AGA et al. stated that under DOE's 
proposal in the July 2022 NOPR, approximately 40 percent of NWGFs would 
be eliminated from the market, and consumers would have to either 
upgrade existing venting systems or switch to an electric furnace, 
which the commenters say will have higher operating costs and require 
upgrades to home or business electrical systems. (AGA et al., No. 391 
at p. 1) AGA et al. also stated that consumers, where it is 
economically appropriate for new homes or renovations, are already 
installing condensing furnaces and other high-efficiency units 
throughout the United States, and these commenters suggested that this 
high level of voluntary adoption demonstrates that DOE's proposal is 
``redundant.'' (AGA et al., No. 391 at p. 2)
    LANGD and Georgia Gas Authority commented that in its current form, 
the proposed standard will negatively impact nearly 1 in 6 customers of 
non-weatherized gas furnaces, including 1 in 5 senior-only households, 
1 in 7 low-income households, and 1 in 5 small business consumers. 
(LANGD, No. 355 at p. 1; Georgia Gas Authority, No. 367 at p. 2) LANGD 
further stated that there are other ways to achieve lower emissions, 
improved energy efficiency, and reduced bills than those proposed in 
the NOPR. (LANGD, No. 355 at pp. 1-2)
    The Coalition commented that the added costs associated with a 95-
percent AFUE unit would be more than three times the value of their 
first-year energy savings, adding that some homeowners may never recoup 
the added upfront costs. The Coalition further commented that these 
calculations can be even more complicated in the rental housing 
environment where there can be a disconnect between who pays the 
upfront equipment cost and who pays the expenses for utilities. (The 
Coalition, No. 378 at pp. 5-6)
    Atmos Energy commented that DOE should improve the accuracy of its 
analysis by tailoring its consideration of consumer behavior, life-
cycle evaluations, and costs. Atmos Energy further commented that the 
proposed rule uses unsupported and broad assumptions that are not 
reflective of actual consumer behavior and information. (Atmos Energy, 
No. 415 at p. 5) Atmos Energy also commented that the consequences of 
this proposed rule would hit especially hard in their service 
territory. The commenter stated that in Louisiana, Mississippi, and 
Texas alone, more than 1.5 million households live below 150 percent of 
the Federal poverty line. In addition, Atmos Energy stated that Texas 
households that fall between 100 and 150 percent of the Federal poverty 
level experience an average energy burden (i.e., cost of energy as a 
percentage of income) of 8 percent, while Texans living below the 
Federal poverty level experience an average energy burden of 16 
percent. In Louisiana and Mississippi, Atmos Energy stated that it 
serves 361,000 households that fall below the Federal poverty line, 
commenting that these households spend approximately $350 more on 
energy each year than the national average with an estimated average 
energy burden of 22 percent. (Atmos Energy, No. 415 at p. 4)
    Black Hills Energy stated that approximately 40 percent of non-
weatherized natural gas furnaces shipped to customers annually are non-
condensing furnaces. The commenter stated that the proposed rule would 
eliminate non-condensing furnaces and that neither updates to venting 
for a condensing furnaces nor updates to electrical systems for an 
electric furnaces are pro-consumer. Additionally, Black Hills Energy 
stated, that electric furnaces may have a higher operating cost. (Black 
Hills Energy, No. 397 at pp. 1-2) Black Hills Energy stated that the 
proposed rule is unnecessary because those for whom a condensing 
furnace is beneficial are choosing those furnaces, but the option for a 
non-condensing furnace should not be taken away from those for whom a 
conversion

[[Page 87553]]

is difficult due to issues of affordability. (Black Hills Energy, No. 
397 at p. 2) Plastics Pipe Institute similarly commented that consumers 
are already installing higher-efficiency condensing furnaces throughout 
the country, and, therefore, the proposed rule is unnecessary. 
(Plastics Pipe Institute, No. 404 at p. 2) A. Kessler opposed the 
proposed rule, arguing that a condensing furnace is not economically 
justified for some households, such as a townhome with a commonly 
vented water heater or a two-story home with a poured concrete 
foundation with brick exterior walls. (A. Kessler, No. 331 at pp. 2-4)
    In response, DOE acknowledges that for certain installations, there 
are significant costs. This is accounted for in the full distribution 
of LCC results, including consumers that experience net costs, and is 
part of the evaluation of economic justification as discussed in 
section V.C of this document. DOE also considered the impacts to low-
income consumers, as described in sections IV.I.1 and V.B.1.b of this 
document. Additionally, DOE acknowledges that some consumers are 
already purchasing higher-efficiency condensing furnaces, and this 
market share is accounted for in the analysis, resulting in a 
percentage of consumers who are not impacted by the amended standard. 
The development of the distribution of efficiency in the no-new-
standards case is discussed in further detail in section IV.F.8 of this 
document.
    AGA stated that DOE should revise its analysis to ensure that 
impacts are not inappropriately affected by the inclusion of buildings 
that are designed for condensing equipment and for which consumers 
already have condensing furnaces. (AGA, No. 405, pp. 86-87)
    In response, DOE clarifies that consumers who are not impacted by a 
standard in the LCC analysis, because they are already purchasing a 
higher-efficiency furnace, do not factor into the average LCC savings. 
The average LCC savings only reflect impacted consumers. The percentage 
of consumers not impacted by a standard is shown separately from the 
percentages of consumers negatively impacted and positively impacted 
under the new-standards case in the LCC spreadsheet.
    AGA stated that even with some sensitivity analysis, establishing 
averages in terms of furnace costs, installation costs, annual 
maintenance costs, energy consumption, etc., is not appropriate for 
this type of DOE consumer covered product. (AGA, No. 405 at p. 88) In 
response, DOE notes the commenter is mischaracterizing the analysis. 
DOE uses a distribution of installation costs, equipment capacity, 
maintenance cost, and energy consumption as part of the LCC analysis 
and does not really on average values for these inputs.
    AGA commented that DOE's modeling approach is fundamentally flawed, 
being shaped by random numbers producing inconsistent results and, in 
some cases, profoundly different economic analyses. (AGA, No. 405 at 
pp. 73-74) In response, DOE notes that it has conducted a number of 
sensitivity scenario analyses, all of which vary key input parameters, 
and the results of the analyses do not alter DOE's conclusion of 
economic justification.
    In contrast, other commenters agreed with DOE's analysis that the 
proposed standard level for NWGFs and MHGFs is economically justified, 
based on the LCC and PBP results.
    NYSERDA offered that based on their analysis of the active models 
of the six major furnace manufacturers identified in chapter 3 of the 
NOPR TSD, a wide variety of models would continue to be available 
across a range of input capacities if the AFUE level were to be set at 
96 percent. NYSERDA added that at this AFUE level, a broad range of 
residential applications would continue to be served, and consumers 
would not suffer from a deficit of market options. (NYSERDA, No. 379 at 
p. 2) NYSERDA stated that 30 percent of NWGF models would not be 
compliant if an AFUE level were to be set at 96 percent instead of 95 
percent, but the commenter opined that manufacturers would have enough 
time over the five years following the initial rule to redesign and 
preserve many of those models. (Id.) NYSERDA commented that DOE's 
update to the standards for the subject consumer furnaces would result 
in significant consumer benefits. NYSERDA further commented that the 
current LLC analysis, while robust, may overstate costs and 
underestimate benefits. (NYSERDA, No. 379 at p. 3) More specifically, 
NYSERDA commented that the composite effect of low heating energy use, 
low burner operating hours, and short equipment lifetime could affect 
LCC savings significantly. (NYSERDA, No. 379 at p. 5)
    NYSERDA commented that there are real-world mitigating factors that 
are not factored into LCC analysis but are nonetheless likely to arise. 
As examples of some of these potential factors, the commenters pointed 
to limited warranties that do not completely cover an early failure, 
renters being responsible for equipment operation and building owners 
being responsible for the upfront purchase, future natural gas costs 
that may differ from EIA gas forecasts, and consumers opting for an 
alternative heating source to avoid high-cost gas furnaces. (NYSERDA, 
No. 379 at p. 5)
    Daikin commented that DOE's proposed 95-percent AFUE standard has 
the shortest rebuttable payback period of the ELs considered, 
regardless of the standard type considered. (Daikin, No. 416 at p. 2) 
On this point, DOE clarifies that the 95-percent AFUE level has the 
shortest simple payback period, relative to the baseline model and 
assuming a national standard, of the condensing ELs considered.
    NPGA commented that no deliberate attempts appear to have been made 
by DOE to address consumer choice and tradeoffs as recommended in the 
NAS report. (NPGA, No. 395 at p. 13)
    DOE notes that discussion of the recommendations of the NAS report 
will be addressed as part of a separate notice-and-comment process, and 
not on an individual rulemaking-by-rulemaking basis.
    NPGA commented that the Monte Carlo analysis as implemented in the 
LCC and PBP analyses do not meet the requirements of the Office of 
Management and Budget Circular A-4 for Regulatory Analysis. (NPGA, No. 
395 at p. 14) The commenter argued that DOE does not evaluate variables 
in the simulation for independence and fails to use the functionality 
of the Crystal Ball Microsoft Excel add-in to quantify relationships 
among correlated variables. (NPGA, No. 395 at p. 15) NPGA commented 
that DOE does not implement correlation of any distributional inputs, 
therefore presuming that all such inputs are independent random 
variables. NPGA asserted that DOE's approach is not reasonable to 
represent actual consumers. NPGA further stated that the TSD does not 
suggest that DOE conducted a systematic analysis of correlated 
variables, as would be implied by the Circular A-4 guidance. (NPGA, No. 
395 at p. 15) NPGA listed the following input variable pairs as likely 
correlated distributional input variables affecting LCC savings: 
furnace maintenance failure year and repair cost, furnace lifetime and 
EL design complexity, and EL design complexity and repair cost. (NPGA, 
No. 395 at pp. 15-16)
    In response, DOE notes that multiple variables are correlated in 
the analysis. For example, installation costs depend on installation 
location and other housing characteristics. There is also a 
relationship between design options,

[[Page 87554]]

lifetime, and maintenance and repair costs. As discussed in chapter 8 
and appendix 8F of the final rule TSD, repair costs do vary by failure 
year, and this is captured in the analysis. Annualized maintenance and 
repair costs also differ between non-condensing and condensing furnace. 
For other variables, DOE does not have enough information regarding any 
correlation. See appendix 8B for a description of the correlated 
variables. Thus, NPGA's assertion that DOE does not implement 
correlation of variables is incorrect.
    NPGA commented that the NOPR does not provide evidence to suggest 
the use of the techniques in Circular A-4 for developing expert 
judgment estimates. (NPGA, No. 395 at p. 16)
    NPGA commented that DOE frequently mixes the objectives of modeling 
input diversity and uncertainty within a single distribution. (NPGA, 
No. 395 at p. 16) In response, DOE notes that this mischaracterizes the 
analysis. DOE uses probability distributions for a number of input 
variables that are reasonably expected to exhibit natural variation and 
diversity in practice (e.g., lifetime, repair cost, installation 
costs). These probability distributions are modeling diversity. In 
contrast, DOE addresses input uncertainty primarily with the use of 
sensitivity scenarios. To determine whether the conclusions of the 
analysis are robust, DOE performed several sensitivity scenarios with 
more extreme versions of these input variables (including high/low 
economic growth and energy price scenarios, alternative price trend 
scenarios, alternative mean lifetime scenarios, alternative product 
switching scenarios, an alternative venting technology scenario, and 
scenarios with different Monte Carlo sampling). The relative comparison 
of potential standard levels in the analysis remains the same 
throughout these sensitivity scenarios, confirming that the conclusion 
of economic justification is robust despite some input uncertainty.
    NPGA stated that DOE does not employ Oracle guidance in 
implementing the Crystal Ball software in the analysis. (NPGA, No. 395 
at p. 16) According to NPGA, DOE only provides rudimentary flow 
diagrams of its Crystal Ball LCC savings and payback spreadsheet. 
(NPGA, No. 395 at p. 17) NPGA stated that DOE also does not provide a 
record on how it arrived at model design or how alternative model 
designs were considered. (NPGA, No. 395 at p. 17) In response, DOE 
clarifies that the use of Crystal Ball is to generate the sequence of 
random numbers necessary to build the 10,000 samples utilized in the 
LCC analysis. All other calculations are contained in the LCC 
spreadsheet, which has been extensively documented and discussed at 
length with interested parties through various iterations of notice-
and-comment, as well as informal workshops. Every calculation dependent 
on a random value is outlined in the LCC spreadsheet, including all the 
probability distributions relevant to the calculation. The LCC 
spreadsheet includes flow diagrams of all worksheets and outlines the 
dependencies of all calculations.
    NPGA stated that DOE does not assess validity in terms of 
reasonableness or validity of ``outlier'' consumer cases. (NPGA, No. 
395 at p. 18) NPGA further commented that DOE does not apply 
manufacturer and consumer outcome data or implement methods or proxy 
calculations for validating its LCC and PBP calculations. (NPGA, No. 
395 at p. 18) NPGA stated that DOE failed to analyze key options for 
modeling and data inputs. (NPGA, No. 395 at p. 18) NPGA stated that 
DOE's current process for supporting its LCC savings and payback 
analysis discounts the potential value of subject matter experts 
participating in the design, implementation, testing, and validation of 
its LCC savings and payback calculations. (NPGA, No. 395 at p. 18)
    DOE has requested, repeatedly, data and input from interested 
parties and has incorporated many such pieces of information and data 
into its analysis. When such data are provided, they are incorporated 
into the analysis to the maximum extent possible. DOE does not discount 
the value of commenters' expert judgement, but DOE also relies on 
concrete data whenever possible to inform the analysis. With respect to 
outlier results, DOE notes that the full distribution of results, 
including median results, are available in the LCC spreadsheet.
    NPGA recommended that DOE should test extreme conditions and 
compare the model to any similar models. (NPGA, No. 395 at pp. 18-19) 
NPGA added that stakeholders have offered to provide calculations based 
on simpler approaches. (NPGA, No. 395 at p. 19) In response, DOE's 
development of the LCC model is based on many prior comments over the 
years recommending the inclusion of various effects and other 
considerations. The increasing complexity of the model is due, in part, 
to DOE's responsiveness to these prior comments from previous notices. 
Additionally, DOE considers the distribution of potential impacts 
across a range of conditions, which is why many input variables are 
characterized by probability distributions (whenever possible) and the 
LCC analyzes a sample of 10,000 households.
    AGPA asserted that DOE fails to deal with outlier data points in a 
reasonable manner. According to the commenter, extreme values should be 
eliminated from an analysis, but DOE has failed to make such an 
adjustment. (APGA, No. 387 at p. 17)
    AHRI stated that DOE should utilize median values (as opposed to 
mean values) for future LCC analyses, stating that this method will 
remove the impacts of outlier buildings. However, AHRI acknowledged 
that switching from mean to median leaves DOE's conclusions for this 
rulemaking essentially unchanged. (AHRI, No. 414-2 at pp. 3-4)
    In response, DOE provides a full range of statistics in the LCC 
spreadsheet, including median values and results at various 
percentiles. DOE also provides a distribution of impacts, including 
consumers with a net benefit, net cost, and not impacted by the rule. 
DOE further notes that the evaluation of economic justification would 
be the same using either average or median LCC savings. Therefore, 
individual LCC results at the ends of the distribution are not 
distorting DOE's evaluation.
    The Marley Companies claimed that DOE recognizes there is 
uncertainty in the model, but only accounts for uncertainty in some 
parts of the model, thereby discrediting the variation in the 
information used to perform calculations. The commenter further claimed 
that DOE fails to use documented variation in both the RECS and CBECS 
data sets and uses ``representative capacities'' in product categories 
instead of the well-documented range of input capacities in each 
product category. (The Marley Companies, No. 386 at p. 2)
    The Marley Companies further asserted that any life-cycle cost 
modeling must, at a minimum, include the variation in the CBECS and 
RECS data sets, consistently relate all references to the specific 
geographic information of the home or building modeled, and utilize 
both the variation and average of the energy usage identified in the 
national energy surveys noted in the 2015 RECS comparison with other 
studies. The commenter asserted that DOE must provide the impact to the 
results using different sources of information than RECS and CBECS, as 
well as provide realistic modeling by accounting for documented 
uncertainties and variation in the inputs to the analysis. (The Marley 
Companies, No. 386 at pp. 3-5)

[[Page 87555]]

    APGA claimed that DOE's analysis does not merely fail to address 
uncertainty in many cases in which uncertainty is known to exist; there 
are key cases in which DOE's model uses a single parameter input (as 
opposed to a distribution of inputs) and, thus, fails to address both 
the known variability of that input and any uncertainty as to what the 
range and distribution of that input should be. (APGA. No. 387 at p. 
12)
    In response, DOE acknowledges that the summary statistics published 
by RECS and CBECS include documented statistical uncertainties; 
however, DOE's analysis uses the individual household microdata 
directly. These are survey responses from individual households. 
Accordingly, the standard errors published for RECS and CBECS do not 
directly apply. The average LCC savings, based on these microdata, 
include a full distribution of results, as presented in chapter 8 of 
the final rule TSD and the LCC spreadsheet. These results are based on 
a similar averaging and sampling weights as in the RECS and CBECS 
summary statistics. The LCC results at several different percentiles 
are available.
    DOE further notes that there will always be natural variation in 
RECS and CBECS editions because they are snapshots in time, and many 
aspects of energy consumption change with time. It is normal and 
expected for RECS and CBECS results to change with each edition, and 
DOE utilizes the most recent data set whenever possible so as to be as 
representative as possible. RECS and CBECS remain, by far, the most 
comprehensive and statistically representative surveys of energy 
consumption in residential and commercial buildings available for the 
U.S., and the commenters have failed to provide any alternative data 
sources that are of comparable quality. RECS and CBECS are the highest 
quality data sources available to DOE. DOE does correlate a number of 
inputs to individual building characteristics from RECS and CBECS as 
part of its energy use analysis, including heating load, building shell 
indices, installation costs, and no-new-standards case efficiency 
probability.
    DOE develops probabilities for as many inputs to the LCC analysis 
as possible, to reflect the distribution of impacts as comprehensively 
as possible. For example, DOE develops probabilities for building 
sampling, installation costs, lifetime, discount rate, and efficiency 
distribution, among other inputs. If there are insufficient data with 
respect to a specific input parameter to create a robust probability 
distribution, DOE will utilize a single input parameter. Such approach 
is neither arbitrary nor capricious; it is informed by the available 
data.
    Finally, DOE developed a number of sensitivity scenarios for the 
NOPR and this final rule to specifically address the potential 
uncertainty in some key input parameters, as raised in prior comments. 
DOE has been responsive to these comments and has provided a wealth of 
additional sensitivity scenarios to demonstrate that its conclusions of 
economic justification are robust.
    NPGA commented that representation in variability and uncertainty 
is not fully considered by DOE around installation costs of propane 
furnaces in replacement applications that require venting changes. 
(NPGA, No. 395 at p. 14)
    Atmos Energy commented that DOE should more accurately and 
justifiably consider the variability and uncertainty around 
installation costs of natural gas furnaces, adding that this is 
particularly important in furnace replacement applications requiring a 
shift in venting systems from atmospheric to power venting. The 
commenter added that the consequences of required venting changes to 
other appliances should also be more accurately and justifiably 
considered. Atmos Energy also stated that this suggestion would be 
consistent with National Academy of Science peer review report's 
recommendation. (Atmos Energy, No. 415 at p. 6)
    In response, DOE notes that its installation cost estimates do 
include a number of input parameters characterized by probability 
distributions, including for propane furnaces. DOE further emphasizes 
that a significant number of factors are considered in replacement 
applications, as discussed in section IV.F.2 of this document. DOE has 
been responsive to prior comments and has enhanced the installation 
cost estimates, including the installation of new venting, a number of 
times based on these comments.
    Southwest Gas Corporation commented that for the vast majority of 
Southwest customers who reside in a hot/dry climate, where the forced 
air system is used primarily for cooling, the payback period is 
estimated to range 20 to 23 years, beyond the useful life of the 
furnace of 18 years. (Southwest, No. 353 at p. 1)
    MHI commented that consumers in southern climates will be 
disproportionately impacted by the proposed standards for MHGFs. MHI 
argued that, in places where heating requirements are minimal, high-
efficiency furnaces make little economic sense, with longer payback 
periods. The commenter further asserted that southern consumers would 
likely move away from the gas furnace market, thereby shrinking the 
market and creating more challenges for manufactured homeowners who 
often rely on gas heating. (MHI, No. 365 at p. 4)
    Georgia Gas Authority argued that consumers in Southern States, 
like Georgia, Florida, Alabama, and Texas, require much less home 
heating, making higher efficiency gas furnaces uneconomical. (Georgia 
Gas Authority, No. 367 at p. 3)
    NGA argued that DOE's model understates the number of customers 
negatively impacted by the standard. (NGA of Georgia, No. 380 at p. 2) 
NGA stated that with the majority of Georgians receiving negative or 
neutral payback from this standard, it believes that DOE has violated 
factor (ii) of 42 U.S.C. 6295(o)(2)(B). (Id.)
    HARDI commented that the payback period determined by DOE does not 
hold true for Southern States, such that the standards should not be 
updated nationwide. However, HARDI also commented that it opposes the 
development of regional standards for consumer furnaces, as Northern 
States are already trending towards high-efficiency products. (HARDI, 
No. 384 at p. 3)
    The Coalition commented that in some areas (particularly the 
South), it will take years if not decades for owners to recoup the 
added costs of 95-percent AFUE furnaces through long-term energy 
savings, adding that furnaces run a maximum of three months a year in 
many southern climates. (The Coalition, No. 378 at p. 5)
    ACCA stated that DOE's analysis overlooked regional burdens, 
especially in the Southern U.S. (ACCA, No. 398 at p. 3)
    Daikin commented that DOE's payback analysis does not specify the 
impacts on particular regions, specifically the South, which has a 
lower heating load and longer payback periods. Daikin noted that the 
analysis still shows a national average benefit, but that southern 
areas are likely better suited for heat pump applications. (Daikin, No. 
416 at p. 3)
    AGA commented that the NOPR fails to address significant regional 
differences in costs and benefits that will disproportionately impact 
millions of Americans. Fuel switching has a disproportionate impact on 
projected LCC savings for consumers in the South. (AGA, No. 405 at pp. 
81-82)
    In response, DOE notes that the analysis considers all households, 
including households in the Southern

[[Page 87556]]

U.S. This analysis allows DOE to meet its statutory obligation under 
EPCA when determining the economic justification of a potential 
standard to assess the savings in operating costs throughout the 
estimated average life of the covered product in the type (or class) 
compared to any increase in the price of, or in the initial charges 
for, or maintenance expenses of, the covered product which are likely 
to result from a new or amended standard. (42 U.S.C. 
6295(o)(2)(B)(i)(II)) DOE acknowledges that the impact of amended 
energy conservation standards for the subject furnaces on consumers, 
including the payback period, can vary from household to household and 
in different regions of the country. Some consumers may experience a 
net benefit and some may experience a net cost. This distribution of 
impacts is accounted for in the analysis and is part of the LCC 
results. DOE further acknowledges that some percentage of consumers 
will experience a net cost in the new-amended-standards case when 
weighing costs and benefits as part of its evaluation of economic 
justification, as discussed in further detail in section V.C of this 
document. The full range of statistics, including simple payback 
period, is available in the LCC spreadsheet (specifically in the 
``Statistics'' and ``Forecast Cells'' worksheets). The LCC results are 
also presented by region in chapter 8 of the final rule TSD.
    DOE finds without merit NGA's argument that because some percentage 
of consumers at either a national or regional level would experience a 
net LCC cost or an extended payback period, the Department has violated 
its obligations under 42 U.S.C. 6295(o)(2)(B)(i)(II).\102\ The statute 
directs DOE to consider economic justification of a potential standard 
by determining whether its benefits exceed its burdens, by, to the 
greatest extent practicable, considering seven enumerated factors (see 
42 U.S.C. 6295(o)(2)(B)(i)(I)-(VII)). Consumer impacts are just one of 
the factors DOE must weigh when considering a potential standard. 
Furthermore, DOE assesses impacts of potential standards at a national 
level, so impacts at a State or regional level will not automatically 
trigger a determination that a potential standard lacks economic 
justification in the manner NGA suggests.
---------------------------------------------------------------------------

    \102\ DOE notes that NGA's comment specifically referenced 42 
U.S.C. 6295(o)(2)(B)(ii), which pertains to the U.S. Attorney 
General's obligation to determine, in writing, whether a proposed 
energy conservation standard would result in a lessening of 
competition in the relevant market. Because NGA's comment focuses on 
consumer impacts, DOE has concluded that the statutory provision in 
the comment was cited in error, but instead, DOE presumes that NGA 
intended to cite 42 U.S.C. 6295(o)(2)(B)(i)(II), the provision 
related to consumer impacts. DOE has responded to that comment 
accordingly. DOE further notes that the U.S. Department of Justice 
did conduct the requisite anti-competitive review for this 
rulemaking pursuant to 42 U.S.C. 6295(o)(2)(B)(ii), as discussed in 
section III.F.1.e of this document.
---------------------------------------------------------------------------

    Under EPCA, DOE may consider adopting an additional, regional 
standard for consumer furnaces that is more stringent than the national 
standard. (42 U.S.C. 6295(o)(6)(B)(ii)) In order to establish a 
regional standard, DOE would have to, among other things, determine 
that a regional standard would save significant additional energy as 
compared to a single, base national standard and be economically 
justified. (42 U.S.C. 6295(o)(6)(D)). DOE did consider a regional 
standard in one of its TSLs (TSL 4), but as explained in section V.C of 
this document, DOE has found that a national standard for both NWGFs 
and MHGFs corresponding to 95-percent AFUE (i.e., TSL 8) represents the 
maximum improvement in energy efficiency that is technologically 
feasible and economically justified. (42 U.S.C. 6295(o)(2)(A)). DOE did 
not consider adopting a more stringent, regional standard in addition 
to the base national standard of 95-percent AFUE.
    NPGA stated that DOE's LCC analysis and proposed minimum efficiency 
rule failed to include a separate breakout of category I non-
weatherized residential propane furnaces from the currently grouped 
analysis of efficiency levels (EL) for categories I, III, and IV. 
(NPGA, No. 395 at p. 21) NPGA stated that the proposal would deprive 
consumers of the utility of simple, lower-cost furnace replacements. 
NPGA added that replacement may not always be easily accomplished due 
to housing structural design and may compromise consumer safety. (Id.)
    As discussed in sections II.B.2 and IV.A.1.c of this document, DOE 
published a final interpretive rule in the Federal Register on December 
29, 2021, returning to DOE's long-standing interpretation (from which 
the January 2021 Final Interpretive Rule departed). 86 FR 73947. 
Accordingly, for purposes of the analyses conducted for this final 
rule, DOE did not analyze separate equipment classes for non-condensing 
and condensing furnaces nor for separate categories of venting. 
However, the costs and requirements associated with different venting 
categories are included in DOE's analysis, and any changes in venting 
in the new-amended-standards case are included in the LCC impacts.
    PHCC commented that Tables V.5 and V.6 of the NOPR should consider 
consumers who have existing high-efficiency products and replace them 
with new high-efficiency products. (PHCC, No. 403 at p. 6)
    In response, DOE clarifies that the average LCC savings and 
percentage of consumers with a net cost, as presented in Table V.6 of 
the NOPR, does include consumers who replace an existing high-
efficiency product with a new high-efficiency product. Those consumers 
are not impacted by the standard. Table V.5 presents results for each 
TSL assuming that all consumers use products at that efficiency level. 
The approach in Table V.5 is done for the purposes of presenting 
typical average costs at each efficiency level for an average 
household, whereas Table V.6 incorporates distributional impacts and 
the existing market share of consumers already utilizing higher-
efficiency equipment.
    AGA argued that the LCC model's cost savings relies on unreasonable 
and unsupported assumptions about what share of the market non-
condensing furnaces would hold without the proposed rule's 
requirements. (AGA, No. 405 at p. 91)
    In response, DOE's estimated market share of condensing and non-
condensing furnaces in the LCC is based on historical shipment data 
provided by industry stakeholders or market research firms. DOE 
includes an increasing penetration of condensing furnaces in the no-
new-standards case, based on recent trends. DOE disagrees with AGA's 
assertion that utilizing such industry data in the LCC analysis is 
unreasonable or unsupported.
    NPGA stated that DOE's economic analysis fails to take into account 
additional costs and circumstances specifically related to propane. 
(NPGA, No. 395 at p. 2) More specifically, NPGA argued that DOE did not 
directly calculate the specific costs and benefits to propane consumers 
from its proposed minimum efficiency standards. (NPGA, No. 395 at p. 
23) NPGA commented that by aggregating consumer costs and benefits of 
all gas furnaces, the analysis is biased by the natural gas consumer 
market share. NPGA stated that the analysis does not account for the 
large presence of consumer propane market households in rural areas. 
(Id.) NPGA added that DOE did not account for the unique costs related 
to fuel switching from propane to electric space heating. (Id.) NPGA 
stated that the lack of representation of propane customers in the 
simulation results is a fundamental problem, noting that eleven States 
and the District of Columbia had no propane customers in the LCC. (Id. 
at p. 24)

[[Page 87557]]

    In response, DOE notes that the analysis takes into account the 
energy price for propane and uses a representative building sample of 
homes using a NWGF with propane based on RECS 2020 for the residential 
sample and CBECS 2018 for the commercial sample. RECS and CBECS, while 
representative, have an upper limit on the number of households and 
buildings that were surveyed. The eleven States identified by the 
commenter and DC comprise a very small fraction of the national 
population, and natural survey sampling can produce the results seen in 
the LCC. DOE notes that the national fraction of propane customers for 
NWGFs and MHGFs is appropriately accounted for in the analysis, even if 
some low-population States are under-sampled by RECS and CBECS. This 
does not invalidate the conclusions of the analysis. For installation 
costs, DOE used the latest information available in terms of piping and 
propane tank requirements. For this final rule, updated the energy 
prices using the latest EIA data and AEO2023 energy price trends. In 
addition, DOE used the latest RECS 2020 and CBECS 2018 samples. In 
terms of installation costs, DOE updated its propane-related 
installation costs as highlighted in chapter 8 and appendices 8D and 8J 
of the final rule TSD.
    Lennox commented that they found that DOE has taken the necessary 
steps to improve the analysis of amended AFUE standards for consumer 
furnaces under EPCA but recommended that DOE should further assess the 
economic justification of these standards while minimizing negative 
consumer impacts. (Lennox, No. 389 at p. 2) In response, DOE has 
continued to refine its analysis and updated using the latest data, as 
described in this document and in the final rule TSD.
    Atmos Energy commented that DOE should account for the savings 
among the choices of a baseline natural gas furnace against the 
proposed TSLs or the savings that could accrue from continuing to own a 
baseline product versus purchasing TSL efficiency products. Atmos 
Energy added that these savings are crucial for estimating the benefits 
of appliance replacement programs, adding that such savings analyses 
will better illuminate potential consumer impacts. (Atmos Energy, No. 
415 at p. 6) In response, DOE notes that it does estimate the impacts 
of purchasing higher-efficiency furnaces against the impacts of 
replacing existing furnace efficiencies that would have been purchased 
in the absence of a new energy conservation standard. This is already 
captured in the LCC analysis, and indeed, some percentage of consumers 
would accrue economic savings from continuing to own, or from buying as 
a replacement, a lower-efficiency furnace, as compared to a furnace at 
the adopted standard level. This is reflected in the percentage of 
consumers experiencing a net cost, as presented in section V.B of this 
document, and it is considered as part of DOE's evaluation of economic 
justification.
    Atmos Energy commented that DOE should separately assess natural 
gas and propane when calculating LCC, adding that the LCC of the 
proposed rule would be more accurate if natural gas and propane 
products were evaluated separately. (Atmos Energy, No. 415 at p. 7) 
Atmos Energy further commented that propane is more costly than natural 
gas, stating that aggregating these two products introduces an 
unsupported bias against natural gas into the consumer LCC savings and 
payback analysis and skews the outcome of the comparative cost of fuel-
switching. (Atmos Energy, No. 415 at p. 7) In response, DOE accounts 
for both propane and natural gas consumers of furnaces in its analysis. 
However, since a potential standard is established at the product class 
level, the LCC results are aggregated up to this level.
    PHCC commented that that the calculations regarding the annual 
benefit for DOE's proposed standby mode and off mode standards for 
NWGFs and MHGFs are unclear, as estimates show a $26 annual benefit 
(with a two-year payback period) in some places and a $2.60 annual 
benefit (with a two-year payback period) in others. PHCC claimed that 
their calculations related to the annual benefit of the proposed 
standby mode and off mode standards yielded $3.29 (assuming 2.5 kw, 24 
hours a day, 365 days a year, and 15 cents per kWh). (PHCC, No. 403 at 
p. 3)
    Similarly, Daikin commented that the anticipated energy savings 
associated with standby mode and off mode are very small, adding that 
the incremental annual savings between TSL 1 ($1.44/yr.) and TSL 3 
($2.40/yr.) would equate to only $0.96. Daikin further stated that 
DOE's analysis overstates the annual electricity consumption of 
auxiliary components by using 6680 hours for standby mode operation and 
73.48 kWh of energy per year, which does not include weighting for two-
stage products with fewer operating hours. (Daikin, No. 416 at p. 5)
    As discussed previously in section III.A.8 of this document, DOE is 
not finalizing its previous proposal to set new standby mode and off 
mode power standards for NWGFs and MHGFs in this final rule. However, 
DOE will continue to monitor the standby mode and off mode power 
consumption of consumer furnaces and may address such standards in a 
future rulemaking. The Department may consider these comments at that 
time, as appropriate.
1. Product Cost
    To calculate consumer product costs, DOE multiplied the MPCs 
developed in the engineering analysis by the markups described 
previously (along with sales taxes). DOE used different markups for 
baseline products and higher-efficiency products because DOE applies an 
incremental markup to the increase in MSP associated with higher-
efficiency products.
    For the default price trend for residential furnaces, DOE derived 
an experience rate based on an analysis of long-term historical data. 
As a proxy for manufacturer price, DOE used Producer Price Index (PPI) 
data for warm-air furnace equipment from the Bureau of Labor Statistics 
from 1990 through 2022.\103\ An inflation-adjusted PPI was calculated 
using the implicit price deflators for gross domestic product (GDP) for 
the same years. To calculate an experience rate, DOE performed a least-
squares power-law fit on the inflation-adjusted PPI versus cumulative 
shipments of residential furnaces, based on a corresponding series for 
total shipments of residential furnaces (see section IV.G of this 
document for discussion of shipments data). Using the most recent data 
available, DOE fitted a power-law function to the deflated warm air 
furnace PPI and cumulative furnace shipments time series data between 
1990 and 2018. The resulting power-law model has an R-square of 84 
percent, indicating that the model explains 84 percent of the 
variability of the observations around the mean. DOE then derived a 
price factor index, with the price in 2022 equal to 1, to forecast 
prices in 2029 for the LCC and PBP analyses, and, for the NIA, for each 
subsequent year through 2058. The index value in each year is a 
function of the experience rate and the cumulative production through 
that year. To derive the latter, DOE combined the historical shipments 
data with projected shipments in the no-new-standards case determined 
for the NIA (see section IV.H of this document).
---------------------------------------------------------------------------

    \103\ U.S. Department of Labor, Bureau of Labor Statistics, 
Produce Price Indices Series ID PCU333415333415C (available at: 
www.bls.gov/ppi/) (last accessed August 1, 2023).
---------------------------------------------------------------------------

    DOE's learning curve methodology was developed by examining the

[[Page 87558]]

literature on accounting for technological change and empirical studies 
of energy technology learning rates.\104\ DOE utilized the most 
extensive time series data available specific to residential furnaces.
---------------------------------------------------------------------------

    \104\ Taylor, M. and K.S. Fujita, Accounting for Technological 
Change in Regulatory Impact Analyses: The Learning Curve Technique, 
Lawrence Berkeley National Laboratory, Report No. LBNL-6195E (2013). 
(Available at: eta-publications.lbl.gov/sites/default/files/lbnl-6195e_.pdf) (Last accessed August 1, 2023).
---------------------------------------------------------------------------

    Furnace prices can be affected by a variety of factors, and the 
cost of commodity materials is one of them. The nominal commodity PPI 
data for copper wire and cable, iron and steel, and aluminum wire and 
cable indicate that the nominal indices rose substantially between the 
early 2000s and 2011, which is primarily attributed to an increasing 
demand for such commodities from rapid industrialization in China, 
India, and other emerging economies. During the same period, the 
nominal warm air furnace PPI increased by 16 percent. However, these 
commodity indices have trended downward from 2011-2020, and the nominal 
warm air furnace PPI has steadily trended upward during this period. 
Based on these observations, DOE contends that even though the warm air 
furnace PPI, to a certain extent, is influenced by commodity indices, 
other factors impact furnace prices. In addition, due to the long-term 
nature of DOE's analysis, it would be inappropriate to make assumptions 
based on recent, short-term trends only.
    The learning curve methodology implemented in this rule is based on 
sound economic theory, empirical evidence, and historical data. Based 
on the historical PPI data, the cost of commodity materials can only 
partially explain the furnace price trend, particularly when 
considering the recent trend observed in commodity and furnace price 
indices. The experience curve model that DOE developed, using the most 
recent data available, shows strong explanatory power and high 
statistical significance.
    DOE acknowledges that the prices of non-condensing and condensing 
furnaces may not change at the same rate and that using a trend for all 
NWGFs and MHGFs to represent the price trend of condensing furnaces may 
underestimate the future changes in the cost of condensing furnaces. 
DOE also acknowledges that an increase in production and innovation due 
to a condensing standard could result in a decline in the cost of 
condensing furnaces. However, DOE could not find detailed data that 
would allow for a price trend projection for condensing NWGFs and MHGFs 
that may differ from non-condensing NWGFs and MHGFs. Thus, for this 
final rule, DOE used the same price trend projection for condensing and 
non-condensing NWGFs and MHGFs.
    NYSERDA recommended that DOE also should consider furnace shipments 
to Canada when estimating learning rates for condensing furnaces, since 
the vast majority of condensing furnaces sold in Canada are the same 
models sold in the U.S. NYSERDA further urged DOE to consider how the 
recent Canadian furnace standard may impact the North American furnace 
market so as to result in additional price learning and less costly 
condensing equipment for consumers in U.S. and Canada. (NYSERDA, No. 
379 at p. 9) However, NYSERDA expect that DOE's 4.3 percent and 7.1 
percent price learning rates are more conservative than what would take 
place in the real world once an amended standard were to take effect. 
(Id.)
    NYSERDA also commented that the Heating, Refrigeration and Air 
Conditioning Institute (HRAI) of Canada reported that over 845,000 
residential furnaces were shipped to Canada between 2020 and the first 
quarter of 2022. The commenter added that nearly 400,000 condensing 
furnaces are now being shipped into Canada annually, stating that the 
value is approximately 12 percent of annual U.S. furnace shipments. 
NYSERDA further commented that the Canadian condensing furnace market 
is increasing, with approximately 8.5 million Canadian homes currently 
relying on furnaces for heating. Furthermore, the commenter stated that 
it has found that the vast majority of furnaces sold in Canada are the 
same models sold in the U.S., and, as such, NYSERDA concluded that a 
higher learning rate factor should be considered in appendix 8C of the 
TSD. (NYSERDA, No. 379 at pp. 9-10)
    In response, DOE notes that if DOE included historical furnace 
shipments to Canada when developing learning rates, it would also need 
to include projected furnace shipments to Canada during the analysis 
period to project future prices, resulting in approximately the same 
price trend as a function of time. Furthermore, DOE analyzes 
sensitivity scenarios using alternative price trends, including a 
higher learning rate and a constant price trend, in appendix 8C of the 
final rule TSD. Consequently, in light of these considerations, DOE has 
decided to retain the same evaluation of economic justification for all 
sensitivity scenarios, as was done in the July 2022 NOPR.
    Joint Efficiency Commenters stated that DOE may be overestimating 
the future cost of condensing furnaces by not applying a learning rate 
associated with condensing technology. These commenters further stated 
that price trends associated with condensing technology will likely be 
different than the overall furnace price trends. (Joint Efficiency 
Commenters, No. 381 at p. 4)
    In contrast, Lennox commented that price trends are indeed similar 
for both condensing and non-condensing consumer furnaces, as Lennox 
offers both technologies with premium features. Lennox commented that 
the trends increase the most for premium products, and the trends are 
similar for base and mid-level products. (Lennox, No. 389 at p. 6)
    As noted previously, DOE was not able to disaggregate non-
condensing and condensing furnaces in developing future price trends 
based on the available data. DOE acknowledges the input from Lennox 
supporting the use of the same trend for all furnaces.
    Lennox further stated that costs and prices for all furnaces have 
increased significantly as a result of the pandemic, supply chain 
issues, and inflationary pressures. (Lennox, No. 389 at p. 6) 
Similarly, HARDI commented that supply chain and workforce issues since 
the beginning of the pandemic have dramatically changed the pricing of 
products, as would change the results of DOE's analysis, which the 
commenter faulted as based on pre-pandemic data. (HARDI, No. 384 at p. 
3) PHCC commented that DOE's estimated equipment costs for gas furnaces 
are too low due to material cost and supply chain issues. (PHCC, No. 
403 at p. 5) In response, DOE notes that its analysis adjusts costs and 
prices using updated price indices to reflect the changing dollar 
value, including the broader impact of inflation. DOE assumes that 
current supply chain issues will not persist out to 2029 and beyond, 
given that such issues are already in the process of resolving and 
current supply chains are not as constrained as they were during the 
pandemic.
    JCI pointed to several regulatory and market-related cost increases 
that impact mobile homes and mobile home HVAC products. As examples, 
the commenter noted the July 2014 furnace fan ECS rulemaking that 
eliminated PSC motors, recent inflation as a result of the COVID-19 
pandemic that disproportionately impacted the MHGF industry, the 
January 2017 ECS rulemaking for CACs and heat pumps, and the IECC 
Construction Code

[[Page 87559]]

mandate for manufactured homes. (JCI, No. 411 at pp. 1-2) JCI commented 
that the 2021 IECC Construction Code and the CAC/HP ECS rulemaking 
mandate will contribute additional cost increases, which JCI asserted 
will have the further effect of reducing mobile home ownership. (JCI, 
No. 411 at p. 2)
    MHI also commented that, in May 2022, DOE finalized an energy rule 
that required manufactured homes to comply with the 2021 IECC but not 
the product standards within the 2021 IECC. (MHI, Public Meeting 
Webinar Transcript, No. 363 at pp. 25-26) MHI commented that DOE's 
proposed furnace standards align with the 2021 IECC, which the 
commenter argued did not consider homes that are built in a factory and 
transported to the site. (Id.) MHI stated that enforcing the IECC would 
require manufacturers to have to redesign current manufactured housing 
floor plans. (Id.)
    In response, DOE notes that the purported mobile home cost 
increases, unrelated to the furnaces rulemaking, will not impact the 
LCC results. Because these costs are already present in the no-new-
standards case, there is no incremental cost to include in the amended 
standards case. The impact of cost increases for rules on manufactured 
homes or other equipment are captured as part of the analyses for those 
separate rulemakings. DOE further notes that the July 2014 final rule 
for furnace fans did not eliminate PSC motors for furnace fans in 
MHGFs. Finally, DOE reiterates that it adjusts costs and prices using 
price indices to reflect the changing dollar value, including the 
broader impact of inflation. DOE has also evaluated the cost of 
installing furnaces in new manufactured housing construction as part of 
the LCC analysis, which in many cases is less expensive (as summarized 
in section IV.F.2.e of this document) due to the materials required. 
Given this context, DOE's expectation is that redesign costs are likely 
to be minimal.
    Lennox commented that condensing furnace products are mature 
products that constitute the majority of the current market. Therefore, 
Lennox recommended that DOE should reassess the ``learning curve'' for 
these products, as the commenter opined that the Department is 
overstating the degree to which a ``learning curve'' could lead to 
significant reduction in MPCs. (Lennox, No. 389 at p. 3) NYSERDA 
commented that it expects that the final furnaces standard will provide 
market certainty to streamline the manufacturing process to only 
condensing equipment and added that this is expected to decrease the 
marginal production costs in the medium- to long-run due to economies 
of scale and technological improvements. (NYSERDA, No. 379 at p. 11)
    Regarding the points involving learning curve-related prices 
declines raised by Lennox and NYSERDA, DOE notes that it has evaluated 
several price trend scenarios, including a constant price scenario, as 
part of its analysis (see appendix 8C of the final rule TSD for further 
details). The conclusions of the analysis remain the same regardless of 
the price trend scenario.
    A detailed discussion of DOE's derivation of the experience rate is 
provided in appendix 8C of the final rule TSD.
2. Installation Cost
    The installation cost is the cost to the consumer of installing the 
furnace, in addition to the cost of the furnace itself. Installation 
cost includes all labor, overhead, and any materials costs associated 
with the replacement of an existing furnace or the installation of a 
furnace in a new home, as well as delivery of the new furnace, removal 
of the existing furnace, and any applicable permit fees. Higher-
efficiency furnaces may require a consumer to incur additional 
installation costs. DOE's analysis of installation costs estimated 
specific installation costs for each sample household based on building 
characteristics given in RECS 2020 (updated from RECS 2015 in the 
NOPR). For this final rule, DOE used 2023 RS Means data for the 
installation cost estimates, including labor 
costs.^{105 106 107 108} DOE's analysis of installation costs 
accounted for regional differences in labor costs by aggregating city-
level labor rates from RS Means into the 50 distinct States plus 
Washington, DC to match RECS 2020 and CBECS 2018 data.
---------------------------------------------------------------------------

    \105\ RS Means Company Inc., RS Means Mechanical Cost Data. 
Kingston, MA (2023) (available at: www.rsmeans.com/products/books/2023-cost-data-books) (last accessed August 1, 2023).
    \106\ RS Means Company Inc., RS Means Residential Repair & 
Remodeling Cost Data. Kingston, MA (2023) (available at: 
www.rsmeans.com/products/books/2023-cost-data-books) (last accessed 
August 1, 2023).
    \107\ RS Means Company Inc., RS Means Plumbing Cost Data. 
Kingston, MA (2023) (available at: www.rsmeans.com/products/books/2023-cost-data-books) (last accessed August 1, 2023).
    \108\ RS Means Company Inc., RS Means Electrical Cost Data. 
Kingston, MA (2023) (available at: www.rsmeans.com/products/books/2023-cost-data-books) (last accessed August 1, 2023).
---------------------------------------------------------------------------

    DOE conducted a detailed analysis of installation costs for all 
potential installation cases, including when a non-condensing gas 
furnace is replaced with a non-condensing gas furnace, and when a non-
condensing gas furnace is replaced with a condensing gas furnace. For 
the latter, particular attention was paid to venting issues in 
replacement applications, including adding a new flue venting (PVC), 
combustion air venting (PVC), concealing vent pipes, addressing an 
orphaned water heater (by updating flue vent connectors, vent resizing, 
or chimney relining), as well as condensate removal. DOE also included 
additional installation costs (``adders'') for new construction 
installations. These are described below.
    HARDI commented that increased installation costs should be 
considered in this analysis despite DOE's statement that installation 
and retrofit requirements are not to be used in determining product 
utility for a class. (HARDI, No. 384 at p. 5)
    In response, DOE notes that a variety of installation factors are 
included in the analysis, as described extensively in the paragraphs 
that follow, which generally increase the installation cost of higher-
efficiency furnaces. Even though installation costs do not form a basis 
for the development of product classes, DOE does include all relevant 
installation costs to estimate the total economic impacts on consumers.
    ACCA stated that data from a 2016 survey of over 700 of ACCA's 
members showed that installing a condensing furnace costs $569 more 
than installing a non-condensing furnace, so the commenter concluded 
that DOE's cost assumptions inadequately reflect the true cost to 
consumers. (ACCA, No. 398 at p. 2)
    DOE clarifies that in the final rule analysis, on average for 
replacement installations, the incremental installation cost is $490 
for condensing NWGFs relative to non-condensing NWGFs, while the total 
installed costs for ranges between $654 and $914, which is consistent 
with ACCA's survey results.
    APGA commented that DOE understates the cost difference between 
condensing and non-condensing furnaces because DOE is not reporting 
real consumer prices. (APGA, No. 387 at pp. 50-53) APGA explained that 
a website sponsored by a team of industry experts in the HVAC industry 
report that the installed cost of a condensing NWGF is three times more 
than a non-condensing NWGF at the current standard: an ``80AFUE, 
Variable Speed Furnace'' is $1,320 less than a ``95AFUE 2-Stage, 
Variable Speed Furnace.'' (Id.) APGA noted that DOE's LCC model, 
however, provides that the difference in the average installed cost of 
a condensing furnace and a non-condensing furnace is only $417. (Id.)

[[Page 87560]]

Thus, APGA stated that DOE's view of the additional cost of an 
installed furnace complying with the proposed standard is inconsistent 
with reality. (Id.)
    In response, DOE emphasizes that it has conducted an extensive 
engineering tear-down cost analysis, as well as a manufacturer and 
distribution channel mark-up analysis, to estimate final consumer 
prices. These prices reflect an amended-standards scenario in which a 
given efficiency level is the new minimally compliant, baseline level. 
These products may not fully correspond to products in the market today 
sold and marketed as a ``premium'' product, and therefore the prices 
are not necessarily comparable. DOE further notes that the vast 
majority of consumer furnaces are sold through a distribution channel 
involving a contractor, not via a retail outlet. Therefore prices seen 
on a website are unlikely to be representative of typical prices 
ultimately paid for by consumers.
    NPGA commented that merging product installed costs with changes in 
building structural elements required for a change in venting systems 
goes beyond the scope of minimum efficiency standards for a covered 
product as outlined in EPCA. (NPGA, No.395 at p. 21) In response, DOE 
notes that the installation cost analysis considers all relevant costs 
associated with the installation of furnaces, as required by EPCA, in 
order to estimate representative impacts to consumers.
a. Basic Installation Costs
    DOE's analysis estimated basic installation costs for replacement, 
new owner, and new home applications. These costs, which apply to both 
condensing and non-condensing gas furnaces, include furnace set-up and 
transportation, gas piping, ductwork, electrical hook-up, permit and 
removal/disposal fees, and, where applicable, additional labor hours 
for an attic installation.
    DOE's installation costs account for cases where significant 
ductwork redesign is required, including when furnaces with variable-
speed motors are utilizing undersized ducts. DOE notes that this cost 
is applicable to variable-speed motors installed in either condensing 
or non-condensing furnaces. Variable-speed furnace blowers will try to 
maintain the same air flow at high static pressure (especially if the 
variable-speed blower is designed with a high cut-off or no cut-off 
static pressure),\109\ which could lead to noise issues in smaller 
ducts due to the increased speed of moving the air. However, the 
Federal furnace fan standard that took effect in 2019 requires 
constant-torque furnace fans (with X13 motors) for NWGFs, which have 
similar performance curves as PSC motors.\110\
---------------------------------------------------------------------------

    \109\ Newer variable-speed motors are designed with lower cut-
off static pressures to deal with this issue. In addition, the 
installer can easily decrease the airflow to address the issue by 
changing the airflow speed control setting (tap) on the furnace 
motor.
    \110\ For further details, see the TSD for the July 2014 final 
rule for furnace fans. (Available at: www.regulations.gov/document/EERE-2010-BT-STD-0011-0111) (Last accessed August 1, 2023).
---------------------------------------------------------------------------

    DOE notes that asbestos presents a safety hazard that must be 
properly abated for all retrofit installations where it is present. As 
explained previously, DOE recognizes that potential ductwork 
modifications typically occur due to the furnace fan requirements and 
not necessarily due to the installation of a condensing furnace. DOE 
included the cost of asbestos abatement for a fraction of both non-
condensing and condensing NWGF installations. See appendix 8D of the 
final rule TSD for more details.
b. Additional Installation Costs for Non-Weatherized Gas Furnaces
    For replacement applications, DOE included a number of adders for a 
fraction of the sample households. For non-condensing gas furnaces, 
these additional costs included updating flue vent connectors, vent 
resizing, and chimney relining. For condensing gas furnaces, DOE 
included adders for flue venting (PVC), combustion air venting (PVC), 
concealing vent pipes, addressing an orphaned water heater (by updating 
flue vent connectors, vent resizing, or chimney relining), and 
condensate removal.
Replacement Installations: Non-Condensing to Non-Condensing Non-
Weatherized Gas Furnace
    For non-condensing non-weatherized gas furnace replacements, DOE 
added additional costs to a small fraction of installations that 
involve updating flue vent connectors, vent resizing, and chimney 
relining. These costs are most commonly applied to older furnace 
installations, such as natural draft furnace installations, furnaces 
not installed according to the current codes, and furnace installations 
that do not meet manufacturers' installation requirements. In total, 
these costs for vent resizing or chimney relining are applied to less 
than eight percent of non-condensing to non-condensing furnace 
replacement installations in 2029, with an average cost of $990. In 
addition, DOE estimated that 23 percent of installations of non-
condensing to non-condensing furnace replacement installations in 2029 
would require updating flue vent connectors, with an average cost of 
$328.
Replacement Installations: Non-Condensing to Condensing Non-Weatherized 
Gas Furnace
    DOE assumed that condensing furnaces that replace non-condensing 
furnaces do not utilize the existing venting system, but instead 
require new, dedicated plastic venting that meets all applicable 
building codes and manufacturer instructions. In determining these 
installation costs, DOE takes into account vent length, vent diameter, 
vent termination, the potential need to create openings in walls or 
floors for the vent system, additional vent costs for housing units 
with shared walls, vent resizing in the case of an orphaned water 
heater, and concealment work cost increases in some installations.
    Appendix 8D in the TSD for this final rule describes the 
methodology used to determine the installation costs for all of the 
issues described in the paragraphs that follow.
    NGA of Georgia stated that because furnace replacements will have 
to undergo structural modifications and contractors will have to devise 
custom installation plans and procure materials after surveying the 
home, installations will take a few days rather than simply changing 
out the unit. Furthermore, the commenter stated that the longer 
installations will force homeowners to endure cold conditions longer, 
and to risk home damage in the form of freezing pipes, and they may be 
forced to endure the expense of a hotel room during the installation. 
NGA of Georgia stated that DOE's analysis did not adequately consider 
these additional costs or the environmental impact of attempting to 
heat homes with electric room heaters during construction. (NGA of 
Georgia, No. 380 at p. 2) In response, DOE notes that its analysis 
thoroughly accounts for any potential vent or duct-work redesign. 
However, for most homes, installation is unlikely to take several days, 
even in the case of replacing a non-condensing furnace with a 
condensing furnace. DOE acknowledges that some fraction of replacements 
are emergency replacements, as described previously, with increased 
labor costs due to the emergency nature of the work during possibly 
challenging winter conditions. Accordingly, DOE also accounts for the 
cost of temporary space heating during the replacement of the furnace.

[[Page 87561]]

    ACCA stated that DOE's analysis overlooked the increased costs and 
extent of venting modifications and electrical upgrades necessary for 
condensing furnaces. (ACCA, No. 398 at p. 3)
    In response, DOE emphasizes that its analysis includes an extensive 
list of factors impacting the installation cost of venting, as 
discussed in this section and in chapter 8 of the final rule TSD. 
Several of these factors were previously suggested by commenters and 
incorporated into the analysis. ACCA did not provide any further 
details on additional venting modifications that should have been 
considered. With respect to electrical upgrades, those are accounted 
for in the analysis, including the potential requirement to upgrade the 
electrical panel.
    AGA asserted that the imposition of standards that non-condensing 
products cannot achieve would raise significant practical, economic, 
and legal issues. Furthermore, AGA claimed that the economic analysis 
in the NOPR fails to properly account for the necessary engineering 
relative to venting consumer furnaces or common venting of multiple 
appliances, including consumer water heaters. According to the 
commenter, the modifications required to alter existing buildings to 
accommodate the use of condensing products are far more complicated, 
extensive, and burdensome than the NOPR assumes. (AGA, No. 405 at p. 
39)
    In response, DOE has already included a variety of factors in its 
installation cost estimates, including costs related to updating flue 
venting, accommodating the venting of multiple appliances such as water 
heaters, and any necessary building modifications to accommodate new 
venting outlets. The commenter has not provided any additional, 
specific factors for DOE to consider, other than to assert that DOE's 
estimates are incorrect. Furthermore, the experience of replacing non-
condensing furnaces with condensing furnaces in several jurisdictions 
(e.g., Canada) has shown that such installations can be achieved 
without excessively burdensome or costly modifications.
    AGA argued that DOE has potentially overestimated the cost of 
venting for non-condensing furnaces. The commenter claimed that DOE's 
method for calculating labor overestimates time spent on tasks because 
it includes an average unit of type for each individual part instead of 
acknowledging that tasks can be completed concurrently. (AGA, No. 405 
at pp. 88-89)
    On this topic, DOE clarifies that for non-condensing furnaces, 
there are several potential scenarios. In a replacement scenario, if 
the existing venting is in good condition, no additional installation 
costs are required, and the venting system can be used as-is. Costs for 
installing venting for non-condensing furnaces are only applicable if 
the existing venting has reached the end of its lifetime (in older 
homes), based on the estimated equipment age derived from RECS data and 
historical shipments, or in new construction. Therefore, DOE's 
estimated costs for installing venting for non-condensing furnaces are 
not necessarily applicable in all situations. Regarding labor cost 
estimates, these are based on data from industry reference manuals and 
input from HVAC consultants and apply to both non-condensing and 
condensing installations. DOE estimates the time spent for typical 
tasks and multiplies this time by a labor rate. The overall labor time 
for a given installation will vary based on the specifics of the 
installation, as described in further detail in chapter 8 and appendix 
8D of the final rule TSD.
    AGA recommended that DOE undertake additional evaluation of 
installation costs and annual maintenance costs of non-weatherized 
residential and manufactured home gas furnaces to ensure a complete LCC 
and payback period analysis. Specifically, AGA recommended a 
comprehensive analysis of the average installed replacement cost of an 
80 kBtu/hour, 80-percent AFUE non-condensing residential non-
weatherized natural gas furnace. (AGA, No. 405 at p. 87)
    In response, DOE notes that it already conducts such an analysis. 
There are a range of input capacities considered as part of the LCC 
analysis, including 80 kBtu/hour furnaces.
    AGA commented that DOE may have overestimated the length of pipe, 
which makes up half the cost of a new 4'' vent. AGA stated that for 
buildings where the furnace was installed in the basement, the DOE 
calculations appear to fit a typical 2-story home where the average 
vent length is 26 feet. However, for buildings where the furnace is in 
the attic, the average length is 10 feet, so DOE's analysis would 
result in venting extending up to 15 feet beyond the roof surface. 
(AGA, No. 405 at p. 89)
    In response, DOE clarifies that its installation cost methodology 
does not assume a fixed vent length for each home or building in the 
LCC. The length of the vent varies and is dependent on the 
characteristics of that specific building. For example, the vent length 
depends on the furnace location in the house, the ceiling height, and 
the number of floors above the furnace, among other factors. The 
analysis accounts for attic installations and does not assume 
excessively long vent lengths beyond the roof.
    In contrast, the Joint Efficiency Commenters stated that DOE may be 
overestimating the installation costs of condensing NWGFs in certain 
scenarios. (Joint Efficiency Commenters, No. 381 at p. 4)
    In response, DOE has included a number of factors that may impact 
the installation costs of condensing NWGFs, partly based on prior 
comments. There is no indication that these costs are systematically 
overestimated, and the commenter has not provided any data with which 
to update the analysis.
    Joint Efficiency Commenters stated that they are not aware of any 
issues regarding the size or installation of condensing MHGFs in new or 
replacement applications. These commenters further stated that these 
issues have been thoroughly evaluated and adequately addressed. (Joint 
Efficiency Commenters, No. 381 at p. 5) Similarly, NCLC stated that 
installing condensing MHGFs in manufactured homes will not present 
unique, significant, or insurmountable challenges. (NCLC, No. 383 at p. 
7) DOE agrees.
    Joint Efficiency Commenters stated that DOE extensively evaluated 
installation scenarios and costs for consumer furnaces in the NOPR 
analysis and expressed their belief that these thorough evaluations are 
comprehensive and reasonable for condensing furnace installations. 
(Joint Efficiency Commenters, No. 381 at pp. 5-6) DOE agrees.
    OPAE commented that a Cleveland-based heating and weatherization 
contractor for one of their member agencies who has been working in the 
low-income weatherization program for over 30 years, stated that he has 
not found a home where he could not install a condensing furnace. 
Additionally, OPAE stated that for most cases where venting changes may 
be difficult, manufacturers are developing solutions to use an existing 
chimney as a chase-way for the condensing furnace's intake and exhaust 
pipes and other category I appliance ventilation. Furthermore, OPAE 
stated that these methods usually remove any impediment to installing a 
condensing furnace in situations that currently provide challenges. 
(OPAE, No. 347 at p. 1) DOE agrees that solutions exist for such 
situations, as described by the commentator and as evidenced in other 
jurisdictions (e.g., Canada). Moreover, DOE accounts for increased 
installation costs in these situations.

[[Page 87562]]

    NYSERDA recommended that DOE should investigate the economics of 
newer venting technologies. The commenter added that newer venting 
technologies enable reuse of existing vents or masonry chimneys, 
thereby allowing condensing furnaces and water heaters with atmospheric 
combustion to share the same vent. NYSERDA further remarked that this 
technology could reduce total installation costs for consumers and 
improve LCC savings. (NYSERDA, No. 379 at p. 6)
    NCLC et al. commented that DOE has not fully considered venting 
technologies that could bring down the assumed installation costs in 
settings where installing a condensing furnace may present challenges 
and added costs. (NCLC et al., No. 383 at p. 7)
    In response, DOE notes that it did investigate new venting 
technologies in a sensitivity scenario for the July 2022 NOPR, and does 
so again for the final rule (see appendix 8L of the final rule TSD). 
The LCC impacts are very similar to the reference case, and DOE's 
evaluation of economic justification remains the same.
    NGA of Georgia stated that the proposed rule would eliminate the 
ability to common vent multiple gas appliances. The commenter also 
stated that this would prevent the use of gas appliances in older 
homes, multi-family developments, row homes, and townhomes. 
Furthermore, NGA of Georgia stated that because of this, water heaters 
may need to be changed out when the furnace is replaced, even if the 
water heater is still working. (NGA of Georgia, No. 380 at p. 2)
    APGA claimed that DOE does not account correctly for ``orphaned'' 
non-condensing gas water heaters. In those situations, APGA asserted 
that additional costs should be considered for updating flue vent 
connectors, vent resizing, or chimney relining. Where costs are 
relatively higher to address an orphaned water heater, the costs of 
venting should be higher there as well. APGA argued that DOE 
understates additional venting installation costs in multi-family 
buildings, townhomes, and row houses. AGA also argued that other 
homeowner obstacles are unaccounted for entirely, including: zoning 
variances required when venting is too close to a property line; 
building code restrictions; historic building limitations; and concerns 
about venting near places of congregation such as decks. (APGA, No. 387 
at pp. 54-55)
    In response, DOE acknowledges that common vents may need to be 
replaced and includes those costs in its analysis where applicable, 
including updating flue connectors, vent resizing, or chimney relining. 
However, DOE finds that these obstacles can be overcome, given that 
these buildings already have an existing furnace exhaust vent. Full 
details of the installation cost methodology are provided in appendix 
8D of the final rule TSD. DOE additionally includes situations in which 
the water heater is replaced as well, instead of updating the venting 
to permit continued use of the existing gas appliance. These costs are 
all included as part of the LCC analysis.
    ACCA stated that DOE's analysis overlooked potential building code 
restrictions for apartments, condominiums, and/or row houses/townhomes. 
(ACCA, No. 398 at p. 3)
    DOE is not aware of any physical limitations or building code 
issues that would preclude the installation of a condensing NWGF in 
multi-family buildings, townhomes, and row houses. Condensing NWGFs 
have been successfully installed in multi-family buildings, townhomes 
and row houses in jurisdictions requiring condensing furnaces (e.g., 
Canada, which has very similar building codes as the U.S.) and in 
regions with active efficiency and weatherization programs. The 
analysis includes additional costs, where necessary, to capture the 
increased complexity of such installations.
    PHCC commented that installation labor costs in DOE's NOPR are not 
near today's contractor rates, and that DOE's residential and 
commercial rates are low, which will impact the economic model 
calculations. (PHCC, No. 403 at p. 5) In response, DOE notes that its 
analysis uses the latest RSMeans data to estimate labor rates, which 
are the best data available to the Department. No other sources of 
contractor rate data were submitted to DOE.
    Similarly, Daikin commented that there are existing applications 
(such as placement of furnaces in cold spaces such as attics and crawl 
spaces) that will incur additional burden as a result of a condensing 
standard. (Daikin, No. 416 at p. 2) In response, DOE accounts for such 
applications as described subsequently in this document and in chapter 
8 of the final rule TSD.
    Plastics Pipe Institute commented that if DOE eliminates non-
condensing furnaces as a viable option, consumers will have to update 
their existing venting systems to accommodate a new natural gas 
furnace. (Plastics Pipe Institute, No. 404 at p. 2) Plastics Pipe 
Institute added that this conversion will lead to higher operating 
costs and will require electrical upgrades, inevitably increasing the 
cost of heating. (Id.)
    In response, DOE acknowledges that the installation of a condensing 
furnace may require an update to the venting system and includes these 
additional costs in the analysis. DOE also accounts for households that 
may require a new electrical connection.
(a) Flue Venting
    DOE assumed that condensing furnaces do not utilize the existing 
venting system but instead require new, dedicated plastic venting that 
meets all applicable building codes and manufacturer instructions. 
Accordingly, DOE determined whether a condensing furnace is 
horizontally or vertically vented based on the shortest vent length. 
DOE's analysis estimated that 70 percent of condensing furnaces will be 
installed with a horizontal vent.
    DOE assumed that vent length varies depending on where a suitable 
wall is located relative to the furnace. In addition, when applicable, 
DOE accounts for use of a snorkel termination to meet minimum 
clearances to sidewalks, average snow accumulation level, overhangs, 
and air intake sources, including operable doors and windows, building 
corners, and gas meter vents. In DOE's analysis, snorkel termination is 
more frequently needed in situations where the furnace is below the 
snow line (such as in basements or crawl spaces). DOE assumed that the 
replacement furnace would remain in the same location as the existing 
furnace and accounted for the new vent length and other changes, such 
as wall knockouts, to install new venting. In some installations, it 
might be easier and cheaper to change the furnace location, but this 
would require both gas line extensions and ductwork modifications, 
which were not modeled in DOE's installation cost analysis. DOE 
accounted for additional vent length for housing units with shared 
walls. DOE also accounted for the cost of vent resizing in the case of 
an orphaned water heater and the cost of concealment work in some 
installations.
    The vent pipe length limitations depend on a number of factors, 
including number of elbows, vent diameter, horizontal vs. vertical 
length, as well as combustion fan size. A review of several 
manufacturer installation manuals shows that the maximum vent lengths 
range from 30 to 130 ft., depending primarily on the vent diameter. For 
a fraction of installations, DOE increased the vent diameter in order 
to be able to extend the vent length according to manufacturer 
specifications.

[[Page 87563]]

(b) Common Venting Issues (Including Orphaned Water Heaters)
    Common venting provides a single exhaust flue for multiple gas 
appliances. In some cases, a non-condensing NWGF is commonly vented 
with a gas-fired water heater. When the non-condensing NWGF is replaced 
with a condensing NWGF, the new condensing furnace and the existing 
water heater can no longer be commonly vented due to different venting 
requirements,\111\ and the water heater becomes ``orphaned.'' The 
existing vent may need to be modified to safely vent the orphaned water 
heater, while a new vent is installed for the condensing NWGF. DOE 
accounted for a fraction of installations that would require chimney 
relining or vent resizing for the orphaned water heater, including 
updating flue vent connectors, resizing vents, or relining chimneys 
when applicable based upon the age of the furnace and the home.
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    \111\ The ANSI Z223.1/NFPA 54 Natural Fuel Gas Code (NFGC) 
venting requirements refer to category I, II, III, and IV gas 
appliances. Category I gas appliances, such as natural draft gas 
water heaters, exhaust high-temperature flue gases and are vented 
using negative static pressure vents designed to avoid excessive 
condensate production in the vent. Category IV gas appliances, such 
as condensing furnaces, exhaust low temperature flue gases and are 
vented using positive static pressure corrosion-resistant vents. Due 
to the different venting requirements, the NFGC does not allow 
common venting of condensing and non-condensing appliances. The 2021 
Edition is available at www.nfpa.org/codes-and-standards/all-codes-and-standards/list-of-codes-and-standards/detail?code=54 (last 
accessed August 1, 2023).
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    DOE accounted for the probability that in some cases, replacing a 
non-condensing furnace with a condensing furnace may require 
significant modifications to the existing vent system for the commonly-
vented gas water heater. DOE accounted for costs related to updating 
the vent connector, relining the chimney, and resizing the vent, which 
would satisfy the installation requirements of the Natural Fuel Gas 
Code. DOE has determined that a potential option would be to install 
either a storage or tankless power-vented water heater to avoid the 
cost of a chimney or metal flue vent modification just for the gas 
water heater, or to switch to an electric storage water heater. DOE 
recognizes that the frequency of chimney relining and vent resizing may 
decrease slightly due to the increase in adoption of high-efficiency 
gas water heaters. However, DOE did not find any additional information 
or data \112\ to project the market share of high-efficiency water 
heaters in 2029 or the decrease in the fraction of installations with 
common vents. Therefore, DOE did not consider the power-vented gas 
storage or other higher-efficiency water heater options. Instead, DOE 
either added additional installation costs associated with venting a 
category I water heater, such that the orphaned water heater could be 
vented through the chimney, or accounted for the installation of an 
electric storage water heater as an alternative. For new owners and new 
construction installations, DOE applied a venting cost differential if 
the owner/builder was planning to install a commonly-vented non-
condensing furnace and water heater.
---------------------------------------------------------------------------

    \112\ Data from the consumer water heater NOPR were used in this 
analysis. 88 FR 49058 (July 28, 2023).
---------------------------------------------------------------------------

    DOE acknowledges that multi-family buildings may require additional 
measures to replace non-condensing furnaces with condensing furnaces. 
Such measures include the vent length, existing common vents, and 
horizontal venting. For this final rule, DOE assigned additional 
venting installation costs (on average $241) for a quarter of 
replacement installations \113\ in multi-family buildings to account 
for modifying the existing vent systems to accommodate a condensing 
furnace installation.
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    \113\ This fraction accounts for buildings without common 
venting; buildings where all/most furnaces are replaced at the same 
time (many rentals/homeowners association (HOA) situations); smaller 
multi-family units/smaller number of floors; and situations where 
disconnecting one furnace from the common vent does not impact the 
common venting for remaining furnaces. This fraction is also based 
on 2020 RECS data regarding the number of apartments/units and the 
number of stories per multi-family building.
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(c) New Venting Technologies
    To address certain difficult installation situations, new venting 
technologies are being developed to vent a condensing residential 
furnace and an atmospheric combustion water heater through the same 
vent by reusing the existing metal vent or masonry chimney with a new 
vent cap and appropriate liner(s).^{114 115} In 2015, the 
FasNSeal 80/90 venting system was introduced commercially by M&G 
DuraVent, a new venting system that uses a unique, pipe-within-a-pipe 
design to vent a condensing furnace and a natural draft water 
heater.\116\ FasNSeal 80/90 is UL-approved. An additional venting 
solution known as EntrainVent is available as a pre-commercial 
prototype by Oak Ridge National Laboratory.\117\ DOE conducted a 
sensitivity analysis to estimate the impact of such technologies on the 
installation cost of a condensing NWGF, but did not include the 
technologies in the primary analysis.
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    \114\ Oak Ridge National Laboratory, Condensing Furnace Venting 
Part 1: The Issue, Prospective Solutions, and Facility for 
Experimental Evaluation (October 2014) (available at: web.ornl.gov/sci/buildings/docs/Condensing-Furnace-Venting-Part1-Report.pdf) 
(last accessed August 1, 2023).
    \115\ Oak Ridge National Laboratory, Condensing Furnace Venting 
Part 2: Evaluation of Same-Chimney Vent Systems for Condensing 
Furnaces and Natural Draft Water Heaters (February 2015) (available 
at: web.ornl.gov/sci/buildings/docs/Condensing-Furnace-Venting-Part2-Report.pdf) (last accessed August 1, 2023).
    \116\ M&G DuraVent's FasNSeal 80/90 Combination Cat I and Cat IV 
gas vent system is UL listed to applicable portions of ULC S636/
UL1738, UL1777, and UL441 (available at: www.duravent.com/fasnseal-80-90/) (last accessed August 1, 2023).
    \117\ Oak Ridge National Laboratory, Condensing Furnace Venting 
Part 2: Evaluation of Same-Chimney Vent Systems for Condensing 
Furnaces and Natural Draft Water Heaters (February 2015) (available 
at: web.ornl.gov/sci/buildings/docs/Condensing-Furnace-Venting-Part2-Report.pdf) (last accessed August 1, 2023).
---------------------------------------------------------------------------

    DOE recognizes that there are currently limitations to DuraVent's 
new FasNSeal 80/90 venting technology related to venting in masonry 
chimneys and that currently there are limited field performance 
data.\118\ Because of the uncertainty regarding applicability of 
FasNSeal 80/90 and other new venting technologies, DOE only considered 
using this option in a sensitivity analysis. DOE conducted two 
additional sensitivity analyses: (1) the FasNSeal 80/90 option is 
applied to installations that can currently meet the FasNSeal 80/90 
installation requirements (metal vents only); and (2) all new venting 
technology options are applied to installations that could meet the 
respective installation requirements (metal vents and masonry chimney 
installations, including installations with more horizontal sections).
---------------------------------------------------------------------------

    \118\ Oak Ridge National Laboratory, Furnace and Water Heater 
Venting Field Demonstration (May, 2019) (available at: www.ornl.gov/publication/furnace-and-water-heater-venting-field-demonstration) 
(last accessed August 1, 2023).
---------------------------------------------------------------------------

(d) Combustion Air Venting
    DOE's analysis accounts for the additional cost associated with 
direct vent installations that use combustion air intake. Direct vent 
or sealed combustion is not required for condensing installations, but 
it is recommended for any condensing furnace to utilize ``sealed 
combustion.'' All condensing furnaces come with this feature (which 
requires an opening for the intake combustion air pipe/vent). 
Condensing furnaces will often be installed as direct vent furnaces 
since it

[[Page 87564]]

offers significant energy savings \119\ and safety \120\ 
advantages.^{121 122}
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    \119\ A non-direct vent furnace increases the air infiltration 
that the house experiences since for every cubic foot of air that 
leaves the house, another cubic foot of air comes in. Thus, a direct 
vent furnace avoids using heated indoor air for combustion.
    \120\ By separating the combustion air from indoor household 
air, the furnace is not affected by other home appliances in a tight 
home. A direct vent furnace reduces the danger of any potential 
backdrafts (pulling exhaust gases down the chimney), as well as 
reducing the danger of foreign gases in the combustion air. For 
example, a furnace could be damaged by vapors from laundry products, 
as these vapors can mix with indoor combustion air to corrode 
furnace components.
    \121\ DOE, Technology Fact Sheet. Combustion Equipment Safety: 
Provide Safe Installation for Combustion Appliances (October 2000) 
(DOE/GO-102000-0784) (available at: www1.eere.energy.gov/buildings/publications/pdfs/building_america/26464.pdf) (last accessed August 
1, 2023).
    \122\ DOE, Furnace and Boilers (available at: www.energy.gov/energysaver/home-heating-systems/furnaces-and-boilers) (last 
accessed August 1, 2023).
---------------------------------------------------------------------------

    DOE's analysis assumes that two-thirds of condensing furnaces will 
be installed with the direct vent feature, based on a consultant report 
(see appendix 8D of the final rule TSD for further details). Typically, 
the combustion air intake pipe will go in the same direction of the 
flue vent or can be in a concentric vent.
(e) Condensate Withdrawal
    DOE accounted for the cost of condensate removal for condensing 
NWGF installations, including, when applicable, a condensate drain, 
condensate pump, freeze protection (heat tape),\123\ drain pan, 
condensate neutralizer, and an additional electric outlet for the 
condensate pump.
---------------------------------------------------------------------------

    \123\ Heat tape is also referred to as heating cable and 
provides electric heating.
---------------------------------------------------------------------------

    DOE acknowledges that condensate management can be costly for some 
installations (e.g., multi-family units) and very difficult in rare 
cases. DOE's current installation cost approach accounts for these 
costs. However, DOE added a sensitivity analysis with additional 
condensate costs.
    The use of heat tape to prevent condensate pipes from freezing is 
standard installation practice ^{124 125} DOE's analysis 
accounts for the use of heat tape typical in unconditioned attic 
installations, which are more likely to face freezing conditions. DOE 
acknowledges that other unconditioned locations could also face 
freezing, but it is far less common.\126\ DOE also included heat tape 
to installations in additional non-conditioned spaces such as crawl 
spaces, non-conditioned basements, and garages that are in regions that 
could be exposed to freezing conditions. DOE accounted for the 
additional installation cost and energy use of the heat tape. 
Additionally, because it is recommended practice that heat tape be 
plugged into a ground fault circuit interrupter (GFCI) circuit, DOE 
included the cost of adding a GFCI circuit for the fraction of 
households that do not have one available. DOE also conducted a 
sensitivity analysis with an additional fraction of installations 
necessitating the use of heat tape.
---------------------------------------------------------------------------

    \124\ ICP, Installation Instructions for Condensate Freeze 
Protection Kit (2012) (available at: www.icptempstarparts.com/mdocs-posts/naha00201hh-condensate-freeze-protection-kit-installation-instructions/) (last accessed August 1, 2023).
    \125\ Bryant, Installation Instructions: Condensate Drain 
Protection (2008) (available at: www.questargas.com/ForEmployees/qgcOperationsTraining/Furnaces/Bryant_355AAV.pdf) (last accessed 
August 1, 2023).
    \126\ Brand, L. and W. Rose, Strategy Guideline: Accurate 
Heating and Cooling Load Calculations. Partnership for Advanced 
Residential Retrofits (October 2012) (available at: www.nrel.gov/docs/fy13osti/55493.pdf) (last accessed August 1, 2023).
---------------------------------------------------------------------------

    To address situations where condensate must be treated before 
disposal (e.g., due to a local regulation), DOE assumed that a fraction 
of installations require condensate neutralizer for condensate 
withdrawal. As discussed in appendix 8D of the TSD for this final rule, 
the fraction of installations that require condensate neutralizer used 
in the analysis is representative of the current use. DOE includes the 
cost of using non-corrosive drains for an additional fraction of 
installations. Additionally, DOE conducted a sensitivity analysis 
assuming a high fraction of installations use condensate neutralizer or 
are installed with a non-corrosive drain.
    Napoleon stated that the proposals in the July 2022 NOPR will have 
negative economic and safety impacts on consumers in replacement 
scenarios. The commenter stated that increasing the minimum efficiency 
will require the furnaces to be condensing, and it is not practical to 
use the condensate removal system for an air conditioner (typically 
located in unconditioned space outside the building structure) to 
remove condensate from a condensing furnace when it could be subject to 
freezing temperatures. Napoleon also stated that installing a plumbed 
drain will be a significant cost for the consumer and may not even be 
feasible, and the commenter further added that installing such plumbing 
could be cost-prohibitive and force property owners to attempt to 
perpetually repair their existing products, thereby leading to a safety 
hazard. Therefore, Napoleon recommended that 80-percent AFUE furnaces 
must remain available for the replacement market because, according to 
the commenter, they are the only cost-effective and safe option for 
consumers. (Napoleon, No. 374 at p. 1-2)
    In response, DOE notes that the analysis does consider appropriate 
additional costs to remove condensate for condensing furnaces, as 
described above, in accordance with all manufacturer instructions and 
local requirements. The analysis accounts for situations in which 
additional freeze protection is required, imposing additional costs on 
the installation. DOE acknowledges that in some cases the costs to 
address condensate withdrawal may be significant, but these are already 
captured by the analysis and included in the distribution of impacts.
(f) Difficult Installations
    DOE considered the potential need for additional vent length to 
reach a suitable location on an outside wall where the vent termination 
could be located, as well as the potential need for wall penetrations 
and/or concealing of flue vents in conditioned spaces.
    DOE used the best available information and data to characterize 
the likely nature and cost of installations of a condensing furnace as 
a replacement for a non-condensing furnace in its consumer sample. DOE 
estimates that 39 percent of replacements in residential applications 
could be labeled as ``difficult'' installations,\127\ with an average 
incremental installation cost of $867 relative to the baseline 80-
percent AFUE NWGF (compared to an incremental cost of $247 for all 
other replacement installations).
---------------------------------------------------------------------------

    \127\ DOE considered an installation to be ``difficult'' if 
there is an orphaned water heater, a long PVC vent connection though 
multiple walls, or in households with condensate issues (e.g., ones 
requiring heat tape or a condensate pump).
---------------------------------------------------------------------------

    DOE sought any information or data regarding potential physical 
limitations when installing a new condensing furnace. In consumer \128\ 
and contractor \129\ surveys, relocation was not mentioned as an issue 
for furnace installation.\130\ DOE recognizes that in some cases, 
homeowners could elect to relocate their furnace when replacing a non-
condensing NWGF with a condensing NWGF, especially if the

[[Page 87565]]

relocation is part of a planned remodel of the home. In such cases, the 
cost of relocation is likely to be comparable to the costs that DOE 
estimated for difficult installations.
---------------------------------------------------------------------------

    \128\ Decision Analyst, Homeowner ``Spotlight'' Report: 
Equipment Switching, Repair Profile and Energy Efficiency (August 
2011) (available at: www.decisionanalyst.com/) (last accessed August 
1, 2023).
    \129\ Decision Analyst, Contractor ``Spotlight'' Report: Energy 
Efficiency and Installation Profile (August 2011) (available at: 
www.decisionanalyst.com/) (last accessed August 1, 2023).
    \130\ This finding is supported by an expert consultant (EER 
Consulting).
---------------------------------------------------------------------------

    GAS commented that by not drawing a regulatory distinction between 
condensing and non-condensing appliances, DOE ignores the well-
documented ``problematic designs'' faced by consumers forced into 
replacing non-condensing appliances into structures that were not 
designed for condensing appliances. (GAS, No. 385 at p. 3)
    The Coalition also commented as to the construction and 
configuration challenges that come with converting to a condensing 
furnace. The Coalition stated that insufficient exterior wall clearance 
for venting would be an obstacle, and that altering the venting might 
also necessitate replacement of the gas hot water heater. (The 
Coalition, No. 378 at p. 5) Also, the Coalition argued that plumbing 
issues would lead to considerable expense, and the cost impact of 
changing out flues and adding combustion air ducts would impact fire-
rated floor assemblies. Finally, the Coalition commented that these 
issues of converting to a condensing furnace would potentially result 
in the displacement of residents, interruption of resident quality of 
life, disruption to property operation, and significant costs. (Id.)
    As DOE has discussed here and in further detail in chapter 8 and 
appendix 8D of the final rule TSD, the analysis accounts for some 
situations in which there are high costs associated with the 
replacement of a non-condensing furnace with a condensing furnace, 
including interior wall displacement, vent or equipment relocation, and 
condensate withdrawal management. Those impacts are included in the 
distribution of LCC results. Furthermore, DOE has concluded that any 
disruptions associated with installation of a more-efficient furnace 
are likely to be temporary and of limited duration. Because such 
disruptions are temporary, they would not have a significant effect on 
the results of the analyses or DOE's conclusions.
(g) Emergency Replacements
    DOE acknowledges that installation costs could increase for 
condensing furnaces in an unplanned emergency situation for the reasons 
that follow. Decision Analyst's 2022 American Home Comfort Study (AHCS) 
\131\ reported that unplanned replacements accounted for one-third of 
gas furnace installations. For this final rule, DOE included labor 
costs for unplanned replacements to account for additional contractor 
labor needed to finish the installation, factoring in the difficulty of 
accessing the roof during periods of snow or ice accumulation. In 
addition, to address periods without heat during the replacement, DOE 
considered the costs of the temporary use of small electric resistance 
space heaters or secondary/back-up heaters.
---------------------------------------------------------------------------

    \131\ Decision Analysts, 2022 American Home Comfort Studies 
(available at: www.decisionanalyst.com/syndicated/homecomfort/) 
(last accessed August 1, 2023).
---------------------------------------------------------------------------

(h) Incremental Installation Cost for Condensing Furnaces
    DOE estimated that the incremental retrofit installation cost for 
condensing furnaces was $539. For new construction and new owners, the 
incremental installation cost was estimated to be, on average, -
$708.\132\ Since 26 percent of shipments were estimated to be in the 
new construction and new owners market, based on the projected growth 
in new housing units and historical shipments (see chapter 9 of the 
final rule TSD), the resulting average incremental installation cost 
was $218. The incremental installation cost estimates reflect labor 
cost and installation material cost data from 2023 RS Means.
---------------------------------------------------------------------------

    \132\ DOE calculated that, on average, condensing NWGF 
installation costs are lower in the new construction market compared 
to non-condensing NWGFs, since high-efficiency NWGFs can be vented 
either horizontally or vertically (whichever is most cost-
effective), and, therefore, a vertical buildout with roof 
penetration is not required. See appendix 8D of the TSD for this 
final rule for more details regarding new construction installation 
costs.
---------------------------------------------------------------------------

    In response to the July 2022 NOPR, the DCA commented that DOE does 
not need to force the installation of condensing furnaces by 
terminating the types of furnaces that can be easily installed without 
retrofitting. The DCA further commented that this proposed rulemaking 
would eliminate the 40 percent of non-weatherized natural gas furnaces 
that are non-condensing. (DCA, No. 372 at p. 2) Daikin commented that 
in 2019, the standard in Canada was set to condensing standard of 95-
percent AFUE, so presumably, that country must have found ways to 
overcome these installation challenges. (Daikin, No. 416 at p. 2) 
Similarly, the Watertown Municipal Utilities stated that close to 75 
percent of the homes and businesses in its service area currently use 
non-condensing furnaces, and the commenter argued that retrofitting 
existing homes will increase monthly expenses for the average consumer. 
(WMU, No. 351 at p. 1)
    The Coalition commented that replacing non-condensing units with 
condensing units might require substantial retrofitting and/or property 
modifications. (The Coalition, No. 378 at p. 4) The Coalition commented 
that the cost of retrofitting could be prohibitive or even impossible. 
(Id.) The Coalition added that this would result in some owners 
switching to less-efficient forms of heating that defeat the purpose of 
the proposed standards. (Id.)
    In response, DOE has conducted an extensive analysis of potential 
retrofit costs as detailed in this section, including replacement 
situations involving significant additional installation costs. These 
``difficult'' installations are accounted for in the distribution of 
results (see section IV.F.2.b.f of this document). DOE has further 
evaluated the potential for some consumers to switch to alternative 
forms of space-heating as described in more detail in section IV.F.10 
of this document.
(i) New Construction or New Owner Installations
    It is common practice in new construction, when possible, to avoid 
vertical venting in order to limit roof penetrations and reduce 
potential liability issues (e.g., water leakage through new roof 
penetrations).\133\ Condensing furnaces have the flexibility of being 
vented either horizontally or vertically. When presented with this 
option in new construction, it is reasonable to conclude that most 
designers, architects, builders, contractors, and/or homeowners would 
opt for the most cost-effective installation. Current building 
practices are likely to evolve as the market changes in response to any 
amended energy conservation standards for the subject furnaces.
---------------------------------------------------------------------------

    \133\ Lekov A., V. Franco, G. Wong-Parodi, J. McMahon, P. Chan, 
Economics of residential gas furnaces and water heaters in U.S. new 
construction market, Energy Efficiency (September 2010) Volume 3, 
Issue 3, pp. 203-222 (available at: link.springer.com/article/10.1007/s12053-009-9061-y) (last accessed August 1, 2023).
---------------------------------------------------------------------------

    For new owner and new construction installations, DOE applied an 
incremental venting cost if the owner/builder had been planning to 
install a commonly-vented non-condensing furnace and water heater.
c. Additional Installation Costs for Mobile Home Gas Furnaces
    DOE included the same basic installation costs for MHGFs as 
described previously for NWGFs. DOE also included costs for venting and 
condensate removal. Protection from

[[Page 87566]]

freezing (heat tape), a condensate pipe, condensate neutralizer, and an 
additional electrical connection are accounted for in the cost of 
condensate removal, where applicable.
    DOE notes that MHGFs are usually installed in tight spaces and 
often require space modifications if the replacement furnace dimensions 
are different from those of the existing furnace. DOE notes that most 
of the MHGF models at the adopted standard level of 95-percent AFUE are 
similar in size to the existing non-condensing MHGFs. However, some 
condensing furnaces in the manufacturer literature are wider and 
shorter than existing non-condensing furnaces. Accordingly, DOE 
increased the installation costs for a fraction of installations to 
address the impacts related to space constraints or condensate 
withdrawal that may be encountered when a condensing MHGF replaces an 
older manufactured-home-specific furnace. DOE also adjusted the 
installation cost for the dedicated vent system for condensing MHGFs by 
including an additional cost to remove the old venting system. 
Manufactured home designs must be approved by an accepted third-party 
inspection agency, as required by the U.S. Department of Housing and 
Urban Development, to ensure compliance with the HUD Code (24 CFR 
3282.203), which requires sealed combustion system appliances. MHGFs 
cannot be commonly vented with other gas-fired equipment (such as a 
gas-fired water heater) (24 CFR 328.709). Further, manufacturers are 
required to have an inspection agent, and each home must be inspected 
by the inspection agent in at least one phase of production, and the 
manufacturer must self-certify each section of the home as in 
compliance with the HUD code (24 CFR 3282.204 and 3282.205). DOE also 
adjusted the condensate withdrawal installation costs to account for a 
fraction of installations that encounter difficulty installing the 
condensate drain.
    In regard to space constraints and installation, DOE received 
several comments in response to the July 2022 NOPR. HARDI commented 
that EPCA prevents DOE from finalizing a rule that would outlaw 
equipment with certain size requirements. HARDI commented that size is 
not limited to the equipment itself, but any encroachment on the 
consumer's living space. (HARDI, No. 384 at p. 5) PHCC commented that 
venting poses a major challenge to installation, which will affect the 
installation costs. PHCC further stated that potential venting issues 
include excessive vent lengths, significant building modifications, 
drainage issues, or nuisance condensing vent plumes. (PHCC, No. 403 at 
p. 3) CEC commented that although some owners of manufactured homes may 
be concerned about potential space and cost constraints related to the 
proposed standards for MHGFs, updating their heating system with an 
efficient furnaces or electric heat pumps is feasible, both technically 
and economically. (CEC, No. 382 at p. 2)
    In response, DOE notes that the LCC includes costs related to 
additional venting requirements, condensate removal, and any 
modifications to address any space constraints for replacement 
installations of MHGFs. There is no technical limitation preventing the 
installation of a condensing MHGF, and all relevant costs are included 
in the analysis. Alternatively, consumers could switch to an appliance 
which utilizes a different technology (e.g., a heat pump). For these 
reasons, DOE has concluded that the approach adopted in this final rule 
is consistent with the requirements of EPCA.
    MHI commented that condensing furnaces require different venting 
and combustion air intake designs as compared to non-condensing 
furnaces, as well as the addition of condensate drain systems. (MHI, 
No. 365 at p. 2) Also, MHI noted that condensing furnaces would require 
manufactured home designers to change the typical floor plans of their 
designs, adding costs to this process that will be passed down to the 
consumer. (Id.) MHI commented that the impacts of changing the typical 
floor plan of a manufactured home in order to accommodate a condensing 
furnace are not fully captured in the July 2022 NOPR, and these impacts 
are particularly harmful for manufactured housing consumers, especially 
in southern climates. (Id.)
    MHI commented that the proposed standards for MHGF would increase 
construction costs for new manufactured homes by approximately $1300. 
(Id.) Nortek commented that condensing furnaces cost approximately 
$1300 more than non-condensing furnaces, and that they require 
significantly different venting/combustion air in-take/condensate 
drainage systems. According to the commenter, these changes would lead 
to additional cost and floorplan design changes for manufactured homes. 
(Nortek, No. 406 at p. 4) In response, DOE's analysis includes all 
costs necessary to install a condensing MHGF in new construction, 
including venting costs and condensate removal. However, DOE's 
analysis, based on the best available evidence, does not indicate that 
incremental costs for installation of a condensing MHGF are as high as 
$1300.\134\
---------------------------------------------------------------------------

    \134\ On average, DOE's analysis indicates that the incremental 
totaled installed cost of an AFUE 95 percent MHGF, compared to an 
AFUE 80 percent MHGF, is only $188 (averaged over replacement 
installations and new construction and including both equipment and 
installation costs). Further details can be found in chapter 8 and 
appendix 8D of the final rule TSD.
---------------------------------------------------------------------------

    MHI commented that owners of manufactured homes typically have more 
budgetary restrictions than other consumers, as their median annual 
household income is well below the national average. MHI argued that 
manufactured homeowners, who would be unlikely to see cost savings from 
condensing furnaces for many years, would face significant budgetary 
burdens. (MHI, No. 365 at p. 3) In response, DOE notes that its 
analysis captures the discount rate that is applicable to owners of 
manufactured homes, based on their household income, and which reflects 
their access to capital and budgetary constraints.
    MHI estimated that certain floorplans of manufactured housing would 
incur up to $7000 to comply with the requirements of the May 2022 final 
rule for manufactured housing. (MHI, No. 365 at p. 3) Similarly, Nortek 
commented that DOE's final rule to establish energy conservation 
standards for manufactured housing will also impose costs on 
manufactured homeowners, and that DOE's analytical models do for the 
furnaces rule not consider these costs.(Nortek, No. 406 at pp. 2-3)
    In response, DOE notes that the impacts of the May 2022 final rule 
for manufactured housing were considered as part of that rule and are 
not relevant in this rulemaking.
    MHI commented that the proposed standards for MHGFs will negatively 
impact the manufactured home resale and replacement market. The 
commenter argued that about one-third of manufactured homes use natural 
gas for heating, and that the cost to replace a non-condensing gas 
furnace with a condensing one could be burdensome to the consumer due 
to increased cost, the need to increase the cabinet size, and changes 
to venting. (MHI, No. 365 at pp. 3-4) MHI also noted that there are a 
limited number of furnace manufacturers that manufacture condensing 
furnaces for use in manufactured homes. (Id. at 3) MHI commented that 
furnace replacements that would typically cost around $3,000 now would 
cost $10,000 or more under DOE's proposal, which the commenters 
asserted that many manufactured

[[Page 87567]]

homeowners would not be able to afford. (MHI, Public Meeting Webinar 
Transcript, No. 363 at p. 28) MHI also stated that these impacts would 
be disproportionately felt by homeowners in Southern States. (Id.) MHI 
also asserted that this rulemaking would require redesigns of 
manufactured homes subject to the National Home Construction and Safety 
Standards Act, as any changes to a home's design, manufacture, or 
installation must be reviewed and approved by HUD. (MHI, No. 365 at p. 
2)
    Mortex commented that DOE's incremental cost from non-condensing to 
condensing furnaces is much lower than MHI's estimate, which is 
conservative. (Mortex, No. 410 at p. 2) Mortex estimated that the 
incremental cost to consumers to move from a non-condensing to a 
condensing MHGF is between $1700 and $2100. (Id.) Mortex further 
commented that the average savings estimated by DOE would be eliminated 
if the incremental cost was adjusted, meaning that there would be no 
payback for manufactured homeowners. Mortex further commented that 
southern consumers would be even less likely to experience life cycle 
cost savings. (Mortex, No. 410 at pp. 2-3)
    AHRI expressed its concern regarding DOE's results for TSL 8. AHRI 
stated that MHI has estimated that the incremental cost of a condensing 
furnace is $1,300, as opposed to the $315 estimated by DOE, adding that 
the LCC savings from a condensing furnace disappear when any cost 
approaching MHI's estimated value is used. (AHRI, No. 414-2 at p. 3)
    JCI commented that it disagrees with the costs and benefits assumed 
for MHGFs in DOE's analysis, arguing in particular that the replacement 
market is not accurately reflected. (JCI, No. 411 at p. 3)
    In response to these comments, DOE disagrees with these cost 
estimates and notes that no persuasive evidence was submitted to 
substantiate these estimates. DOE has performed a detailed cost 
analysis and has determined that the potential benefits outweigh the 
costs, including the costs to replace a non-condensing MHGF with a 
condensing MHGF (including adjusting cabinet size and venting). DOE 
disagrees that a more-efficient MHGF will negatively impact the resale 
value of a manufactured home, as a more efficient MHGF will have lower 
operating costs, which is more attractive to potential buyers. 
Furthermore, DOE notes that potential investments made by manufactured 
housing OEMs are outside the scope of this rulemaking. DOE must follow 
specific statutory criteria for prescribing new or amended energy 
conservation standards for covered products, such as the subject 
consumer furnaces. Pursuant to EPCA, DOE's analysis considers the 
economic impact of the standard on consumers and manufacturers of the 
products subject to the standard (i.e., manufacturers of NWGFs and 
MHGFs). (42 U.S.C. 6295(o)(2)(B)(i)(I)) The LCC analysis is focused on 
consumers of MHGFs and the costs to purchase the covered product (see 
42 U.S.C. 6295(o)(2)(B)(i)(II)), not the costs to purchase a 
manufactured home. With respect to manufacturers, since manufactured 
housing OEMs are not manufacturers of the products subject to the 
standard, DOE does not explicitly analyze those investments in its MIA. 
Furthermore, DOE did not include the manufactured housing rulemaking in 
its cumulative regulatory burden analysis for this rulemaking as none 
of the MHGF OEMs identified produce manufactured homes subject to the 
May 2022 final rule for manufactured housing.
    JCI also commented that manufactured homeowners often have 
electrical limitations due to remote locations and limited electrical 
capacity, meaning that it would be more challenging for these consumers 
to switch to other methods of heating such as electric furnaces and 
heat pumps. (JCI, No. 411 at p. 2) JCI stated this means that 
manufactured homeowners would be more likely to incur the higher costs 
for condensing furnaces. (Id.) JCI stated that this is because electric 
mobile home furnaces and heat pumps require electric resistance backup 
heating which have additional power/kW requirements which can greatly 
exceed those of a gas furnace especially in colder, northern climates 
(i.e., approximately 15 amps for the gas furnace vs 90 amps for the 
electric furnace). (Id.) JCI further noted that electric furnaces 
require 240 V, while gas furnaces require 120 V, which is more common. 
(Id.) Finally, JCI stated that southern areas are better suited for 
heat pump loads, with backup heat required for anomaly events. JCI 
commented that these requirements add cost for manufactured homeowners, 
increasing with colder temperatures. (Id.)
    In response, DOE acknowledges that there may be additional 
electrical connection costs when replacing a non-condensing furnace 
with a condensing furnace and has included such costs in the analysis.
    In contrast, NCLC et al. stated that installing condensing furnaces 
in manufactured homes will not present unique, significant, or 
insurmountable challenges, adding that the Low-income Energy 
Affordability Network has always been able to find condensing furnaces 
that fit into the available space when upgrading from non-condensing 
furnaces. (NCLC et al., No. 383 at p. 7) DOE agrees with this comment.
    The CA IOUs agreed with DOE that the average cost of a condensing 
MHGF in a new mobile home is comparable to a non-condensing MHGF 
because the price increase of the product is offset by lower 
installation costs for a condensing MHGF for most installations. (The 
CA IOUs, No. 400 at p. 2) Additionally, the CA IOUs noted that the 
National Consumer Law Center contacted two programs that retrofit 
mobile homes to improve efficiency (Action for Boston Community 
Development and Action Inc., Gloucester, Massachusetts) which indicated 
that the proposal would not be burdensome for MHGF replacements. (Id.)
d. Contractor Survey and DOE's Sources
    DOE notes that its focus for installation costs is to estimate the 
incremental cost between different efficiency levels. DOE used the 
results of a contractor survey previously submitted to DOE in order to 
validate its estimates of the average total installed cost for 
condensing furnaces in replacement applications, as well as the average 
incremental installation cost. DOE examined the ACCA/AHRI/PHCC survey 
of contractors but was unable to use the data directly in the LCC 
analysis because only aggregate values were reported. The ACCA/AHRI/
PHCC survey results are binned in wide bins of $250, and the sample is 
heavily weighted towards the North (339 responses in the North and 181 
in the South). As noted previously, installation costs vary widely for 
different contractors and areas of the country. The installation costs 
in the Northern region will tend to be much higher than those reported 
in the rest of the country (as defined in the LCC analysis). For this 
final rule, DOE revised its installation cost methodology to account 
for various factors affecting both non-condensing and condensing NWGFs, 
such as: the cost of ductwork upgrades; baseline electrical 
installation costs; additional labor required for baseline 
installations; the cost of relining, resizing, and/or other adjustments 
of metal venting for baseline installations; premium installation costs 
for emergency replacements; and other premium installation costs for 
comfort-related features (e.g., advanced thermostats, zoning, 
hypoallergenic filters, humidity

[[Page 87568]]

controls). For this final rule, DOE also compared its average estimates 
to the AHRI/ACCA/PHCC contractor survey report and other sources such 
as Home Advisor,\135\ ImproveNet,\136\ Angie's List,\137\ 
HomeWyse,\138\ Cost Helper,\139\ Fixr,\140\ CostOwl,\141\ and Gas 
Furnace Guide,\142\ and also consulted with RS Means staff. In 
addition, DOE was able to obtain installation costs disaggregated for 
households installing only a furnace versus installing both a furnace 
and air conditioner from the 2016 AHCS. For this final rule, the 
average incremental installation cost for a condensing NWGF in a 
retrofit installation was $539 (in 2022$), which is consistent with the 
AHRI/ACCA/PHCC contractor survey and data provided by SoCalGas, as well 
as the other sources previously listed. Therefore, DOE concludes that 
the industry-supplied data support its installation cost methodology.
---------------------------------------------------------------------------

    \135\ Home Advisor, How Much Does a New Gas Furnace Cost? 
(available at: www.homeadvisor.com/cost/heating-and-cooling/gas-furnace-prices/) (last accessed August 1, 2023).
    \136\ See www.improvenet.com/ (last accessed August 1, 2023).
    \137\ Angie's List, How Much Does it Cost to Install a New 
Furnace (available at: www.angieslist.com/articles/how-much-does-it-cost-install-new-furnace.htm) (last accessed August 1, 2023).
    \138\ HomeWyse, Cost to Install a Furnace (available at: 
www.homewyse.com/services/cost_to_install_furnace.html) (last 
accessed August 1, 2023).
    \139\ Cost Helper, How Much Does a Furnace Cost? (available at: 
home.costhelper.com/furnace.html) (last accessed August 1, 2023).
    \140\ FIXr, Gas Central Heating Installation Cost (available at: 
www.fixr.com/costs/gas-central-heating-installation) (last accessed 
August 1, 2023).
    \141\ CostOwl.com, How much Does a New Furnace Cost? (available 
at: www.costowl.com/home-improvement/hvac-furnace-replacement-cost.html) (last accessed August 1, 2023).
    \142\ Gas Furnace Guide, Gas Furnace Prices and Installation 
Cost Comparison (available at: www.gasfurnaceguide.com/compare/) 
(last accessed August 1, 2023).
---------------------------------------------------------------------------

e. Summary of Installation Costs
    Table IV.8 shows the fraction of installations impacted and the 
average cost for each of the installation cost adders in replacement 
applications (not including new owners). The estimates of the fraction 
of installations impacted were based on the furnace location (primarily 
derived from information in RECS 2020) and a number of other sources 
that are described in chapter 8 of the final rule TSD.

   Table IV.8--Additional Installation Costs for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces in
                                            Replacement Applications
----------------------------------------------------------------------------------------------------------------
                                                               NWGFs                           MHGFs
                                                 ---------------------------------------------------------------
                                                    Replacement                     Replacement
             Installation cost adder               installations   Average cost    installations   Average cost
                                                     impacted         (2022$)        impacted         (2022$)
                                                     (percent)                       (percent)
----------------------------------------------------------------------------------------------------------------
                                             Non-Condensing Furnaces
----------------------------------------------------------------------------------------------------------------
Updating Vent Connector.........................              23            $328  ..............  ..............
Updating Flue Vent *............................               8             990             100            $233
----------------------------------------------------------------------------------------------------------------
                                               Condensing Furnaces
----------------------------------------------------------------------------------------------------------------
New Flue Venting (PVC)..........................             100             308             100              58
Combustion Air Venting (PVC)....................              62             324             100              58
Concealing Vent Pipes...........................               5             603  ..............  ..............
Orphaned Water Heater...........................               7             806  ..............  ..............
Condensate Removal..............................             100              92             100             163
Multi-Family Adder..............................               2             241  ..............  ..............
Mobile Home Adder...............................  ..............  ..............              25             127
----------------------------------------------------------------------------------------------------------------
* For a fraction of installations, this cost includes the commonly-vented water heater vent connector, chimney
  relining, and vent resizing. For mobile home gas furnaces, DOE assumed that flue venting has to be upgraded
  for all replacement installations.

    Table IV.9 shows the estimated fraction of new home installations 
impacted and the average cost for each of the adders.

 Table IV.9--Additional Installation Costs for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces in New
                                     Construction and New Owner Applications
----------------------------------------------------------------------------------------------------------------
                                                               NWGFs                           MHGFs
                                                 ---------------------------------------------------------------
                                                        New                             New
             Installation cost adder               installations   Average cost    installations   Average cost
                                                     impacted         (2022$)        impacted         (2022$)
                                                     (percent)                       (percent)
----------------------------------------------------------------------------------------------------------------
                                             Non-Condensing Furnaces
----------------------------------------------------------------------------------------------------------------
New Flue Vent (Metal) *.........................             100          $1,835             100            $263
----------------------------------------------------------------------------------------------------------------
                                               Condensing Furnaces
----------------------------------------------------------------------------------------------------------------
New Flue Venting (PVC)..........................             100             190             100              52
Combustion Air Venting (PVC)....................              66             358             100              52
Concealing Vent Pipes *.........................               1             206  ..............  ..............
Orphaned Water Heater...........................              46           1,380  ..............  ..............

[[Page 87569]]

 
Condensate Removal..............................             100              56             100              53
----------------------------------------------------------------------------------------------------------------
* Applied to new owner installations only.

3. Annual Energy Consumption
    For each sampled residential furnace installation, DOE determined 
the energy consumption for a NWGF or MHGF at different efficiency 
levels using the approach described previously in section IV.E of this 
document.
    Higher-efficiency furnaces reduce the operating costs for a 
consumer, which can lead to greater use of the furnace. A direct 
rebound effect occurs when a product that is made more efficient is 
used more intensively, such that the expected energy savings from the 
efficiency improvement may not fully materialize. At the same time, 
consumers benefit from increased utilization of products due to 
rebound. Overall consumer surplus (taking into account additional costs 
and benefits) is generally understood to increase from rebound. DOE 
examined a 2009 review of empirical estimates of the rebound effect for 
various energy-using products.\143\ This review concluded that the 
econometric and quasi-experimental studies suggest a mean value for the 
direct rebound effect for household heating of around 20 percent. DOE 
also examined a 2012 ACEEE paper \144\ and a 2013 paper by Thomas and 
Azevedo.\145\ Both of these publications examined the same studies that 
were reviewed by Sorrell, as well as Greening et al.,\146\ and 
identified methodological problems with some of the studies. The 
studies believed to be most reliable by Thomas and Azevedo show a 
direct rebound effect for heating products in the 1-percent to 15-
percent range, while Nadel concludes that a more likely range is 1 to 
12 percent, with rebound effects sometimes higher for low-income 
households who could not afford to adequately heat their homes prior to 
weatherization. Based on DOE's review of these recent assessments, DOE 
used a 15-percent rebound effect for NWGFs and MHGFs. This rebound is 
the same as assumed in EIA's National Energy Modeling System (NEMS) for 
residential space heating.\147\ However, for commercial applications 
DOE applied no rebound effect, consistent with other recent energy 
conservation standards rulemakings.^{148 149 150}
---------------------------------------------------------------------------

    \143\ Steven Sorrell, et al., Empirical Estimates of the Direct 
Rebound Effect: A Review, 37 Energy Policy 1356-71 (2009) (available 
at: www.sciencedirect.com/science/article/pii/S0301421508007131) 
(last accessed August 1, 2023).
    \144\ Steven Nadel, ``The Rebound Effect: Large or Small?'' 
ACEEE White Paper (August 2012) (available at: www.aceee.org/files/pdf/white-paper/rebound-large-and-small.pdf) (last accessed August 
1, 2023).
    \145\ Brinda Thomas and Ines Azevedo, Estimating Direct and 
Indirect Rebound Effects for U.S. Households with Input-Output 
Analysis, Part 1: Theoretical Framework, 86 Ecological Econ. 199-201 
(2013) (available at: www.sciencedirect.com/science/article/pii/S0921800912004764) (last accessed August 1, 2023).
    \146\ Lorna A. Greening, et al., Energy Efficiency and 
Consumption--The Rebound Effect--A Survey, 28 Energy Policy 389-401 
(2002) (available at: www.sciencedirect.com/science/article/pii/S0301421500000215) (last accessed August 1, 2023).
    \147\ See: www.eia.gov/outlooks/aeo/nems/documentation/residential/pdf/m067(2020).pdf (last accessed August 1, 2023).
    \148\ DOE. Energy Conservation Program for Certain Industrial 
Equipment: Energy Conservation Standards for Small, Large, and Very 
Large Air-Cooled Commercial Package Air Conditioning and Heating 
Equipment and Commercial Warm Air Furnaces; Direct final rule. 81 FR 
2419 (Jan. 15, 2016) (available at: www.regulations.gov/document/EERE-2013-BT-STD-0021-0055) (last accessed August 1, 2023).
    \149\ DOE. Energy Conservation Program: Energy Conservation 
Standards for Residential Boilers; Final rule. 81 FR 2319 (Jan. 15, 
2016) (available at: www.regulations.gov/document/EERE-2012-BT-STD-0047-0078) (last accessed August 1, 2023).
    \150\ DOE. Energy Conservation Program: Energy Conservation 
Standards for Commercial Packaged Boilers; Final Rule. 85 FR 1592 
(Jan. 10, 2020) (available at: www.regulations.gov/document/EERE-2013-BT-STD-0030-0099) (last accessed August 1, 2023).
---------------------------------------------------------------------------

    The LCC analysis considers increases in product and installation 
costs as well as decreases in operating costs, as directed by EPCA. In 
this analysis, DOE did not include the rebound effect in the LCC for 
the reasons that follow. Some households may increase their furnace use 
in response to increased efficiency, and as a result, not all 
households will realize the LCC savings represented in section V.B of 
this document. At the same time, those consumers will also experience a 
welfare gain from the increased utilization of the equipment, which has 
economic value. DOE includes rebound in the NIA for a conservative 
estimate of national energy savings and the corresponding impact to 
consumer NPV. See section IV.H of this document for further details.
    EPCA requires that in its evaluation of proposed energy 
conservation standards, DOE must consider the savings in operating 
costs throughout the estimated average life of the covered product in 
the type (or class) compared to any increase in the price of, or in the 
initial charges for, or maintenance expenses of, the covered products 
which are likely to result from the imposition of the standard. (42 
U.S.C. 6295(o)(2)(B)(i)(II)) That is, DOE must consider the savings 
resulting from operating a covered product that the consumer would 
purchase under the proposed standard and the costs that the consumer 
would realize from operating such a product, as compared to the costs 
that the consumer would realize from operating a product under the 
current standard. This consideration is to inform the determination of 
whether an amended standard would be economically justified.
    EPCA directs DOE to consider ``savings in operating costs'' with no 
reference as to how DOE is to consider any potential increase in value 
provided to the consumer under a proposed standard. (See 42 U.S.C. 
6295(o)(2)(B)(i)(II)) In evaluating potential changes in the operating 
costs, DOE has considered the useful output of a furnace provided to 
the consumer. The rebound effect reflects a benefit directly realized 
by the consumer in the form of increased comfort. Were DOE to adopt an 
approach that did not include a value for the additional comfort 
provided by a more-efficient furnace, the economic benefits from the 
proposed standard would have been underestimated. DOE's evaluation of 
the economic impact of a proposed standard would include the cost of 
additional fuel consumption resulting from the rebound effect, but 
would fail to recognize the additional welfare provided directly to the 
consumer from a NWGF or MHGF that

[[Page 87570]]

complies at the proposed efficiency level.
    In addition to the consideration required by 42 U.S.C. 
6295(o)(2)(B)(i)(II), EPCA directs DOE to consider the economic impact 
of the standard on manufacturers and on the consumers of the products 
subject to such standard. (42 U.S.C. 6295(o)(2)(B)(i)(I)) The economic 
impact is not narrowly defined to include only costs related to energy 
consumption. The occurrence of a rebound effect demonstrates that 
consumers value the additional output (i.e., heat) as they are paying 
for the additional heat, and resulting increase in comfort, reflected 
in their energy bills. To quantify the effects of rebound, DOE 
estimates the economic and energy savings impact in the NIA. See 
chapter 10 of the final rule TSD for more details.
4. Energy Prices
    A marginal energy price reflects the cost or benefit of adding or 
subtracting one additional unit of energy consumption. Because marginal 
electricity price more accurately captures the incremental savings 
associated with a change in energy use from higher efficiency, it 
provides a better representation of incremental change in consumer 
costs than average electricity prices. Therefore, DOE applied average 
electricity prices for the energy use of the product purchased in the 
no-new-standards case, and marginal electricity prices for the 
incremental change in energy use associated with the other efficiency 
levels considered.
    DOE derived average monthly marginal residential and commercial 
electricity, natural gas, and LPG prices for each State using data from 
EIA.^{151 152 153} DOE calculated marginal monthly regional 
energy prices by: (1) first estimating an average annual price for each 
region; (2) multiplying by monthly energy price factors, and (3) 
multiplying by seasonal marginal price factors for electricity, natural 
gas, and LPG. The analysis used historical data up to 2022 for 
residential and commercial natural gas and electricity prices and 
historical data up to 2021 for LPG prices. Further details may be found 
in chapter 8 of the final rule TSD.
---------------------------------------------------------------------------

    \151\ U.S. Department of Energy-Energy Information 
Administration, Form EIA-861M (formerly EIA-826) detailed data 
(2022) (available at: www.eia.gov/electricity/data/eia861m/) (last 
accessed August 1, 2023).
    \152\ U.S. Department of Energy-Energy Information 
Administration, Natural Gas Navigator (2022) (available at: 
www.eia.gov/naturalgas/data.php) (last accessed August 1, 2023).
    \153\ U.S. Department of Energy-Energy Information 
Administration, 2021 State Energy Data System (SEDS) (2021) 
(available at: www.eia.gov/state/seds/) (last accessed August 1, 
2023).
---------------------------------------------------------------------------

    DOE compared marginal price factors developed by DOE from the EIA 
data to develop seasonal marginal price factors for 23 gas tariffs 
provided by the Gas Technology Institute for the 2016 residential 
boilers energy conservation standards rulemaking.\154\ DOE found that 
the winter price factors used by DOE are generally comparable to those 
computed from the tariff data, indicating that DOE's marginal price 
estimates are reasonable at average usage levels. The summer price 
factors are also generally comparable. Of the 23 tariffs analyzed, 
eight have multiple tiers, and of these eight, six have ascending rates 
and two have descending rates. The tariff-based marginal factors use an 
average of the two tiers as the commodity price. A full tariff-based 
analysis would require information about the household's total baseline 
gas usage (to establish which tier the consumer is in), and a weight 
factor for each tariff that determines how many customers are served by 
that utility on that tariff. These data are generally not available in 
the public domain. DOE's use of EIA State-level data effectively 
averages overall consumer sales in each State, and so incorporates 
information from all utilities. DOE's approach is, therefore, more 
representative of a large group of consumers with diverse baseline gas 
usage levels than an approach that uses only tariffs.
---------------------------------------------------------------------------

    \154\ Gas Technology Institute (GTI) provided a reference 
located in the docket of DOE's 2016 rulemaking to develop energy 
conservation standards for residential boilers. (Docket No. EERE-
2012-BT-STD-0047-0068) (available at: www.regulations.gov/document/EERE-2012-BT-STD-0047-0068) (last accessed August 1, 2023).
---------------------------------------------------------------------------

    DOE notes that within a State, there could be significant variation 
in the marginal price factors, including differences between rural and 
urban rates. In order to take this into account, DOE developed price 
factors for each individual household and building using the annual 
RECS 2020 and CBECS 2018 energy cost and energy use data. These data 
are then normalized to match the average State price factors, which are 
equivalent to a consumption-weighted average price across all 
households in the State. For more details on the comparative analysis 
and energy price analysis, see appendix 8E of the final rule TSD.
    To estimate energy prices in future years, DOE multiplied the 2022 
energy prices by the projection of annual average price changes for 
each of the nine Census Divisions from the Reference case in AEO2023, 
which has an end year of 2050.\155\ To estimate price trends after 
2050, DOE used the average annual rate of change in prices from 2045 
through 2050. DOE also conducted sensitivity analyses using lower and 
higher energy price projections. The impact of these alternative 
scenarios is shown in appendix 8K of the final rule TSD.
---------------------------------------------------------------------------

    \155\ U.S. Department of Energy-Energy Information 
Administration, Annual Energy Outlook 2023 (available at: 
www.eia.gov/outlooks/aeo/) (last accessed August 1, 2023).
---------------------------------------------------------------------------

    NCLC and Joint Efficiency Commenters stated that DOE may be 
underestimating future costs of natural gas and, therefore, the energy 
savings from installing a more efficient furnace. (NCLC, No. 383 at pp. 
6-7; Joint Efficiency Commenters, No. 381 at p. 3) In contrast, AGA 
claimed that DOE continues to utilize energy price projections with an 
upward bias, consistently overestimates future natural gas costs, and 
should utilize price distributions instead of a mean. (AGA, No. 405 at 
pp. 90-91) In response, DOE notes that projected energy price trends 
from AEO are the best available to DOE at the time of the analysis, and 
DOE does not have any persuasive evidence to suggest these projected 
energy prices are underestimated. There is no other data set on energy 
prices of which DOE is aware that is as comprehensive or nationally 
representative as that from EIA. Furthermore, AEO provides a projection 
of future energy prices based on comprehensive macroeconomic modeling. 
Near-term projections of energy prices (as used in the LCC) tend to be 
similar to today's prices. The analysis does not use a single mean 
value, but rather the energy prices vary by State according to the 
input data. Finally, DOE conducts sensitivity analyses using high/low 
economic growth scenarios from AEO, which have higher/lower energy 
price trends.
    NYSERDA agreed that actual prices deviating from forecasted prices 
in a given year would not significantly change the analysis, especially 
over a 30-year time frame, but recommended that DOE develop and publish 
forecast accuracy estimates for energy price projections. (NYSERDA, No. 
379 at p. 10) In response, DOE acknowledges the uncertainty in energy 
price projections, but calculating formal uncertainty parameters based 
on historical editions of AEO is not necessarily informative, due to 
the constantly evolving models and input data sets. Prior forecast 
accuracy is not necessarily reflective of current models. Instead, DOE 
addresses energy price projection uncertainty with

[[Page 87571]]

the use of sensitivity scenarios, in particular the high- and low-
economic-growth sensitivity scenarios. These utilize alternative 
economic growth cases in AEO, as well as alternative energy price 
projections. The conclusions of the analysis remain the same regardless 
of the scenario.
    APGA commented that, given the need to greatly expand electricity 
infrastructure to meet electrification and clean electricity goals, it 
is dubious that AEO2021 relied on in the NOPR predicts residential 
electricity prices declining over the next 30 years. (APGA, No. 387 at 
p. 60) In response, DOE notes that the analysis has been updated with 
AEO2023, which projects increasing electricity prices in years beyond 
2030.
5. Maintenance and Repair Costs
    Repair costs are associated with repairing or replacing product 
components that have failed in an appliance; maintenance costs are 
associated with maintaining the operation of the product.
    DOE estimated maintenance costs for residential furnaces at each 
considered efficiency level using a variety of sources, including 2023 
RS Means,\156\ manufacturer literature, and information from expert 
consultants. DOE estimated the frequency of annual maintenance using 
data from RECS 2020 and the 2022 American Home Comfort Study.\157\ DOE 
accounted for the likelihood that condensing furnaces require more 
maintenance and repair than non-condensing furnaces by adding costs to 
check the secondary heat exchanger and condensate system (including 
regular replacement of the condensate neutralizer fill material). For 
repair costs, DOE included repair of the ignition, gas valve, controls, 
and inducer fan, as well as the furnace fan blower. For condensing 
repair costs, DOE assumed higher material repair costs for the 
ignition, gas valve, controls, inducer fan, and furnace fan blower, as 
well as replacing or repairing the condensate pump, if applicable. To 
determine the service lifetime of various components, DOE used a Gas 
Research Institute (``GRI'') study.\158\ For the considered standby 
mode and off mode standards, DOE assumed that no additional maintenance 
or repair is required.
---------------------------------------------------------------------------

    \156\ RS Means Company Inc., RS Means Facilities Maintenance & 
Repair Cost Data (2023) (available at: www.rsmeans.com/) (last 
accessed August 1, 2023).
    \157\ Decision Analysts, 2022 American Home Comfort Study 
(available at: www.decisionanalyst.com/Syndicated/HomeComfort/) 
(last accessed August 1, 2023).
    \158\ Jakob, F.E., J.J. Crisafulli, J.R. Menkedick, R.D. 
Fischer, D.B. Philips, R.L. Osbone, J.C. Cross, G.R. Whitacre, J.G. 
Murray, W.J. Sheppard, D.W. DeWirth, and W.H. Thrasher, Assessment 
of Technology for Improving the Efficiency of Residential Gas 
Furnaces and Boilers, Volume I and II--Appendices (September 1994) 
Gas Research Institute, Report No. GRI-94/0175 (available at: 
www.gti.energy/software-and-reports/) (last accessed August 1, 
2023).
---------------------------------------------------------------------------

    In order to validate DOE's approach, DOE did a review of 
maintenance and repair costs available from a variety of sources, 
including online resources. Overall, DOE found that the maintenance and 
repair cost estimates applied in its analysis fall within the typical 
range of published maintenance and repair charges.
    For more details on DOE's methodology for calculating maintenance 
and repair costs, including all online resources reviewed, see appendix 
8F of the TSD for this final rule.
6. Product Lifetime
    Product lifetime is the age at which an appliance is retired from 
service. DOE conducted an analysis of furnace lifetimes based on the 
methodology described in a recent journal paper.\159\ For this 
analysis, DOE relied on RECS 1990, 1993, 2001, 2005, 2009, 2015, and 
2020.\160\ DOE also used the U.S. Census's biennial American Housing 
Survey (``AHS''), from 1974-2021, which surveys all housing, noting the 
presence of a range of appliances.\161\ DOE used the appliance age data 
from these surveys, as well as the historical furnace shipments, to 
generate an estimate of the survival function. The survival function 
provides a lifetime range from minimum to maximum, as well as an 
average lifetime. DOE estimates the average product lifetime to be 21.5 
years for NWGFs and MHGFs. This estimate is consistent with the range 
of values identified in a literature review, which included values from 
16 years to 23.6 years.
---------------------------------------------------------------------------

    \159\ Lutz, J., A. Hopkins, V. Letschert, V. Franco, and A. 
Sturges, Using national survey data to estimate lifetimes of 
residential appliances, HVAC&R Research (2011) 17(5): p. 28. 
(Available at www.tandfonline.com/doi/abs/10.1080/10789669.2011.558166) (last accessed August 1, 2023).
    \160\ U.S. Department of Energy: Energy Information 
Administration, Residential Energy Consumption Survey (``RECS''), 
Multiple Years (1990, 1993, 1997, 2001, 2005, 2009, 2015, and 2020). 
(Available at www.eia.gov/consumption/residential/) (last accessed 
August 1, 2023).
    \161\ U.S. Census Bureau: Housing and Household Economic 
Statistics Division, American Housing Survey, Multiple Years (1974, 
1975, 1976, 1977, 1978, 1979, 1980, 1981, 1983, 1985, 1987, 1989, 
1991, 1993, 1995, 1997, 1999, 2001, 2003, 2005, 2007, 2009, 2011, 
2013, 2015, 2017, 2019, and 2021). (Available at www.census.gov/programs-surveys/ahs/) (last accessed August 1, 2023).
---------------------------------------------------------------------------

    To better account for differences in lifetime due to furnace 
utilization, DOE determined separate lifetimes for the North and rest 
of country (as identified in the shipments analysis) but only based on 
the difference in operating hours in the two regions. DOE assumed that 
equipment operated for fewer hours will have a longer service lifetime. 
DOE developed regional lifetime estimates by using regional shipments, 
RECS survey data, and AHS survey data and applying the methodology 
described above. More specifically, these data include AHRI shipments 
in the North and rest of country regions from 2010-2015,\162\ 2020 RECS 
data,\163\ and 2015-2021 AHS data survey data.\164\ DOE also 
incorporated lifetime data from Decision Analysts AHCS from 2006, 2008, 
2010, 2013, 2016, 2019, and 2022.\165\ The average lifetime used in 
this final rule is 22.5 years in the North and 20.2 years in the rest 
of country for both NWGFs and MHGFs (national average is 21.5 years). 
Consumer furnaces located in the North are generally higher capacity to 
meet the higher heating load, and, thus, can have lower operating 
hours. Additionally, furnace replacements in the rest of country are 
more likely to be linked to a paired central air conditioner. For these 
reasons, the consumer furnace lifetimes in the two regions differ 
slightly. DOE also conducted sensitivity analyses using a median 
lifetime of 16 years (low lifetime scenario) and 27 years (high 
lifetime scenario) for NWGFs and MHGFs (see appendix 8G in the TSD for 
this final rule).
---------------------------------------------------------------------------

    \162\ Air-Conditioning, Heating, and Refrigeration Institute, 
Non-Condensing and Condensing Regional Gas Furnace Shipments for 
2010-2015, Confidential Data Provided to Navigant Consulting (Nov. 
26, 2016).
    \163\ U.S. Department of Energy: Energy Information 
Administration, Residential Energy Consumption Survey (``RECS'') 
(2020). (Available at www.eia.gov/consumption/residential/) (last 
accessed August 1, 2023).
    \164\ U.S. Census Bureau: Housing and Household Economic 
Statistics Division, American Housing Survey, Multiple Years (2015-
2021). (Available at www.census.gov/programs-surveys/ahs/) (last 
accessed August 1, 2023).
    \165\ Decision Analysts, 2006, 2008, 2010, 2013, 2016, 2019, and 
2022 American Home Comfort Studies. (Available at 
www.decisionanalyst.com/Syndicated/HomeComfort/) (last accessed 
August 1, 2023).
---------------------------------------------------------------------------

    There is significant variation in the distribution of furnace 
lifetime, and DOE uses a Weibull distribution to account for this 
distribution of product failure. DOE accounts for this variation by 
projecting energy cost savings and health benefits through the final 
year of furnace lifetime for all products shipped in 2058 (i.e., 
through 2113).

[[Page 87572]]

    Chapter 8 of the TSD for this final rule provides further details 
on the methodology and sources DOE used to develop furnace lifetimes.
    AGPA claimed that a more complex condensing furnace with more parts 
that could break down will have a shorter life. APGA asserted that 
appliance manufacturers have explained to DOE that condensing natural 
gas appliances are more complex than their baseline counterparts, so 
the likelihood that the condensing appliance will fail is greater than 
with a non-condensing appliance. (APGA, No. 387 at pp. 49-50)
    As described in more detail in appendix 8G of the final rule TSD, 
the historical lifetime data do not show any indication that condensing 
furnace lifetimes are significantly different from non-condensing 
furnaces. The historical data cover a time period during which 
condensing furnaces gained more significant market share. As described 
in section IV.F.5 of this document, DOE included additional repair and 
maintenance costs for condensing furnaces to account for the increased 
complexity of these products, which would cover minor component 
failures that do not necessitate replacing the furnace.
    APGA asserted that DOE made an absurd conclusion that the average 
lifetime used in this NOPR is 22.5 years in the North and 20.2 years in 
the rest of country for both NWGFs and MHGFs. APGA claims that where 
furnaces run longer and harder in the North, product lifetime should be 
shorter rather than longer. (APGA, No. 387 at p. 50)
    In response, DOE notes that although the heating load is higher in 
the North compared to the rest of country, furnace sizing is also 
typically much higher. As a result, burner operating hours are not 
necessarily higher in the North than the rest of country, due to the 
increased capacity, and, thus, the furnace is not necessarily ``working 
harder'' in the North as the commenter claims. Furthermore, furnaces in 
the rest of country are more likely to be paired with an air 
conditioner, and, thus, the air handler can have significantly higher 
operating hours than in the North. Therefore, the fact that the 
lifetime is slightly lower in the rest of country is a reasonable 
result. DOE also notes that, with a slightly shorter lifetime in the 
rest of country, which typically has lower furnace operating costs 
compared to the North, DOE's estimates of LCC savings are, therefore, 
more conservative than if DOE had assumed a higher lifetime for the 
rest of country.
    AGA argued that DOE's economic analysis is highly sensitive to 
equipment lifetime assumptions, but the assumed consumer furnace 
lifetime used in that analysis is neither reasonable nor justified. 
More specifically, AGA asserted that the LCC spreadsheet incorrectly 
assumes that all consumer gas furnaces have the same lifetime 
regardless of energy efficiency. According to the commenter, since 
condensing furnaces are subject to condensing, acidic water vapor, 
contain more parts, and are generally more complex, it is unreasonable 
to assume condensing furnaces would not have a shorter lifetime than 
non-condensing furnaces. Indeed, AGA argued that the shorter lifespan 
of condensing products is well documented by actual data and studies 
that the NOPR fails to confront. AGA presented an analysis using DOE's 
LCC model spreadsheet that seeks to demonstrate that even modest 
changes in assumed equipment lifetime produce significant changes in 
the life-cycle cost savings. (AGA, No. 405 at pp. 67-70)
    In response, DOE conducted an analysis of the available data on 
furnace lifetime, including both condensing and non-condensing 
furnaces. As discussed in further detail in appendix 8G of the final 
rule TSD, DOE found no data to support a shorter lifetime for 
condensing furnaces, despite their generally more complex nature. DOE 
further notes that it presented sensitivity scenarios with alternative 
lifetime estimates in the NOPR TSD and does so again for the final rule 
TSD (see appendix 8G). With a shorter lifetime assumption, the average 
LCC savings are obviously not as large as DOE's reference case. 
However, LCC savings at the adopted standard level remain positive, 
with a similar percentage of consumers experiencing net cost, and the 
relative comparison between the potential standard levels remain the 
same. Therefore, DOE's conclusions regarding the economic justification 
for the rule remain unchanged, even under these scenarios with 
alternative lifetimes.
    APGA argued that including distant benefits beyond 2058 is contrary 
to the statute and that DOE should limit its evaluation of savings in 
operating costs to the period of the estimated average life of the 
covered product. (APGA, No. 387 at p. 15) In response, DOE clarifies 
that the LCC analysis only considers the costs and operating savings 
throughout the estimated average life of the covered product. This is 
explicitly in line with the direction of the statute. (42 U.S.C. 
6295(o)(2)(B)(i)(II)) The commenter appears to be conflating the LCC 
with national impact analysis (NIA), which additionally considers the 
aggregated national impact of products shipped over a 30 year period 
(2029-2058), in order to evaluate the total projected energy savings 
and net present value of the rule. (42 U.S.C. 6295(o)(2)(B)(i)(III)) 
Products shipped in that final year will accrue costs and savings 
beyond 2058. Both the LCC and NIA are considered as part of the 
evaluation of economic justification of potential standards.
    MHI asserted that DOE's assumption that the lifetime of a MHGF is 
the same as the lifetime of a manufactured home is incorrect, as the 
useful life of manufactured homes is increasing and is now equivalent 
to site-built housing for properly maintained homes. Therefore, MHI 
argued that manufactured homeowners will incur substantial costs when 
replacing their furnace that may be prohibitively expensive. MHI 
further argued that this could lead consumers to continue servicing old 
equipment rather than making improvements, which would negate any 
energy savings the potential standards under consideration might bring, 
as well as potentially increasing the risk of air quality concerns such 
as carbon monoxide exposure. (MHI, No. 365 at p. 4)
    In response, DOE notes that its estimate of MHGF lifetime is 
approximately 21 years on average, which is the same as for NWGFs. It 
is not directly tied to the future life expectancy of a manufactured 
home. Additionally, DOE accounts for increased installation costs when 
replacing an existing MHGF in a manufactured home with a higher-
efficiency MHGF. This accounts for the situation described by the 
commenter in which the useful life of the manufactured home is longer 
and the MHGF is replaced. DOE also acknowledges that some consumers may 
choose to continue servicing an existing MHGF rather than replace it, 
and includes this effect in its repair vs. replace methodology. This 
will reduce energy savings to some degree, although eventually, the 
MHGF will ultimately need to be replaced. Finally, DOE assumes that any 
licensed professional servicing an existing MHGF will correct any leaks 
or potential safety issues and will not allow any unsafe operation of a 
MHGF to persist.
7. Discount Rates
    In the calculation of LCC, DOE applies discount rates appropriate 
to households and commercial buildings to estimate the present value of 
future operating cost savings. The discount rate used in the LCC 
analysis represents the rate from an individual consumer's perspective. 
DOE estimated a distribution of discount rates for NWGFs and MHGFs 
based on consumer

[[Page 87573]]

financing costs and the opportunity cost of consumer funds for 
residential applications and cost of capital for commercial 
applications.
    DOE applies weighted average discount rates calculated from 
consumer debt and asset data, rather than marginal or implicit discount 
rates.\166\ DOE notes that the LCC does not analyze the appliance 
purchase decision, so the implicit discount rate is not relevant in 
this model. The LCC analysis estimates net present value over the 
lifetime of the product, so the appropriate discount rate will reflect 
the general opportunity cost of household funds, taking this time scale 
into account. Given the long time horizon modeled in the LCC, the 
application of a marginal interest rate associated with an initial 
source of funds is inaccurate. Regardless of the method of purchase, 
consumers are expected to continue to rebalance their debt and asset 
holdings over the LCC analysis period, based on the restrictions 
consumers face in their debt payment requirements and the relative size 
of the interest rates available on debts and assets. DOE estimates the 
aggregate impact of this rebalancing using the historical distribution 
of debts and assets. For commercial applications, DOE's method views 
the purchase of a higher-efficiency appliance as an investment that 
yields a stream of energy cost savings. DOE derived the discount rates 
for the LCC analysis by estimating the cost of capital for companies or 
public entities that purchase consumer boilers. For private firms, the 
weighted-average cost of capital (WACC) is commonly used to estimate 
the present value of cash flows to be derived from a typical company 
project or investment. Most companies use both debt and equity capital 
to fund investments, so their cost of capital is the weighted average 
of the cost to the firm of equity and debt financing, as estimated from 
financial data for publicly-traded firms in the sectors that purchase 
consumer boilers. As discount rates can differ across industries, DOE 
estimates separate discount rate distributions for a number of 
aggregate sectors with which elements of the LCC building sample can be 
associated.
---------------------------------------------------------------------------

    \166\ The implicit discount rate is inferred from a consumer 
purchase decision between two otherwise identical goods with 
different first cost and operating cost. It is the interest rate 
that equates the increment of first cost to the difference in net 
present value of lifetime operating cost, incorporating the 
influence of several factors: transaction costs; risk premiums and 
response to uncertainty; time preferences; interest rates at which a 
consumer is able to borrow or lend. The implicit discount rate is 
not appropriate for the LCC analysis because it reflects a range of 
factors that influence consumer purchase decisions, rather than the 
opportunity cost of the funds that are used in purchases.
---------------------------------------------------------------------------

    To establish residential discount rates for the LCC analysis, DOE 
identified all relevant household debt or asset classes in order to 
approximate a consumer's opportunity cost of funds related to appliance 
energy cost savings. DOE estimated the average percentage shares of the 
various types of debt and equity by household income group using data 
from the Federal Reserve Board's triennial Survey of Consumer Finances 
\167\ (SCF) for 1995, 1998, 2001, 2004, 2007, 2010, 2013, 2016, and 
2019. Using the SCF and other sources, DOE developed a distribution of 
rates for each type of debt and asset by income group to represent the 
rates that may apply in the year in which amended or new standards 
would take effect. DOE assigned each sample household a specific 
discount rate drawn from one of the distributions. DOE assigned each 
sample household a specific discount rate drawn from one of the 
distributions.
---------------------------------------------------------------------------

    \167\ The Federal Reserve Board, Survey of Consumer Finances 
(1995, 1998, 2001, 2004, 2007, 2010, 2013, 2016, and 2019) 
(available at: www.federalreserve.gov/econres/ scfindex.htm) (last 
accessed August 1, 2023).
---------------------------------------------------------------------------

    DOE notes that the interest rate associated with the specific 
source of funds used to purchase a furnace (i.e., the marginal rate) is 
not the appropriate metric to measure the discount rate as defined for 
the LCC analysis. The marginal interest rate alone would only be the 
relevant discount rate if the consumer were restricted from re-
balancing their debt and asset holdings (by redistributing debts and 
assets based on the relative interest rates available) over the entire 
time period modeled in the LCC analysis. The LCC is not analyzing a 
marginal decision; rather, it estimates net present value over the 
lifetime of the product, so, therefore, the discount rate needs to 
reflect the opportunity cost of both the money flowing in (through 
operating cost savings) and out (through upfront cost expenditures) of 
the net present value calculation. In the context of the LCC analysis, 
the consumer is not only discounting based on their opportunity cost of 
money spent today, but instead, they are additionally discounting the 
stream of future benefits. A consumer might pay for an appliance with 
cash, thereby forgoing investment of those funds into one of the 
interest earning assets to which they might have access. Alternatively, 
a consumer might pay for the initial purchase by going into debt, 
subject to the cost of capital at the interest rate relevant for that 
purchase. However, a consumer will also receive a stream of future 
benefits in terms of annual operating cost savings that they could 
either put towards paying off that or other debts, or towards assets, 
depending on the restrictions they face in their debt payment 
requirements and the relative size of the interest rates on their debts 
and assets. All of these interest rates are relevant in the context of 
the LCC analysis, as they all reflect direct costs of borrowing, or 
opportunity costs of money either now or in the future. Additionally, 
while a furnace itself is not a readily tradable commodity, the money 
used to purchase it and the annual operating cost savings accruing to 
it over time flow from and to a household's pool of debt and assets, 
including mortgages, mutual funds, money market accounts, etc. 
Therefore, the weighted-average interest rate on debts and assets 
provides a reasonable estimate for a household's opportunity cost (and 
discount rate) relevant to future costs and savings. The best proxy for 
this re-optimization of debt and asset holdings over the lifetime of 
the LCC analysis is to assume that the distribution of debts and assets 
in the future will be proportional to the distribution of debts and 
assets historically. Given the long time horizon modeled in the LCC, 
the application of a marginal rate alone would be inaccurate. DOE's 
methodology for deriving residential discount rates is in line with the 
weighted-average cost of capital used to estimate commercial discount 
rates. The average rate in this final rule analysis across all types of 
household debt and equity and across all income groups, weighted by the 
shares of each type, is 4.0 percent for NWGFs and 4.5 percent for 
MHGFs.
    To establish commercial discount rates for the small fraction of 
NWGFs installed in commercial buildings, DOE estimated the weighted-
average cost of capital using data from Damodaran Online.\168\ The 
weighted-average cost of capital is commonly used to estimate the 
present value of cash flows to be derived from a typical company 
project or investment. Most companies use both debt and equity capital 
to fund investments, so their cost of capital is the weighted average 
of the cost to the firm of equity and debt financing. DOE estimated the 
cost of equity using the capital asset pricing model, which assumes 
that the cost of equity for a particular company is proportional to the 
systematic risk faced by that company. DOE's commercial discount rate 
approach is based on the

[[Page 87574]]

methodology described in a LBNL report, and the distribution varies by 
business activity.\169\ The average rate for NWGFs used in commercial 
applications in this final rule analysis, across all business activity, 
is 6.7 percent.
---------------------------------------------------------------------------

    \168\ Damodaran Online, Data Page: Costs of Capital by Industry 
Sector (2022) (available at: pages.stern.nyu.edu/~adamodar/) (last 
accessed August 1, 2023).
    \169\ Fujita, K. Sydny. Commercial, Industrial, and 
Institutional Discount Rate Estimation for Efficiency Standards 
Analysis: Sector-Level Data 1998-2022. 2023. (Available at: eta-publications.lbl.gov/publications/commercial-industrial-and-2) (last 
accessed August 1, 2023).
---------------------------------------------------------------------------

    See chapter 8 and appendix 8H of the final rule TSD for further 
details on the development of consumer and commercial discount rates.
8. Energy Efficiency Distribution in the No-New-Standards Case
    To accurately estimate the share of consumers that would be 
affected by a potential energy conservation standard at a particular 
efficiency level, DOE's LCC analysis considered the projected 
distribution (i.e., market shares) of product efficiencies under the 
no-new-standards case (i.e., the case without amended or new energy 
conservation standards) in the compliance year (2029). This approach 
reflects the fact that some consumers may purchase products with 
efficiencies greater than the baseline levels, such that even in a no-
new-standards case, consumers will be purchasing higher-efficiency 
furnaces.
    To estimate the effect of a potential standard, DOE must estimate 
not only the expected market share of products at varying efficiencies, 
but also estimate how such products will be used--that is, in what 
buildings. The base case reflects three analytical steps: (1) an 
estimate of the buildings likely to use furnaces, (2) an estimate of 
the efficiency of the furnaces that would be sold absent the rule; and 
(3) the matching of particular furnace efficiencies with particular 
building types.
    Each building in the sample was assigned a furnace efficiency 
sampled from the no-new-standards-case efficiency distribution for the 
appropriate product class, either NWGFs or MHGFs. In assigning furnace 
efficiencies, DOE determined that, based on the presence of well-
understood market failures (discussed at the end of this section), a 
random assignment of efficiencies, with some modifications discussed 
below, best accounts for consumer behavior in the consumer furnaces 
market. Random assignment of efficiencies reflects the full range of 
consumer behaviors in this market, including consumers who make 
economically beneficial decisions and consumers that, due to market 
failures, do not make such economically beneficial decisions.
    The LCC Monte Carlo simulations draw from the efficiency 
distributions and randomly assign an efficiency to the consumer 
furnaces purchased by each sample household and commercial building in 
the no-new-standards case. The resulting percentage shares within the 
sample match the market shares in the efficiency distributions. But, as 
mentioned previously, DOE considered available data in determining 
whether any modifications should be made to the random assignment 
methodology, as discussed in the following sections.
a. Condensing Furnace Market Share in Compliance Year
    To estimate the efficiency distribution of NWGFs and MHGFs in 2029, 
DOE considered the market trends regarding increased sales of high-
efficiency furnaces (including any available incentives). DOE relied on 
data provided by AHRI on historical shipments for each product class. 
DOE reviewed AHRI data from 1992 and 1994-2003 (which includes both 
NWGF and MHGF shipments data), detailing the market shares of non-
condensing \170\ and condensing (90-percent AFUE and greater) furnaces 
by State.\171\ AHRI also provided data for non-condensing and 
condensing furnace shipments by region for 2004-2009 \172\ and 
nationally for 2010-2014.\173\ AHRI additionally submitted proprietary 
data including shipments of condensing and non-condensing furnaces in 
the North and rest of country regions from 2010 to 2015.\174\ DOE also 
obtained 2013-2022 HARDI shipments data by efficiency for most 
States.\175\ AHRI and HARDI data capture different fractions of the 
market. Using the shipments data from AHRI and HARDI, DOE derived 
historical trends for each State. DOE used the HARDI State-level data 
(2013-2022) to project the trends and to estimate the condensing 
furnace market share in 2029. This excludes years with a Federal tax 
incentive ^{176 177} in order to better reflect the trends of 
the current market. The maximum share of condensing furnace shipments 
for each region was assumed to be 95 percent, in order to reflect a 
small fraction of the market that would continue to install non-
condensing furnaces. See chapter 8 and appendix 8I of the TSD for this 
final rule for further information on the derivation of the efficiency 
distribution projections.
---------------------------------------------------------------------------

    \170\ The market share of furnaces with AFUE between 80 and 90 
percent is well below 1 percent due to the very high installed cost 
of 81-percent AFUE furnaces, compared with condensing designs, and 
concerns about safety of operation. AHRI also provided national 
shipments data (not disaggregated by region) by efficiency for 1975, 
1978, 1980, 1983-1991, and 1993.
    \171\ Air-Conditioning, Heating, and Refrigeration Institute 
(formerly Gas Appliance Manufacturers Association), Updated 
Shipments Data for Residential Furnaces and Boilers (April 25, 2005) 
(available at www.regulations.gov/document/EERE-2006-STD-0102-0138) 
(last accessed August 1, 2023).
    \172\ Air-Conditioning, Heating, and Refrigeration Institute, 
Non-Condensing and Condensing Regional Gas Furnace Shipments for 
2004-2009 Data Provided to DOE (July 20, 2010).
    \173\ Air-Conditioning, Heating, and Refrigeration Institute, 
Non-Condensing and Condensing Gas Furnace Shipments for 2010-2014. 
(Available at www.regulations.gov/document/EERE-2014-BT-STD-0031-0052) (last accessed August 1, 2023).
    \174\ Air-Conditioning, Heating, and Refrigeration Institute, 
Non-Condensing and Condensing Regional Gas Furnace Shipments for 
2010-2015, Confidential Data Provided to Navigant Consulting (Nov. 
26, 2016).
    \175\ Heating, Air-conditioning and Refrigeration Distributors 
International (HARDI), DRIVE portal (HARDI Visualization Tool 
managed by D+R International until 2022), proprietary Gas Furnace 
Shipments Data from 2013-2022 provided to Lawrence Berkeley National 
Laboratory (LBNL).
    \176\ DOE did not use the data for 2008-2011 because these data 
appear to be influenced by incentives. AHRI also stated the period 
from 2008 through 2011 was an outlier. (AHRI, No. 303 at pp. 23-25).
    \177\ The Energy Policy Act of 2005 established the tax credit 
for energy improvements to existing homes. The credit was originally 
limited to purchases made in 2006 and 2007, with an aggregate cap of 
$500 for all qualifying purchases made in these two years combined. 
For improvements made in 2009 and 2010, the cap was increased to 
$1,500. This coincides with a sharp increase in condensing furnace 
shipments. This credit has since been renewed several times, but the 
credit was reduced to its original form and original cap of $500 
starting in 2011. More information is available at www.energy.gov/savings/dsire-page (last accessed August 1, 2023).
---------------------------------------------------------------------------

    APGA argued that DOE used insufficient shipments data to estimate 
the share of condensing furnaces in the country, relying only on data 
from 2010-2014, and as a result, there is considerable reason to doubt 
the results of the analysis. (APGA, No. 387 at p. 13) In response, DOE 
notes that the commenter misunderstands the analysis. As detailed 
above, DOE utilizes significantly more historical shipment data than 
only 2010-2014, data which are disaggregated by efficiency in order to 
estimate the current and projected market share of condensing furnaces 
in the no-new-standards case. In particular, DOE includes shipment data 
by efficiency up to 2022 in its analysis.
b. Market Shares of Different Condensing Furnace Efficiency Levels
    DOE used data on the shipments by efficiency from the 2013-2022 
HARDI shipments to disaggregate the condensing furnace shipments among

[[Page 87575]]

the different condensing efficiency levels. Based on stakeholder input, 
DOE assumed that the fraction of furnace shipments of 95-percent or 
higher AFUE would be double in the new construction market. DOE also 
assumed that the fraction of furnace shipments of 95-percent or higher 
AFUE would be higher in the North compared to the South, because the 
threshold for ENERGY STAR designation in the North is 95-percent AFUE 
compared to 90-percent AFUE in the South. The resulting distributions 
were then used to assign the new furnace AFUE for each sampled 
household or building in the no-new-standards case, both in the 
replacement and new construction markets, and in each of the 50 States 
and Washington, DC.
    The estimated market shares by region (North and rest of country) 
and market segment (replacement and new construction) for the no-new-
standards case for NWGFs and MHGFs in 2029 are shown in Tables IV.11 
and IV.12 of this document, respectively. DOE estimated that the 
national market share of condensing products would be 61 percent in 
2029 for NWGFs, and 34 percent for MHGFs. See chapter 8 and appendix 8I 
of the final rule TSD for further information on the derivation of the 
efficiency distributions.

     Table IV--10 AFUE Efficiency Distribution in the No-New-Standards Case for Non-Weatherized Gas Furnaces
----------------------------------------------------------------------------------------------------------------
                                                                    2029 Market share (percent)
           Efficiency, AFUE (percent)            ---------------------------------------------------------------
                                                    North, repl     North, new      South, repl     South, new
----------------------------------------------------------------------------------------------------------------
                                               Residential Market
----------------------------------------------------------------------------------------------------------------
80..............................................            25.0            15.9            67.8            33.9
90..............................................             0.4             0.2             0.1             0.1
92..............................................            17.9            19.9            10.6            23.5
95..............................................            55.3            62.4            20.2            39.4
98..............................................             1.4             1.5             1.3             3.2
----------------------------------------------------------------------------------------------------------------
                                                Commercial Market
----------------------------------------------------------------------------------------------------------------
80..............................................            22.3            11.8            67.5            34.0
90..............................................             1.7             0.0             0.0             0.0
92..............................................            17.8            17.6            11.9            17.0
95..............................................            58.3            70.6            20.6            44.7
98..............................................             0.0             0.0             0.0             4.3
----------------------------------------------------------------------------------------------------------------
                                                       All
----------------------------------------------------------------------------------------------------------------
80..............................................            24.8            15.6            67.8            33.9
90..............................................             0.5             0.2             0.1             0.1
92..............................................            17.8            19.7            10.7            23.2
95..............................................            55.5            63.1            20.2            39.6
98..............................................             1.4             1.4             1.2             3.2
----------------------------------------------------------------------------------------------------------------
Note: ``Repl'' means ``replacement,'' and ``New'' means ``new construction.''


       Table IV--11 AFUE Efficiency Distribution in the No-New-Standards Case for Mobile Home Gas Furnaces
----------------------------------------------------------------------------------------------------------------
                                                                    2029 Market share (percent)
           Efficiency, AFUE (percent)            ---------------------------------------------------------------
                                                    North, repl     North, new      South, repl     South, new
----------------------------------------------------------------------------------------------------------------
80..............................................            58.2            57.2            83.7            85.2
90..............................................             0.0             0.0             0.0             0.0
92..............................................             9.4             9.1             5.5             4.8
95..............................................            31.3            32.2             8.7             8.7
96..............................................             1.1             1.5             2.0             1.3
----------------------------------------------------------------------------------------------------------------
Note: ``Repl'' means ``replacement,'' and ``New'' means ``new construction.''

    MHI argued that manufactured homes already offer high-efficiency 
options, and that over 30 percent of manufactured homes meet or exceed 
EnergyStar Standards (MHI, No. 365 at p. 2)
    The DCA commented that consumers are already installing higher-
efficiency furnaces across the country. (DCA, No. 372 at p. 1) NYSERDA 
similarly stated that the proposed standard's efficiency levels are 
already being met by a significant share of the New York market. 
(NYSERDA, No. 379 at p. 1) CEC commented that furnaces capable of 
meeting the proposed standards are already commercially available on 
the market, and that condensing furnaces have been required in Canada 
for over a decade. (CEC, No. 382 at p. 2)
    In response, DOE acknowledges that some consumers are already 
purchasing furnaces at an efficiency level equal to or greater than the 
standard level proposed in the NOPR and accounts for these consumers in 
the analysis. Such consumers are not impacted by the rule and are not 
included in the estimate of average LCC savings. As the commenters 
suggest, the availability of these high-efficiency furnaces on the 
market demonstrates their technological feasibility in the context of 
DOE's

[[Page 87576]]

consideration of amended energy conservation standards for NWGFs and 
MHGFs pursuant to EPCA at a national level.
c. Assignment of Furnace Efficiency to Sampled Households
    For this final rule, DOE continued to assign furnace efficiency to 
households in the no-new-standards case in two steps, first at the 
State level, then at the building-specific level. However, DOE's 
approach was modified to include other household characteristics. The 
market share of each efficiency level at the State level is based on 
historical shipments data (from the 2013-2022 HARDI data) and an 
estimated projection of trends between 2022 and the compliance year. 
The furnace efficiency distribution is then allocated to specific RECS 
households or CBECS, according to the market shares generated for each 
State. In some States, the market share of condensing furnaces is very 
high, and, therefore, most households in that State in the LCC analysis 
will be assigned a condensing furnace in the no-new-standards case. If 
a household is assigned a condensing furnace in the no-new-standards 
case, the replacement furnace is assumed to be condensing as well.
    To assign the efficiency at the building-specific level, DOE 
carefully considered any available data that might improve assignment 
of furnace efficiency in the LCC analysis. First, DOE examined the 
2013-2022 HARDI data of gas furnace input capacity by efficiency level 
and region. DOE did not find a significant correlation between input 
capacity and condensing furnace market share in a given region, a 
correlation that might be expected a priori since buildings with larger 
furnace input capacity are more likely to be larger and have greater 
energy consumption. DOE next considered the GTI data submitted to DOE 
for 21 Illinois households, which included the efficiency of the 
furnace (AFUE), size of the furnace (input capacity), square footage of 
the house, and annual energy use.\178\ Recognizing the relatively small 
sample size, DOE notes that these data exhibit no significant 
correlations between furnace efficiency and other household 
characteristics (with most furnace installations in this sample being 
non-condensing furnaces with high energy use). DOE also considered 
other data of furnace efficiency compared to household characteristics 
for other parts of the country, including the NEEA Database and permit 
data (see appendix 8I of the TSD for this final rule for more details). 
These data also suggest little to no correlation between furnace 
efficiency and household characteristics or economic factors. Finally, 
DOE considered the 2019 AHCS survey data.\179\ This survey includes 
questions to recent purchasers of HVAC equipment regarding the 
perceived efficiency of their equipment (Standard, High, and Super-High 
Efficiency), as well as questions related to various household and 
demographic characteristics. From these data, DOE did find a 
statistically significant, albeit weak, correlation: Households with 
larger square footage exhibited a slightly higher fraction of High or 
Super-High efficiency equipment installed. Specifically, the lower 
third of the square footage bins was five percent less likely to 
install higher efficiency units as compared to the middle third of the 
square footage bins, while the upper third of square footage bins was 
five percent more likely to do so than the middle square footage bin. 
Therefore, DOE used the AHCS data to adjust its furnace efficiency 
distributions as follows: (1) the market share of condensing equipment 
for households under 1,500 sq. ft. was decreased by five percentage 
points; and (2) the market share of condensing equipment for households 
above 2,500 sq. ft. was increased by five percentage points; however, 
DOE continued to maintain the same aggregate State-level efficiency 
distribution. For example, if a given State has a condensing market 
share of 50 percent based on the shipments data, the probability of any 
one household in that State being assigned a condensing furnace in the 
no-new-standards case is 50 percent. However, if the household is 
larger than 2,500 sq. ft., that probability increases to 55 percent 
instead. This adjustment preferentially assigns condensing furnaces 
within a given State to larger households (with presumably larger 
energy consumption) in the no-new-standards case, and preferentially 
assigns non-condensing furnaces to smaller households. This adjustment 
results in a more conservative estimate of potential energy savings.
---------------------------------------------------------------------------

    \178\ Gas Technology Institute (GTI), Empirical Analysis of 
Natural Gas Furnace Sizing and Operation, GTI-16/0003 (November 
2016) (available at: www.regulations.gov/document/EERE-2014-BT-STD-0031-0309) (last accessed August 1, 2023).
    \179\ Decision Analysts, 2019 American Home Comfort Studies 
(available at: www.decisionanalyst.com/Syndicated/HomeComfort/) 
(last accessed August 1, 2023).
---------------------------------------------------------------------------

    Beyond this adjustment of the probability distribution, which is 
bounded by the shipments data, the assignment of furnace efficiency to 
a given household is performed according to the random-assignment 
method described in this section.
    While DOE acknowledges that economic factors may play a role when 
consumers, commercial building owners, or builders decide on what type 
of furnace to install, assignment of furnace efficiency for a given 
installation, based solely on economic measures such as life-cycle cost 
or simple payback period most likely would not fully and accurately 
reflect actual real-world installations. There are a number of market 
failures discussed in the economics literature, as discussed in the 
July 2022 NOPR and summarized below, that illustrate how purchasing 
decisions with respect to energy efficiency are unlikely to be 
perfectly correlated with energy use, as described subsequently. DOE 
maintains that the method of assignment, which is in part random, is a 
reasonable approach. It simulates behavior in the furnace market, where 
market failures result in purchasing decisions not being perfectly 
aligned with economic interests, and it does so more realistically than 
relying only on apparent cost-effectiveness criteria derived from the 
limited information in CBECS or RECS. DOE further emphasizes that its 
approach does not assume that all purchasers of furnaces make 
economically irrational decisions (i.e., the lack of a correlation is 
not the same as a negative correlation). As part of the random 
assignment, some homes or buildings with large heating loads will be 
assigned higher-efficiency furnaces, and some homes or buildings with 
particularly low heating loads will be assigned baseline furnaces, 
which aligns with the available data. By using this approach, DOE 
acknowledges the uncertainty inherent in the data and minimizes any 
bias in the analysis by using random assignment, as opposed to assuming 
certain market conditions that are unsupported by the available 
evidence.
    The following discussion provides more detail about the various 
market failures that affect consumer furnace purchases. First, 
consumers are motivated by more than simple financial trade-offs. There 
are consumers who are willing to pay a premium for more energy-
efficient products because they are environmentally conscious.\180\ 
There are also several behavioral factors that can influence the 
purchasing decisions

[[Page 87577]]

of complicated multi-attribute products, such as furnaces. For example, 
consumers (or decision makers in an organization) are highly influenced 
by choice architecture, defined as the framing of the decision, the 
surrounding circumstances of the purchase, the alternatives available, 
and how they are presented for any given choice scenario.\181\ The same 
consumer or decision maker may make different choices depending on the 
characteristics of the decision context (e.g., the timing of the 
purchase, competing demands for funds), which have nothing to do with 
the characteristics of the alternatives themselves or their prices. 
Consumers or decision makers also face a variety of other behavioral 
phenomena including loss aversion, sensitivity to information salience, 
and other forms of bounded rationality.\182\ Thaler, who won the Nobel 
Prize in Economics in 2017 for his contributions to behavioral 
economics, and Sunstein point out that these behavioral factors are 
strongest when the decisions are complex and infrequent, when feedback 
on the decision is muted and slow, and when there is a high degree of 
information asymmetry.\183\ These characteristics describe almost all 
purchasing situations of appliances and equipment, including furnaces. 
The installation of a new or replacement furnace is done very 
infrequently, as evidenced by the mean lifetime of 21.5 years for NWGFs 
and MHGFs. Additionally, it would take at least one full heating season 
for any impacts on operating costs to be fully apparent. Further, if 
the purchaser of the furnace is not the entity paying the energy costs 
(e.g., a building owner and tenant), there may be little to no feedback 
on the purchase. Additionally, there are systematic market failures 
that are likely to contribute further complexity to how products are 
chosen by consumers, as explained in the following paragraphs. The 
first of these market failures--the split-incentive or principal-agent 
problem--is likely to affect furnaces more than many other types of 
appliances. The principal-agent problem is a market failure that 
results when the consumer that purchases the equipment does not 
internalize all of the costs associated with operating the equipment. 
Instead, the user of the product, who has no control over the purchase 
decision, pays the operating costs. There is a high likelihood of 
split-incentive problems in the case of rental properties where the 
landlord makes the choice of what furnace to install, whereas the 
renter is responsible for paying energy bills. In the LCC sample, 18.1 
percent of households with a NWGF and 19.8 percent of households with a 
MHGF are renters. These fractions are significantly higher for low-
income households (see section IV.I.1 of this document). In new 
construction, builders influence the type of furnace used in many homes 
but do not pay operating costs. Finally, contractors install a large 
share of furnaces in replacement situations, and they can exert a high 
degree of influence over the type of furnace purchased.
---------------------------------------------------------------------------

    \180\ Ward, D.O., Clark, C.D., Jensen, K.L., Yen, S.T., & 
Russell, C.S. (2011): ``Factors influencing willingness-to pay for 
the ENERGY STAR[supreg] label,'' Energy Policy, 39 (3), 1450-1458 
(available at: www.sciencedirect.com/science/article/abs/pii/S0301421510009171) (last accessed August 1, 2023).
    \181\ Thaler, R.H., Sunstein, C.R., and Balz, J.P. (2014). 
``Choice Architecture'' in The Behavioral Foundations of Public 
Policy, Eldar Shafir (ed).
    \182\ Thaler, R.H., and Bernartzi, S. (2004). ``Save More 
Tomorrow: Using Behavioral Economics in Increase Employee Savings,'' 
Journal of Political Economy 112(1), S164-S187. See also Klemick, 
H., et al. (2015) ``Heavy-Duty Trucking and the Energy Efficiency 
Paradox: Evidence from Focus Groups and Interviews,'' Transportation 
Research Part A: Policy & Practice, 77, 154-166 (providing evidence 
that loss aversion and other market failures can affect otherwise 
profit-maximizing firms).
    \183\ Thaler, R.H., and Sunstein, C.R. (2008). Nudge: Improving 
Decisions on Health, Wealth, and Happiness. New Haven, CT: Yale 
University Press.
---------------------------------------------------------------------------

    In addition to the split-incentive problem, there are other market 
failures that are likely to affect the choice of furnace efficiency 
made by consumers. For example, emergency replacements of essential 
equipment such as a furnace in the heating season are strongly biased 
toward like-for-like replacement (i.e., replacing the non-functioning 
equipment with a similar or identical product). Time is a constraining 
factor during emergency replacements, and consumers may not consider 
the full range of available options on the market, despite their 
availability. The consideration of alternative product options is far 
more likely for planned replacements and installations in new 
construction.
    Additionally, Davis and Metcalf \184\ conducted an experiment 
demonstrating that the nature of the information available to consumers 
from EnergyGuide labels posted on air conditioning equipment results in 
an inefficient allocation of energy efficiency across households with 
different usage levels. Their findings indicate that households are 
likely to make decisions regarding the efficiency of the climate-
control equipment of their homes that do not result in the highest net 
present value for their specific usage pattern (i.e., their decision is 
based on imperfect information and, therefore, is not necessarily 
optimal). Also, most consumers did not properly understand the labels 
(specifically whether energy consumption and cost estimates were 
national averages or specific to their State). As such, consumers did 
not make the most informed decisions.
---------------------------------------------------------------------------

    \184\ Davis, L.W., and G.E. Metcalf (2016): ``Does better 
information lead to better choices? Evidence from energy-efficiency 
labels,'' Journal of the Association of Environmental and Resource 
Economists, 3(3), 589-625 (available at: www.journals.uchicago.edu/doi/full/10.1086/686252) (last accessed August 1, 2023).
---------------------------------------------------------------------------

    In part because of the way information is presented, and in part 
because of the way consumers process information, there is also a 
market failure consisting of a systematic bias in the perception of 
equipment energy usage, which can affect consumer choices. Attari et 
al.\185\ show that consumers tend to underestimate the energy use of 
large energy-intensive appliances (such as central air conditioners), 
but overestimate the energy use of small appliances. Therefore, it is 
possible that consumers systematically underestimate the energy use 
associated with furnaces, resulting in less cost-effective furnace 
purchases.
---------------------------------------------------------------------------

    \185\ Attari, S.Z., M.L. DeKay, C.I. Davidson, and W. Bruine de 
Bruin (2010): ``Public perceptions of energy consumption and 
savings.'' Proceedings of the National Academy of Sciences 107(37), 
16054-16059 (available at: www.pnas.org/content/107/37/16054) (last 
accessed August 1, 2023).
---------------------------------------------------------------------------

    These market failures affect a sizeable share of the consumer 
population. A study by Houde \186\ indicates that there is a 
significant subset of consumers that appear to purchase appliances 
without taking into account their energy efficiency and operating costs 
at all.
---------------------------------------------------------------------------

    \186\ Houde, S. (2018): ``How Consumers Respond to Environmental 
Certification and the Value of Energy Information,'' The RAND 
Journal of Economics, 49 (2), 453-477 (available at: 
onlinelibrary.wiley.com/doi/full/10.1111/1756-2171.12231) (last 
accessed August 1, 2023).
---------------------------------------------------------------------------

    There are market failures relevant to furnaces installed in 
commercial applications as well. It is often assumed that because 
commercial and industrial customers are businesses that have trained or 
experienced individuals making decisions regarding investments in cost-
saving measures, some of the commonly observed market failures present 
in the general population of residential customers should not be as 
prevalent in a commercial setting. However, there are many 
characteristics of organizational structure and historic circumstance 
in commercial settings that can lead to underinvestment in energy 
efficiency.
    First, a recognized problem in commercial settings is the 
principal-agent problem, where the building owner (or building 
developer) selects the equipment and the tenant (or subsequent building 
owner) pays for

[[Page 87578]]

energy costs.^{187 188} Indeed, more than a quarter of 
commercial buildings in the CBECS 2018 sample are occupied at least in 
part by a tenant, not the building owner (indicating that, in DOE's 
experience, the building owner likely is not responsible for paying 
energy costs). Additionally, some commercial buildings have multiple 
tenants. There are other similarly misaligned incentives embedded in 
the organizational structure within a given firm or business that can 
impact the choice of a furnace. For example, if one department or 
individual within an organization is responsible for capital 
expenditures (and therefore equipment selection) while a separate 
department or individual is responsible for paying the energy bills, a 
market failure similar to the principal-agent problem can result.\189\ 
Additionally, managers may have other responsibilities and often have 
other incentives besides operating cost minimization, such as 
satisfying shareholder expectations, which can sometimes be focused on 
short-term returns.\190\ Decision-making related to commercial 
buildings is highly complex and involves gathering information from and 
for a variety of different market actors. It is common to see 
conflicting goals across various actors within the same organization, 
as well as information asymmetries between market actors in the energy 
efficiency context in commercial building construction.\191\
---------------------------------------------------------------------------

    \187\ Vernon, D., and Meier, A. (2012). ``Identification and 
quantification of principal-agent problems affecting energy 
efficiency investments and use decisions in the trucking industry,'' 
Energy Policy, 49, 266-273.
    \188\ Blum, H. and Sathaye, J. (2010). ``Quantitative Analysis 
of the Principal-Agent Problem in Commercial Buildings in the U.S.: 
Focus on Central Space Heating and Cooling,'' Lawrence Berkeley 
National Laboratory, LBNL-3557E (available at: escholarship.org/uc/item/6p1525mg) (last accessed August 1, 2023).
    \189\ Prindle, B., Sathaye, J., Murtishaw, S., Crossley, D., 
Watt, G., Hughes, J., and de Visser, E. (2007). ``Quantifying the 
effects of market failures in the end-use of energy,'' Final Draft 
Report Prepared for International Energy Agency (Available from 
International Energy Agency, Head of Publications Service, 9 rue de 
la Federation, 75739 Paris, Cedex 15 France).
    \190\ Bushee, B.J. (1998). ``The influence of institutional 
investors on myopic R&D investment behavior,'' Accounting Review, 
305-333. DeCanio, S.J. (1993). ``Barriers Within Firms to Energy 
Efficient Investments,'' Energy Policy, 21(9), 906-914 (explaining 
the connection between short-termism and underinvestment in energy 
efficiency).
    \191\ International Energy Agency (IEA). (2007). Mind the Gap: 
Quantifying Principal-Agent Problems in Energy Efficiency. OECD Pub. 
(available at www.iea.org/reports/mind-the-gap) (last accessed 
August 1, 2023).
---------------------------------------------------------------------------

    Second, the nature of the organizational structure and design can 
influence priorities for capital budgeting, resulting in choices that 
do not necessarily maximize profitability.\192\ Even factors as simple 
as unmotivated staff or lack of priority-setting and/or a lack of a 
long-term energy strategy can have a sizable effect on the likelihood 
that an energy-efficient investment will be undertaken.\193\ U.S. tax 
rules for commercial buildings may incentivize lower capital 
expenditures, since capital costs must be depreciated over many years, 
whereas operating costs can be fully deducted from taxable income or 
passed through directly to building tenants.\194\
---------------------------------------------------------------------------

    \192\ DeCanio, S.J. (1994). ``Agency and control problems in 
U.S. corporations: the case of energy-efficient investment 
projects,'' Journal of the Economics of Business, 1(1), pp. 105-124.
    Stole, L.A., and Zwiebel, J. (1996). ``Organizational design and 
technology choice under intrafirm bargaining,'' The American 
Economic Review, 195-222.
    \193\ Rohdin, P., and Thollander, P. (2006). ``Barriers to and 
driving forces for energy efficiency in the non-energy intensive 
manufacturing industry in Sweden,'' Energy, 31(12), 1836-1844.
    Takahashi, M. and Asano, H. (2007). ``Energy Use Affected by 
Principal-Agent Problem in Japanese Commercial Office Space 
Leasing,'' In Quantifying the Effects of Market Failures in the End-
Use of Energy. American Council for an Energy-Efficient Economy. 
February 2007.
    Visser, E. and Harmelink, M. (2007). ``The Case of Energy Use in 
Commercial Offices in the Netherlands,'' In Quantifying the Effects 
of Market Failures in the End-Use of Energy. American Council for an 
Energy-Efficient Economy. February 2007.
    Bjorndalen, J. and Bugge, J. (2007). ``Market Barriers Related 
to Commercial Office Space Leasing in Norway,'' In Quantifying the 
Effects of Market Failures in the End-Use of Energy. American 
Council for an Energy-Efficient Economy. February 2007.
    Schleich, J. (2009). ``Barriers to energy efficiency: A 
comparison across the German commercial and services sector,'' 
Ecological Economics, 68(7), pp. 2150-2159.
    Muthulingam, S., et al. (2013). ``Energy Efficiency in Small and 
Medium-Sized Manufacturing Firms,'' Manufacturing & Service 
Operations Management, 15(4), pp. 596-612 (finding that manager 
inattention contributed to the non-adoption of energy efficiency 
initiatives).
    Boyd, G.A., Curtis, E.M. (2014). ``Evidence of an `energy 
management gap'in U.S. manufacturing: Spillovers from firm 
management practices to energy efficiency,'' Journal of 
Environmental Economics and Management, 68(3), pp. 463-479.
    \194\ Lovins, A. (1992). Energy-Efficient Buildings: 
Institutional Barriers and Opportunities (available at: rmi.org/insight/energy-efficient-buildings-institutional-barriers-and-opportunities/) (last accessed August 1, 2023).
---------------------------------------------------------------------------

    Third, there are asymmetric information and other potential market 
failures in financial markets in general, which can affect decisions by 
firms with regard to their choice among alternative investment options, 
with energy efficiency being one such option.\195\ Asymmetric 
information in financial markets is particularly pronounced with regard 
to energy efficiency investments.\196\ There is a dearth of information 
about risk and volatility related to energy-efficiency investments, and 
energy efficiency investment metrics may not be as visible to 
investment managers,\197\ which can bias firms towards more certain or 
familiar options. This market failure results not because the returns 
from energy efficiency as an investment are inherently riskier, but 
because information about the risk itself tends not to be available in 
the same way it is for other types of investment, like stocks or bonds. 
In some cases, energy efficiency is not a formal investment category 
used by financial managers, and if there is a formal category for 
energy efficiency within the investment portfolio options assessed by 
financial managers, they are seen as weakly strategic and not seen as 
likely to increase competitive advantage.\198\ This information 
asymmetry extends to commercial investors, lenders, and real-estate 
financing, which is biased against new and perhaps unfamiliar 
technology (even though it may be economically beneficial).\199\ 
Another market failure known as the first-mover disadvantage can 
exacerbate this bias against adopting new technologies, as the 
successful integration of new technology in a particular context by one 
actor generates

[[Page 87579]]

information about cost-savings, and other actors in the market can then 
benefit from that information by following suit; yet because the first 
to adopt a new technology bears the risk but cannot keep to themselves 
all the informational benefits, firms may inefficiently underinvest in 
new technologies.\200\
---------------------------------------------------------------------------

    \195\ Fazzari, S.M., Hubbard, R.G., Petersen, B.C., Blinder, 
A.S., and Poterba, J.M. (1988). ``Financing constraints and 
corporate investment,'' Brookings Papers on Economic Activity, 
1988(1), 141-206.
    Cummins, J.G., Hassett, K.A., Hubbard, R.G., Hall, R.E., and 
Caballero, R.J. (1994). ``A reconsideration of investment behavior 
using tax reforms as natural experiments,'' Brookings Papers on 
Economic Activity, 1994(2), 1-74.
    DeCanio, S.J., and Watkins, W.E. (1998). ``Investment in energy 
efficiency: do the characteristics of firms matter?'' Review of 
Economics and Statistics, 80(1), 95-107.
    Hubbard R.G. and Kashyap A. (1992). ``Internal Net Worth and the 
Investment Process: An Application to U.S. Agriculture,'' Journal of 
Political Economy, 100, 506-534.
    \196\ Mills, E., Kromer, S., Weiss, G., and Mathew, P.A. (2006). 
``From volatility to value: analysing and managing financial and 
performance risk in energy savings projects,'' Energy Policy, 34(2), 
188-199.
    Jollands, N., Waide, P., Ellis, M., Onoda, T., Laustsen, J., 
Tanaka, K., and Meier, A. (2010). ``The 25 IEA energy efficiency 
policy recommendations to the G8 Gleneagles Plan of Action,'' Energy 
Policy, 38(11), 6409-6418.
    \197\ Reed, J.H., Johnson, K., Riggert, J., and Oh, A.D. (2004). 
``Who plays and who decides: The structure and operation of the 
commercial building market,'' U.S. Department of Energy Office of 
Building Technology, State and Community Programs (available at: 
www1.eere.energy.gov/buildings/publications/pdfs/commercial_initiative/who_plays_who_decides.pdf) (last accessed 
August 1, 2023).
    \198\ Cooremans, C. (2012). ``Investment in energy efficiency: 
do the characteristics of investments matter?'' Energy Efficiency, 
5(4), 497-518.
    \199\ Lovins 1992, op. cit. The Atmospheric Fund. (2017). Money 
on the table: Why investors miss out on the energy efficiency market 
(available at: taf.ca/publications/money-table-investors-energy-
efficiency-market/) (last accessed August 1, 2023).
    \200\ Blumstein, C. and Taylor, M. (2013). Rethinking the 
Energy-Efficiency Gap: Producers, Intermediaries, and Innovation. 
Energy Institute at Haas Working Paper 243 (available at: 
haas.berkeley.edu/wp-content/uploads/WP243.pdf) (last accessed 
August 1, 2023).
---------------------------------------------------------------------------

    In sum, the commercial and industrial sectors face many market 
failures that can result in an under-investment in energy efficiency. 
This means that discount rates implied by hurdle rates \201\ and 
required payback periods of many firms are higher than the appropriate 
cost of capital for the investment.\202\ The preceding arguments for 
the existence of market failures in the commercial and industrial 
sectors are corroborated by empirical evidence. One study in particular 
showed evidence of substantial gains in energy efficiency that could 
have been achieved without negative repercussions on profitability, but 
the investments had not been undertaken by firms.\203\ The study found 
that multiple organizational and institutional factors caused firms to 
require shorter payback periods and higher returns than the cost of 
capital for alternative investments of similar risk. Another study 
demonstrated similar results with firms requiring very short payback 
periods of 1-2 years in order to adopt energy-saving projects, implying 
hurdle rates of 50 to 100 percent, despite the potential economic 
benefits.\204\ A number of other case studies similarly demonstrate the 
existence of market failures preventing the adoption of energy-
efficient technologies in a variety of commercial sectors around the 
world, including office buildings,\205\ supermarkets,\206\ and the 
electric motor market.\207\ The existence of market failures in the 
residential and commercial sectors is well supported by the economics 
literature and by a number of case studies. If DOE developed an 
efficiency distribution that assigned furnace efficiency in the no-new-
standards case solely according to energy use or economic 
considerations such as life-cycle cost or payback period, the resulting 
distribution of efficiencies within the building sample would not 
reflect any of the market failures or behavioral factors above. Thus, 
DOE concludes such a distribution would not be representative of the 
consumer furnace market. Further, even if a specific household/
building/organization is not subject to the market failures above, the 
purchasing decision of furnace efficiency can be highly complex and 
influenced by a number of factors not captured by the building 
characteristics available in the RECS or CBECS samples. These factors 
can lead to households or building owners choosing a furnace efficiency 
that deviates from the efficiency predicted using only energy use or 
economic considerations such as life-cycle cost or payback period (as 
calculated using the information from RECS 2020 or CBECS 2018).
---------------------------------------------------------------------------

    \201\ A hurdle rate is the minimum rate of return on a project 
or investment required by an organization or investor. It is 
determined by assessing capital costs, operating costs, and an 
estimate of risks and opportunities.
    \202\ DeCanio 1994, op. cit.
    \203\ DeCanio, S.J. (1998). ``The Efficiency Paradox: 
Bureaucratic and Organizational Barriers to Profitable Energy-Saving 
Investments,'' Energy Policy, 26(5), 441-454.
    \204\ Andersen, S.T., and Newell, R.G. (2004). ``Information 
programs for technology adoption: the case of energy-efficiency 
audits,'' Resource and Energy Economics, 26, 27-50.
    \205\ Prindle 2007, op. cit.; Howarth, R.B., Haddad, B.M., and 
Paton, B. (2000). ``The economics of energy efficiency: insights 
from voluntary participation programs,'' Energy Policy, 28, 477-486.
    \206\ Klemick, H., Kopits, E., Wolverton, A. (2017). ``Potential 
Barriers to Improving Energy Efficiency in Commercial Buildings: The 
Case of Supermarket Refrigeration,'' Journal of Benefit-Cost 
Analysis, 8(1), 115-145.
    \207\ de Almeida, E.L.F. (1998). ``Energy efficiency and the 
limits of market forces: The example of the electric motor market in 
France'', Energy Policy, 26(8), 643-653; Xenergy, Inc. (1998). 
United States Industrial Electric Motor Systems Market Opportunity 
Assessment. (Available at: www.energy.gov/sites/default/files/2014/04/f15/mtrmkt.pdf) (Last accessed August 1, 2023).
---------------------------------------------------------------------------

    DOE further notes that, in certain States, the current market is 
heavily weighted toward either baseline furnace efficiency or a 
condensing furnace efficiency. Therefore, most consumers in these 
States are either similarly impacted (for States with predominantly 
non-condensing furnaces) or minimally impacted (for States with 
predominantly condensing furnaces). This result is merely a reflection 
of the available market data. Therefore, any variation to DOE's 
efficiency assignment methodology would not produce substantially 
differing results than presented in this rule for these States, as most 
consumers would continue to be assigned the same efficiency regardless 
of the details of the methodology.
    APGA commented that in the NOPR, despite intense criticisms and 
detailed evidentiary showings, DOE has continued to justify its 
approach on the theory that consumers do not act rationally, such that 
random assignment is as valid as using actual consumer choice data. 
APGA argued that although DOE acknowledges ``that economic factors may 
play a role'' when consumers decide on what type of furnace to install, 
DOE persists in maintaining that market failures render random 
assignment just as valid an approach. APGA argued that much of DOE's 
recitation on market failure misses the mark and lacks reference to 
current studies of how residential furnaces are purchased. APGA further 
argued that DOE relies upon ``inexplicit consumer patterns on all sorts 
of purchases.'' Although APGA noted that DOE's statement that it 
``intends to investigate this issue further . . . [to] improve its 
assignment of furnace efficiency in its analyses,'' the commenter urged 
DOE to do so before acting on the subject NOPR because it argued that 
the agency's methodology does not produce results that accurately 
reflect the market. (APGA, No. 387 at pp. 25-27) Similarly, AGA argued 
that DOE's economic analysis suffers from a critical defect in the 
economic criteria of how gas furnace efficiencies are assigned to 
consumers in the no-new-standards case or ``base case.'' The commenter 
took issue with DOE's use of so-called ``random assignment'' to 
determine which consumers in the base case would be assigned specific 
furnace efficiencies and whether they install condensing or non-
condensing furnaces. AGA claimed that DOE is assuming that consumers 
completely disregard economics when selecting a gas furnace, arguing 
that random assignment leads to an overstatement of benefits associated 
with the proposed rulemaking and an underestimation of the total costs. 
According to AGA, this defect in the development of the base case 
renders all of DOE's subsequent analyses of any proposed standard 
levels void and unusable. (AGA, No. 405 at pp. 54-57)
    Spire argued that DOE's analysis of 10,000 trial cases does not 
represent the real world, where--as regional market share data for 
residential furnaces demonstrates--consumers generally purchase 
condensing gas furnaces when it is economically beneficial to do so and 
generally decline to purchase condensing gas furnaces where there are 
installation problems, insufficient economic returns, or insufficient 
resources for the initial investment required. Spire asserted that 
DOE's trial cases represent an alternative universe in which consumers 
choose their gas furnaces with no consideration of the economic 
consequences of those decisions. (Spire, No. 413 at p. 7) Spire 
asserted that DOE's use of random

[[Page 87580]]

assignment implies that consumer purchasing decisions are never 
influenced by the economics of potential efficiency investments. 
(Spire, No. 413 at p. 39)
    NPGA commented that a key error in the economic analysis is the use 
of a ``random assignment'' process. NPGA stated that the examples of 
exceptions to the general rule of rational economic behavior relied 
upon in the rule are misplaced and do not justify ignoring that 
consumers do indeed act rationally in their own economic interest. 
(NPGA, No. 395 at pp. 11-12) Atmos Energy argued that DOE's economic 
analysis approach of using a random assignment of consumers across 
design options considered in the life-cycle analysis has no technical 
basis or justification. The company further commented that this results 
in an inaccurate overstatement of efficiency standards' potential to 
produce economic benefits for consumers. Atmos Energy argued that the 
use of random assignment results in consumers selecting furnaces that 
are suboptimal among available furnace options and artificially 
inflates the potential savings of the rule. (Atmos Energy, No. 415 at 
pp. 5-6)
    Spire further argued that base-case investments should 
disproportionately include investments with attractive economic 
outcomes; that rule-outcome investments should disproportionately 
include investments with unattractive economic outcomes, and, 
therefore, the average economic outcome for base-case investments would 
be better (and the average for rule-outcome investments would be worse) 
than the average of all potential investments in standards-compliant 
products. Spire further argued that purchasers of gas furnaces have a 
significant preference for economically beneficial investments, as 
evident from the fact that the market share for furnaces compliant with 
the proposed standard level is dramatically higher than average in 
colder regions where the economic benefits of more-efficient gas 
furnaces tend to be greatest and is dramatically lower than average in 
warmer regions where those benefits tend to be lowest. Spire went on to 
claim that DOE's LCC analysis is based on a ``random assignment'' 
methodology that ``assigns'' particular efficiency investments to the 
``base'' or ``standards'' case randomly, an approach that effectively 
assumes that purchasers of residential furnaces have no preference for 
economically beneficial efficiency investments--and no aversion to 
economically unfavorable investments. (Spire, No. 413 at pp. 22-23)
    These commenters significantly mischaracterize the Department's 
analysis in this area. Most fundamentally, DOE does not assume that 
consumers act irrationally. As stated above, the use of a random 
assignment of furnace efficiency is a methodological approach that 
reflects the full range of consumer behaviors in this market, including 
consumers who make economically beneficial decisions and consumers who, 
due to market failures, do not or cannot make such economically 
beneficial decisions, both of which occur in reality. As explained in 
the proposed rule and previously, DOE begins its assignment of furnaces 
in the no-new standards case based on two empirical constraints: (1) 
historical shipment data, by State demonstrating regional variation, 
with some regions (e.g., the North) having a higher market share of 
condensing furnaces; and (2) survey data demonstrating a correlation 
(albeit small) between home size and installed furnace efficiency. 
Within those constraints, DOE then models consumer behavior, consistent 
with the economics literature discussed previously, to reflect neither 
purely rational nor purely irrational decision-making. This approach 
presents a close approximation of the current market reality.
    The alternative approach advanced by these commenters assumes 
consumer behavior that is not evidenced by the scientific literature 
surveyed above or by any data submitted in the course of this 
rulemaking. The commenters' approach depends on the assumption, for 
example, that homeowners know--as a rule--the efficiency of their 
homes' insulation and windows, such that they always make heating 
investments accordingly. Similarly, the commenters' approach assumes 
that, faced with a furnace failure, homeowners will always select as a 
replacement the most efficient available model. DOE's approach, by 
contrast, recognizes that assumptions like these hold for some 
consumers some of the time--but not all consumers and not at all times.
    As part of the random assignment, some households or buildings with 
large heating loads will be assigned higher-efficiency furnaces, and 
some households or buildings with particularly low heating loads will 
be assigned baseline furnaces--i.e., the economically rational 
investments. For example, at the adopted standard level, approximately 
19 percent of NWGF consumers experience a net cost. These are consumers 
who would not financially gain from a more-efficient furnace and have a 
non-condensing furnace in the no-new-standards case, reflecting an 
economically optimal investment. Similarly, at the adopted standard 
level, approximately 45 percent of NWGF consumers are not impacted by 
the rule, as they already purchase higher-efficiency furnaces. Many of 
these consumers experience lifetime savings compared to a baseline 
furnace, and the adoption of higher efficiency furnaces in the no-new-
standards case again reflects an economically optimal investment.
    However, as DOE has noted, there is a complex set of behavioral 
factors, with sometimes opposing effects, affecting the furnace market. 
It is impractical to model every consumer decision incorporating all of 
these effects at this extreme level of granularity given the limited 
available data. Given these myriad factors, DOE estimates the resulting 
distribution of such a model, if it were possible, would be very 
scattered with high variability. It is for this reason DOE utilizes a 
random distribution (after accounting for market share constraints) to 
approximate these effects. The methodology is not an assertion of 
economic irrationality, but instead, it is a methodological 
approximation of complex consumer behavior. The analysis is neither 
biased toward high or low energy savings. The methodology does not 
preferentially assign lower-efficiency furnaces to households in the 
no-new-standards case where savings from the rule would be greatest, 
nor does it preferentially assign lower-efficiency furnaces to 
households in the no-new-standards case where savings from the rule 
would be smallest. Some consumers were assigned the furnaces that they 
would have chosen if they had engaged in the kind of perfect economic 
thinking upon which the commenters have focused. Others were assigned 
less-efficient furnaces even where a more-efficient furnace would 
eventually result in life-cycle savings, simulating scenarios where, 
for example, various market failures prevent consumers from realizing 
those savings. Still others were assigned furnaces that were more 
efficient than one would expect simply from life-cycle costs analysis, 
reflecting, say, ``green'' behavior, whereby consumers ascribe 
independent value to minimizing harm to the environment.
    DOE cites the available economic literature of which it is aware on 
this subject, supporting the existence of the various market failures 
which would give rise to such a distribution, and has repeatedly 
requested more data or studies on this topic. There are no studies DOE 
is aware of specific to how consumer furnaces are purchased. Commenters 
have failed to provide any

[[Page 87581]]

specific external data, information, or studies that could be 
incorporated into the analysis, but instead, they claim that DOE is 
assuming consumers are all making irrational decisions, which is 
incorrect and a mischaracterization of the analysis. DOE continues to 
evaluate the literature on this subject and is not aware of any new 
data or studies that contradict DOE's analysis. DOE also notes that in 
a separate comment regarding the usage of RECS, APGA acknowledges that 
households may not have perfect information regarding their own 
furnace. (APGA, No. 387 at p. 11)
    Finally, DOE's analysis does incorporate and reflect regional 
market share data and reflects this larger correlation. For States with 
a large majority of consumers already purchasing more-efficient 
furnaces per the available market data (e.g., in colder regions), the 
analysis assigns a correspondingly large majority of households with an 
efficient furnace at or above the adopted efficiency level in the no-
new-standards case. The analysis also includes a greater probability 
that new construction is assigned higher-efficiency furnaces in the no-
new-standards case, given the typically lower installation costs in new 
construction; however, this probability is constrained by actual market 
share data.
    In response to Spire's assertion that most investments in the no-
new-standards case should include those with attractive economic 
outcomes and most outcomes as a result of the standard should be biased 
toward unattractive outcomes, DOE firmly disagrees. This assertion 
presupposes that any energy conservation standard would primarily 
result in unattractive outcomes by definition. The logical extension of 
this assertion is that the current furnace market already allocates 
furnace efficiencies in a nearly optimum manner, and, therefore, there 
is little to no benefit from an energy conservation standard. As DOE 
has presented, there is a wealth of academic literature clearly 
demonstrating that this view of the market is incorrect, as there are a 
number of identified market failures and other behaviors that prevent 
some consumers from maximizing their economic outcome in the absence of 
new energy conservation standards, and, therefore, the allocation of 
furnace efficiency among households is not economically optimal in the 
real world. Systematically biasing the analysis to preferentially 
produce unfavorable results due to an energy conservation standard, as 
the commenter suggests, has no basis in any of the available data or 
literature. DOE also notes that the acknowledgement of market failures 
and the resulting distribution of energy efficiency in the no-new-
standards case is commonplace in DOE's analyses for other energy 
conservation standards rulemakings.
    DOE has further confirmed its determination that the proposed TSL 
is economically justified through additional analysis of the 
anticipated life-cycle costs. First, DOE presents total life-cycle 
costs at each efficiency level, averaged over all households, in 
section V.B of this document. This effectively compares costs for an 
average household in the sample, not an extreme outlier household. DOE 
also makes available total life-cycle costs for households at the 25th, 
50th, 75th, and 95th percentile of the total life-cycle cost 
distribution in the LCC spreadsheet. Regardless of which value is 
considered, the total life-cycle cost of a furnace at the adopted 
standard level is lower than the total life-cycle cost of a baseline 
furnace or any lower-efficiency furnace. The claim that outlier results 
distort DOE's conclusions can also be refuted by considering the median 
LCC savings instead of the mean LCC savings, which are robust against 
outlier results. The median LCC savings at the adopted standard level 
across the entire NWGF sample, which accounts for the existing 
distribution of furnace efficiency in the market, remain positive. If 
DOE were to exclude outlier results from the average LCC savings (e.g., 
both the top and bottom 10 percent of results), the average LCC savings 
would remain positive. If DOE were to adopt an even more conservative 
estimate and bias the results by excluding only the most favorable 
outcomes (e.g., the top 10 percent) but maintain the least favorable 
outcomes, the average LCC would still remain positive, and DOE's 
conclusions would remain the same. Finally, none of these results 
include the estimated climate and health benefits, which as discussed 
in section V.C of this document are significant and only further 
reinforce the benefits of the rule.
    Spire stated that the results of the LCC analysis are 
disproportionately impacted by a relatively small percentage of 
individual trial cases, due to the efficiency assignment methodology, 
thereby producing unreasonable impacts that bias the conclusions of the 
analysis. (Spire, No. 413 at pp. 25-34)
    In response, DOE acknowledges that there are some LCC trials with 
very high LCC savings as part of the distribution of impacts. There are 
similarly some LCC trials with very high net LCC costs. However, when 
evaluating the median LCC impacts instead of the average LCC impacts, 
the effects of outlier results are minimized. The median LCC savings 
remain positive at the adopted standard level. The median LCC savings 
are available in the LCC spreadsheet and presented in chapter 8 of the 
final rule TSD. Although the absolute magnitude of total savings would 
decrease if such extreme trial cases were excluded, the conclusions of 
the analysis would remain the same.
    APGA claimed that DOE's method of randomly assigning furnace 
efficiencies eliminates from the no-new-standards case those instances 
where consumers would elect the most efficient product that costs the 
least, which inflates LCC benefits when compared to the standards case. 
Without random assignment, APGA claims that the estimated LCC benefits 
decline significantly because the consumer will rationally take the 
lower cost furnace that also brings higher energy efficiency regardless 
of a new standard. APGA further argued that outlier cases control LCC 
outcomes, even though those outlier cases are the most likely to be 
avoided by rational consumer behavior. APGA claimed that the analysis 
fails to reflect the market share of natural gas customers by State or 
Census Division. (APGA, No. 387 at pp. 22-33) Spire argued that DOE's 
analysis inappropriately credits standards with the benefits of 
efficiency investments in which a higher-efficiency product selected as 
a result of a standard is the low-cost option in terms of initial costs 
and would provide additional economic benefits (in the form of 
operating cost savings) from day one. Because consumers would naturally 
select this result, Spire argued that DOE's modeling approach produces 
spurious regulatory benefits. (Spire, No. 413 at p. 27)
    In response, DOE notes that the commenters are once again 
mischaracterizing the Department's analysis. First, the costs estimated 
in the analysis for higher-efficiency products reflect DOE's projection 
that such products are at the new baseline efficiency, produced in 
volume, and no longer offered as a ``premium'' product. As such, costs 
may deviate from those seen in the market today or in the no-new-
standards case. In some regions, the market share of higher-efficiency 
products remains low, and they are generally perceived as a more 
premium product, with higher total installed costs. This will impact 
the existing market share by efficiency. If these higher-efficiency 
products become the new baseline, as DOE analyzes in the standards 
cases, their costs generally will be lower than seen in the market

[[Page 87582]]

today. The costs developed in section IV.C of this document account for 
higher-efficiency products becoming the new baseline, produced at 
greater volume. The comparison made by the commenters does not account 
for this subtlety. Second, DOE notes that the assignment methodology is 
bounded by the available shipment data by efficiency, and, therefore, 
the market share of non-condensing/condensing furnaces reflects market 
data. Total installed costs for higher-efficiency products are 
generally lower in new construction, as discussed in section IV.F.2 of 
this document. However, in some States, the market share and estimated 
total shipments of condensing furnaces are lower than the estimated new 
construction; therefore, according to the data, some non-condensing 
furnaces must be installed in new construction. Thus, this market share 
constraint requires that some installations in new construction be 
assigned a baseline furnace even though a higher-efficiency furnace 
would cost less. Because such market shares are based upon real world 
data, this is not a spurious assumption on DOE's part, and such 
approach does not produce spurious regulatory benefits. This is a 
factual result based on the available data and representative of the 
market as it is, which is indicative of some of the market failures DOE 
has identified. Nevertheless, if DOE were to exclude all these trial 
results from the average LCC savings, the result would remain positive, 
and DOE's conclusions from the analysis would remain the same. Thus, 
the claim that outlier results control LCC outcomes--and, therefore, 
the justification for the rule--is incorrect. Finally, regarding the 
share of natural gas customers, DOE samples households and commercial 
buildings in RECS and CBECS that utilize natural gas furnaces. RECS and 
CBECS are large, nationally representative surveys with a 
representative sample of natural gas customers. DOE is not aware of any 
evidence to suggest these national surveys are systematically biased 
with respect to natural gas customers.
    APGA argued that DOE has not addressed prior stakeholder analyses 
(e.g., the GTI analysis) directly but only cataloged the stakeholder 
criticisms in defending its ``random assignment'' methodology. (APGA, 
No. 387 at p. 25) Those analyses, however, were based on LCC results 
presented as part of the 2015 NOPR and 2016 SNOPR, both of which were 
withdrawn and replaced by the 2022 NOPR. DOE is responding to all 
relevant comments, but comments related to the detailed results of the 
withdrawn analyses are no longer applicable.
    Spire further argued that, for example, in a region in which 90 
percent of consumers are already utilizing a furnace with an efficiency 
at or above the adopted standard level, the remaining 10 percent of 
consumers should disproportionately include the worst economic outcomes 
in the region as a result of the standard. (Spire, No. 413 at pp. 35-
36) Again, DOE firmly disagrees with this assertion. Spire's assertion 
ignores the wealth of well-documented market failures and other 
behaviors that can explain why some of the remaining 10 percent of 
consumers may have favorable outcomes as a result of the energy 
conservation standard. There is no compelling evidence or data of which 
DOE is aware that would necessitate proactively biasing results toward 
unfavorable outcomes, as suggested by the commenter. Furthermore, DOE's 
assignment methodology already includes adjustments based on household 
square footage and based on new construction vs. replacement 
installations.
    Spire argued that economic theory provides no basis to disregard 
fact. On this point, Spire asserted that if random assignment came 
close to representing the market as it is, the regional market share 
for condensing furnaces would not range from 5 percent to 95 percent in 
the replacement market (and 6 percent to 97 percent in the new 
construction market), with an obvious correlation to regional length 
and depth of the heating season. Spire further argued that if random 
assignment provided a reasonable simulation of base case purchasing 
behavior, there would not be a statistically significant correlation 
between the average regional LCC outcomes and regional market shares 
for condensing furnaces. (Spire, No. 413 at p. 42)
    In response, DOE agrees that economic factors may play a role in 
purchasing decisions, but the commenter is mischaracterizing both the 
Department's analysis and its efficiency assignment methodology. DOE 
does not dispute that heating-degree days likely play a role in 
consumers choosing furnace efficiency, and, as stated previously, the 
Department incorporates this effect into the analysis at the State/
regional level based on current market share data (i.e., actual 
purchasing decisions). The efficiency assignment methodology is 
randomized as a last step, within a given State/region, to approximate 
a range of real-world effects and behaviors. Thus, the larger 
correlation based on region is taken into account. Consequently, at the 
next stage in the assignment methodology, the impact of large regional 
climate differences is no longer relevant, as most of those consumers 
experience a similar climate. Furthermore, the commenter did not 
acknowledge the role of historical incentive and rebate programs that 
have shaped consumer behavior and significantly increased the market 
share of higher-efficiency furnaces in some colder regions, beyond what 
consumers were adopting without those programs. Due to the bias toward 
like-for-like replacements, the estimated future market share in these 
regions is expected to remain dominated by higher-efficiency furnaces, 
but this market share is likely higher than what would have resulted 
had these past incentive and rebate programs not occurred. Therefore, 
the apparent correlation of efficiency with region would likely not be 
as evident without these programs.
    APGA argued that DOE's inconsistent treatment of consumer behavior 
is arbitrary and capricious. On the one hand, APGA asserted that by 
using random assignment to predict consumer furnace selection, DOE 
assumes consumers to be ``virtual zombies.'' On the other hand, when it 
comes to fuel switching, APGA asserted that DOE assumes consumers to be 
rational and prescient by selecting the lowest cost option. (APGA, No. 
387 at p. 24) Spire similarly commented that paradoxically, DOE employs 
a random assignment methodology that assumes that consumers never 
consider the economic consequences of choices between gas furnaces, but 
then included a fuel switching analysis that assumes consumers who do 
not (randomly) select a standards-compliant gas furnace on their own 
would always consider economics in deciding whether to switch from a 
gas appliance to an electric appliance. (Spire, No. 413 at pp. 49-50) 
AGA also argued that the assignment of furnace efficiency in the no-
new-standards case does not adhere to the model logic related to 
consumer fuel switching to electricity, which assumes consumers 
consider economics when choosing to switch. Furthermore, AGA stated 
that some of the critical inputs in that model are derived from survey 
data which indicates that consumers do consider economics when making 
purchasing decisions. (AGA, No. 405 at pp. 54-57) Along these same 
lines, NPGA commented that DOE contradicts itself by assuming consumers 
will not act in their own self-interest when purchasing a gas furnace 
but will when switching from gas

[[Page 87583]]

furnaces to electric alternatives. (NPGA, No. 395 at p. 2)
    In response, DOE notes that the commenters are significantly 
misrepresenting the Department's analysis. As discussed in this 
section, DOE's approach for assigning efficiency in the no-new-
standards case does not assume that purchasers of furnaces all make 
economically irrational decisions (i.e., the lack of a correlation is 
not the same as a negative correlation). The use of a random assignment 
of furnace efficiency is merely a methodological approach that reflects 
the full range of consumer behaviors in this market, including 
consumers who make economically beneficial decisions and consumers 
that, due to market failures, do not make such economically beneficial 
decisions, both of which occur in reality. The Department's product 
switching analysis was incorporated into the analysis to address prior 
comments from stakeholders specifically regarding price-sensitive 
consumers opting to switch to alternative electric heating options in 
response to increased NWGF costs as discussed in section IV.F.10 of 
this document. DOE has conducted a fuel-switching analysis in this rule 
as a form of sensitivity analysis. That is, DOE has modeled the 
economic impacts of the rule assuming both no fuel switching and the 
maximum level of fuel switching reasonably foreseeable. To model that 
maximum level of fuel switching, DOE has assumed that consumers would 
act based solely on costs. DOE uses a simplified decision model based 
only on costs, in this very specific instance, to estimate the impact 
of product switching. The percentage of consumers who engage in product 
switching based on this simplified decision model is intended as an 
estimate of the maximum fuel switching reasonably likely to result from 
the rule. In any event, as discussed further below, the proportion of 
consumers expected to switch fuels is small, and any further 
refinements to DOE's modeling would be expected to lead to similar 
conclusions. That is, a further refined model, which incorporated the 
market failures likely to prevail in the market for fuel switching, 
would be unlikely to produce meaningfully different results. Given the 
limited purpose for which DOE has considered product switching, DOE has 
not found it necessary to further refine its assumptions about product-
switching consumer behavior. Furthermore, DOE presents results both 
with and without incorporating this effect, as an upper and lower 
bound, and DOE's conclusions remain the same under both sets of 
results. The two approaches (assignment of efficiency in the no-new-
standards case and estimating product switching) are not incompatible 
and are not inconsistent with each other. They simply reflect different 
levels of modeling approximation on different consumer samples. Further 
discussion of the product switching methodology is presented in section 
IV.F.10 of this document.
    NPGA stated that consumers will often voluntarily choose to install 
condensing furnaces, without mandatory standards, when it makes 
economic sense. (NPGA, No. 395 at p. 11) The commenter further stated 
that this is evident in the fact that high-efficiency gas furnaces have 
a much higher market share where the economic benefits of such furnaces 
are greatest. (NPGA, No. 395 at pp. 11-12) In response, DOE agrees and 
incorporates the existing market share of condensing furnaces by State 
in its analysis. In States with a very high fraction of consumers with 
condensing furnaces at the adopted efficiency level or above in the 
current market (typically States with colder winters where the benefits 
of such furnaces are higher), most consumers in those States are not 
impacted by the rule and do not factor into the standards-case 
analysis. However, as noted previously, incentive and rebate programs 
have increased the market share of condensing furnaces beyond what 
consumers had been previously adopting, even in colder regions.
    Spire commented that the issue of efficiency assignment in the no-
new-standards case was raised in American Public Gas Ass'n v. U.S. 
Dept. of Energy, 22 F.4th 1018 (D.C. Cir. 2022) (APGA v. DOE)--a 
challenge to DOE's commercial packaged boiler standards--and the Court 
found that DOE had failed to respond to the ``substantial concerns'' 
about this ``crucial part of its analysis'' and that its ``failure to 
engage the arguments raised before it . . . bespeaks a failure to 
consider an important aspect of the problem.'' Id., 22 F.4th at 1027-
28. Spire claimed that the furnaces NOPR exhibits the same failing. 
(Spire, No. 413 at pp. 34-35)
    In response, DOE disagrees with Spire's assertion that it has 
failed to adequately explain the choices made in its LCC analysis or 
has failed to provide sufficient opportunity for comment on those 
matters. Instead, DOE has extensively discussed the rationale and 
evidentiary basis for its LCC analysis in this both the July 2022 NOPR, 
as well as this final rule. DOE's detailed explanation has focused on 
the presence of numerous market failures that cause consumers to 
purchase commercial packaged boilers that do not maximize LCC savings. 
Furthermore, DOE provided and sought public comment on its thorough 
explanation in the July 2022 Furnaces NOPR as to why the assignment of 
efficiencies in the no-new-standards case, which is in part random, is 
a reasonable approach that simulates behavior in the furnace market, 
where market failures frequently result in purchasing decisions not 
being perfectly aligned with economic interests. 87 FR 40590, 40640-
40643 (July 7, 2022).
    AGA presented an analysis using DOE's LCC spreadsheet and claimed 
that it demonstrates that DOE's method of randomly assigning furnace 
efficiencies in its base case is improper. AGA further argued that its 
analysis demonstrates that any market failure results in greater 
adoption of high-efficiency equipment than would be expected by 
economics alone. AGA concluded that DOE, therefore, overstates the 
benefits of the proposed standards by assuming consumers do not 
consider economics at all when selecting furnaces. (AGA, No. 405 at pp. 
59-67)
    In response, as discussed above, DOE notes that this is a 
mischaracterization of the analysis. DOE does not assume consumers 
never consider the economics of the purchase. DOE acknowledges that 
there are several market failures in the furnace market affecting some 
consumers, while other consumers are making economically beneficial 
decisions. Indeed, the existence of consumers experiencing a net cost 
in the standards case is an illustration of this. Such consumers are 
assigned a baseline efficiency furnace in the no-new-standards case and 
do not benefit from a higher efficiency furnace, reflecting an 
economically beneficial decision in the no-new-standards case. 
Similarly, some consumers are already purchasing a higher-efficiency 
furnace because it is beneficial to them and as a result are not 
impacted in the standards case. The characterization of the analysis as 
assuming all consumers are irrational is incorrect.
    AGA's analysis of the NOPR results is flawed in several respects. 
Their analysis identifies a relationship that is known and discussed in 
the TSD, namely that regions with a higher current market share of 
condensing furnaces are more likely to be colder and, thus, have higher 
space-heating energy consumption. Therefore, it is no surprise that LCC 
savings for households or buildings in those regions that have not yet 
adopted condensing

[[Page 87584]]

furnaces are likely to be higher. Similarly, regions with a lower 
current market share of condensing furnaces are more likely to be 
warmer, and consumers there may have negative LCC savings in the 
standards case. The analysis incorporates these regional market share 
trends as part of the efficiency assignment methodology. The commenter 
is attempting to highlight these relationships in the LCC, which is a 
reflection of the current market, as evidence that DOE cannot assume 
consumers never consider the economics of their purchasing decisions. 
However, this is a mischaracterization, and DOE is not making an 
assumption that consumers never consider the economics of their 
purchasing decision. The efficiency assignment is a methodological 
simplification that takes into account existing market trends, such as 
the regional trends identified by the commenter, and acknowledges a 
range of consumer behaviors and market failures. The LCC produces 
relationships in the results that AGA's own analysis shows are 
reasonable and expected, given the current market shares of condensing 
and non-condensing furnaces.
    AGA noted that there are examples in the LCC where the total 
installed cost of a non-condensing furnace is higher than the total 
installed cost of a condensing furnace for an individual household or 
building, and yet DOE's methodology assigns a non-condensing furnace in 
the no-new-standards case to this household or building. AGA argues 
this is an illogical scenario that ignores consumer rationality and 
biases the overall results to overly favorable outcomes. (AGA, No. 405 
at pp. 57-58) APGA pointed to the inclusion of LCC trials where a 
higher efficiency furnace costs less than a baseline furnace, but for 
which the LCC assigns a baseline furnace in the no-new-standards case, 
as unreasonably inflating LCC benefits. (APGA, No. 387 at pp. 22-23) 
Spire also commented that the LCC includes LCC trials where the higher-
efficiency furnace is the lower-cost option, but it argued that the LCC 
erroneously assigns benefits to such trial cases by assigning a 
baseline furnace in the no-new-standards case. (Spire, No. 413 at pp. 
27-28)
    In response, DOE acknowledges that there are scenarios in which the 
total installed cost is lower for higher-efficiency condensing 
furnaces. This situation primarily occurs in new construction, where a 
new vent is required for all installations, and condensing furnaces can 
often take advantage of a shorter vent length that is incorporated into 
the construction design from the beginning. This scenario can also 
occur in replacement installations where the existing vent has reached 
the end of its life and requires replacement, even when replacing a 
non-condensing furnace with another non-condensing furnace. With 
respect to the LCC assigning a non-condensing furnace in some of these 
instances, DOE once again notes that the efficiency assignment 
methodology is constrained by the State-level shipments market share 
data. For example, in States with a low current market share of 
condensing furnaces, the methodology will be constrained to assign 
mostly non-condensing furnaces in the no-new-standards case, reflecting 
the current market, and, therefore, some new construction will be 
assigned non-condensing furnaces in the no-new-standards case. The 
commenters argue that this is an illogical outcome, but the methodology 
is simply reflecting the reality of the current market. This situation 
can also occur in replacement installations due to, for example, 
familiarity bias on the part of the consumer or contractor, biasing 
replacements to familiar technology options even if a lower cost option 
is available. However, the percentage of individual LCC trial outcomes 
where this situation occurs is limited to only a few percent in the 
final rule analysis, predominately in new construction. Even if DOE 
were to exclude these individual outcomes as extreme outlier results, 
the LCC analysis would demonstrate economic justification, as seen from 
the median LCC savings (as opposed to the average), available in the 
LCC spreadsheet and in chapter 8 of the final rule TSD. The median LCC 
savings are robust to outlier results, and they remain positive at the 
adopted standard level. Additionally, excluding these individual 
outcomes as extreme outlier results would not substantially change the 
percent of consumers with a net cost and would not alter the conclusion 
of economic justification.
    PHCC commented that DOE should reconsider its assumptions regarding 
consumer awareness of products, as the studies used for reference are 
20-30 years old, and trends for LED lighting that indicate that 
consumers choose higher levels of performance in cases of lower cost 
and lower maintenance. (PHCC, No. 403 at p. 3) In response, DOE notes 
that it cites the relevant available literature, which is still 
applicable to consumers of furnaces even if published 20-30 years ago. 
DOE also cites studies performed with respect to appliances and HVAC 
equipment, which are more relevant than studies related to lighting. 
The lighting market and associated technology are very different than 
the furnaces market.
    PHCC commented that DOE's conclusion that commercial customers will 
not value higher efficiency because typically owners do not pay 
operating bills or consider operating costs as write-offs is 
inaccurate. Because their clients seek out best-case operating 
expenses, owners seek to offer high-quality facilities in order to give 
themselves an advantage in the market. PHCC further commented that 
write-offs are not desirable, as owners benefit from keeping their 
income and paying taxes in full rather than overspending. The commenter 
stated that there are contractors who have successfully marketed high-
efficiency equipment. (PHCC, No. 403 at pp. 3-4) In response, DOE 
clarifies that it does not assert that commercial customers will not 
value higher-efficiency equipment. DOE merely notes that there are 
market failures prevalent in the commercial sector, similar to the 
residential sector, that may cause some commercial customers to 
undervalue the benefits of higher-efficiency equipment. DOE agrees that 
some commercial customers will highly value the benefits of efficient 
furnaces, and the efficiency assignment methodology approximates this 
range in commercial customer behavior.
    Sierra Club and Earth Justice commented that the claims of internal 
inconsistency posed by some commenters ignores that the DOE's method of 
modeling the base-case furnace efficiency distribution reflects 
available data showing only a modest correlation between high-
efficiency furnace installations and applications where those high-
efficiency products are more likely to be cost-effective. (Sierra Club 
and Earth Justice, No. 401 at pp. 1-2) DOE agrees with the comment in 
support of the agency's approach.
    NYSERDA expressed support for DOE's methodology and approaches 
presented in the NOPR, particularly around random distribution. NYSERDA 
disagreed with commenters who argue that the random nature of DOE's LCC 
distributions is problematic. NYSERDA further stated that using a 
random distribution in the no-new-standards case to model the 
assignment of furnace efficiency is a valid method, driven by the best 
available data. NYSERDA emphasized that DOE used AHRI and HARDI data to 
accurately capture the existing market distributions of furnaces at 
different efficiency levels, informing the efficiency distributions in 
the no-

[[Page 87585]]

new-standards case. NYSERDA further noted that DOE includes a 
correlation of efficiency with household square footage, using 
available data to inform the structure of the probabilistic 
distribution. Consequently, NYSERDA concludes that the stochastic 
approach is valid and viable. (NYSERDA, No. 379 at pp. 11-12) DOE 
agrees with this comment.
    Similarly, Joint Efficiency Commenters stated that DOE's assignment 
of efficiency levels in the no-new-standards case reasonably reflects 
actual consumer behavior and is more representative than assigning 
efficiencies based solely on cost-effectiveness. Joint Efficiency 
Commenters noted that there are various market failures, as well as 
aspects of consumer preference, that significantly impact how products 
are chosen by consumers, including misaligned incentives for rental 
properties, the influence of contractors during replacement 
installations, and the very infrequent nature of furnace replacements 
impacting information transparency with respect to costs. (Joint 
Efficiency Commenters, No. 381 at pp. 6-7) DOE agrees.
9. Alternative Size Thresholds for Small Consumer Gas Furnaces
    DOE analyzed potential separate energy conservation standards for 
small and large NWGFs and MHGFs, with varying capacity thresholds for a 
small NWGF or MHGF. The examined thresholds had a maximum input rate 
that ranged from less than or equal to 40 kBtu/h to 100 kBtu/h, which 
were assessed in 5 kBtu/h increments.
    DOE assigned an input capacity to existing furnaces based on data 
from RECS 2020 and CBECS 2018. It is common industry practice to 
oversize furnaces to ensure that they can meet the house heating load 
in extreme temperature conditions. Under a scenario which envisions a 
separate energy conservation standard for small NWGFs and MHGFs set at 
a level which does not require condensing technology, DOE expects that 
some consumers who would otherwise install a typically oversized 
furnace \208\ may choose to downsize in order to be able to purchase a 
less-expensive, non-condensing furnace.
---------------------------------------------------------------------------

    \208\ By typical oversizing, DOE refers to a value of 1.7, as 
specified in ASHRAE 103, ``Method of Testing for Annual Fuel 
Utilization Efficiency of Residential Central Furnaces and 
Boilers,'' which is incorporated by reference in the DOE residential 
furnace and boiler test procedure at 10 CFR part 430, subpart B, 
appendix N.
---------------------------------------------------------------------------

    DOE identified households from the NWGF and MHGF sample that might 
downsize at each of the considered standard levels. In identifying 
these households, DOE first determined whether a household would 
install a non-condensing furnace with an input capacity greater than 
the small furnace size limit in the no-new-standards case, based on the 
assigned input capacity (which reflects historical oversizing) and 
efficiency. DOE relied on the ASHRAE 103-1993 test procedure, ``Method 
of Testing for Annual Fuel Utilization Efficiency of Residential 
Central Furnaces and Boilers,'' (incorporated by referenced in the DOE 
residential furnace and boiler test procedure) \209\ to estimate that 
the typical oversize factor used to size furnaces was 70 percent (i.e., 
the furnace capacity is 70-percent greater than required to heat the 
home under heating outdoor design temperature (``ODT'') conditions). If 
the input capacity of the furnace determined using a reduced oversize 
factor of 10 to 40 percent is less than or equal to the input capacity 
limit for small furnaces, DOE assumed that the consumer would downsize 
his or her furnace. DOE believes that an oversize factor of 10-40 
percent is realistic because ACCA recommends a maximum oversize factor 
of 40 percent.\210\ Note that the 10 percent is the maximum downsizing, 
but in many cases, the actual downsizing is less because the resulting 
input capacity is rounded up to the nearest input capacity bin in 5 
kBtu/h increments, and the unit is downsized up to the maximum small 
furnace size limit criteria.
---------------------------------------------------------------------------

    \209\ 10 CFR part 430, subpart B, appendix N.
    \210\ ACCA recommends oversizing by a maximum of 40 percent. 
ACCA. See Manual S--Residential Equipment Selection (2nd Edition). 
(Available at https://www.acca.org/standards/technical-manuals/manual-s) (Last accessed August 1, 2023)
---------------------------------------------------------------------------

    DOE has found that the available data regarding oversizing of 
furnaces in the existing stock indicate that an average oversizing in 
past installations of 70 percent is likewise reasonable.\211\ DOE 
acknowledges that the oversizing varies among furnace installations, 
and, thus, DOE assigned an oversizing factor to each household based on 
the furnace sizing methodology described in section IV.E.2 of this 
document (which rank ordered the estimated design heating load and 
matched to furnace shipments by input capacity). The actual oversizing 
factor in the analysis for a given existing household or building 
varies from 0 percent to 275 percent (85 percent on average).
---------------------------------------------------------------------------

    \211\ City of Fort Collins, Evaluation of New Home Energy 
Efficiency: Summary Report (June 2002) (available at: www.fcgov.com/utilities/img/site_specific/uploads/newhome-eval.pdf) (last accessed 
August 1, 2023).
    Pigg, Scott, What you need to know about residential furnaces, 
air conditioners and heat pumps if you're NOT an HVAC professional 
(Feb. 2017) (available at: www.duluthenergydesign.com/Content/Documents/GeneralInfo/PresentationMaterials/2017/Day2/What-You-Need-Pigg.pdf) (last accessed August 1, 2023). Energy Center of 
Wisconsin, Electricity Use by New Furnaces: A Wisconsin Field Study 
(2003) (available at: www.proctoreng.com/dnld/WIDOE2013.pdf) (last 
accessed August 1, 2023). Burdick, Arlan, Strategy Guideline: 
Accurate Heating and Cooling Load Calculations. Ibacos, Inc. (June 
2011) (available at: www.nrel.gov/docs/fy11osti/51603.pdf) (last 
accessed August 1, 2023). Ecovent, When Bigger is not Better (August 
2014) (available at: docplayer.net/13225631-When-bigger-isn-t-better.html) (last accessed August 1, 2023). Energy Center of 
Wisconsin, Central Air Conditioning in Wisconsin (May 2008) 
(available at: www.focusonenergy.com/sites/default/files/centralairconditioning_report.pdf) (last accessed August 1, 2023). 
Washington State University, Efficient Home Cooling (2003) 
(available at: www.energy.wsu.edu/documents/AHT_Energy%20Efficient%20Home%20Cooling.pdf) (last accessed August 
1, 2023).
---------------------------------------------------------------------------

    DOE continues to expect that in the case of an energy conservation 
standard that allows small furnaces to use non-condensing technology, 
some consumers would have a financial incentive to downsize their 
furnace. Even without oversizing, a furnace installation should be 
designed to handle dry-bulb temperatures that will occur 99 percent of 
the time. Therefore, handling nearly all extreme conditions is already 
accounted for when selecting the unit, so a 10-40 percent oversizing 
should provide ample allowance for the most extreme conditions that 
might occur. Thus, DOE reasons that there would be no loss of utility 
or comfort under the Department's approach. DOE acknowledges that there 
could be cases where downsizing might not be advantageous. Therefore, 
for this final rule, DOE assumed that not all consumers would downsize 
when the oversize factor of 10-40 percent is less than or equal to the 
assumed input capacity limit for small furnaces. In addition, DOE 
conducted several sensitivity analyses of its downsizing methodology, 
assuming no downsizing as well as higher and lower levels of 
downsizing. See appendix 8M of the final rule TSD for further details.
    PHCC commented that current furnace models (both condensing and 
non-condensing) will have problems with oversizing, as excessive 
temperature rise can be detrimental to the life of the furnace, and 
that selecting excessive fan speed to compensate for the excess 
temperature rise will produce very drafty conditions. The commenter 
further stated that professional contractors have been accurately 
sizing equipment, despite ACCA references to limit oversizing to 40 
percent. Finally,

[[Page 87586]]

although PHCC acknowledged that the exact furnace size required for a 
space is not always available, the commenter stated that contractors 
will select the next incremental size and be reluctant to select 
equipment below the ``design day capacity,'' as weather and needs vary. 
(PHCC, No. 403 at p. 4)
    DOE acknowledges that complex factors are relevant when contractors 
size equipment. However, as discussed previously, DOE has found 
multiple sources of data to indicate an average oversizing factor in 
historical installations and has used those data in the analysis.
    PHCC commented that DOE's assumption that consumers have financial 
incentive to downsize products indicates that costs are a concern for 
them and that consumers are aware of the economic impacts of furnace 
sizing. (PHCC, No. 403 at p. 4)
    In response, DOE acknowledges that the initial total installed cost 
of a consumer furnace may result in a consumer making an alternative 
choice instead of a like-for-like replacement. For potential standard 
levels that include a capacity cutoff, below which the standard is not 
amended, DOE estimates some fraction of consumers would instead opt to 
purchase a slightly lower capacity furnace at a lower efficiency 
instead of a higher capacity furnace at the new efficiency level. DOE's 
analysis similarly accounts for consumers who may choose to extend the 
life of their existing furnace with additional repairs, or switch to an 
electric space heat alternative altogether. All of these potential 
options are accounted for in the analysis, as discussed in further 
detail in chapter 8 of the final rule TSD.
    For this final rule, DOE analyzed the potential for similar 
separate energy conservation standards for small and large MHGFs as it 
did for NWGFs.
a. Accounting for Impacts of Downsized Equipment
    The estimated degree of downsizing anticipated in the case of a 
non-condensing standard for small NWGFs and MHGFs is presented in Table 
IV.14 under the criteria of various ``small furnace'' definitions. For 
further details regarding this downsizing methodology, see appendix 8M 
of the TSD for this final rule. This appendix also presents sensitivity 
analysis results.

              Table IV.11--Share of LCC Sample Households Meeting Small Furnace Definition in 2029
----------------------------------------------------------------------------------------------------------------
                                                                 NWGFs                          MHGFs
                                                    ------------------------------------------------------------
                                                                    With separate                 With separate
              Small furnace definition                 Without      small furnace     Without     small furnace
                                                       amended      standard and      amended      tandard and
                                                      standards      downsizing      standards   with downsizing
                                                      (percent)       (percent)      (percent)      (percent)
----------------------------------------------------------------------------------------------------------------
<=40 kBtu/h........................................          3.0             13.6           5.6             14.6
<=45 kBtu/h........................................          4.4             16.7           9.7             18.4
<=50 kBtu/h........................................          6.2             19.7          12.7             21.9
<=55 kBtu/h........................................          7.4             21.4          13.8             23.6
<=60 kBtu/h........................................         18.8             29.5          29.0             35.2
<=65 kBtu/h........................................         20.3             31.5          32.8             39.0
<=70 kBtu/h........................................         30.4             38.7          43.6             48.5
<=75 kBtu/h........................................         41.5             47.1          59.6             63.3
<=80 kBtu/h........................................         54.6             57.5          82.9             84.4
<=85 kBtu/h........................................         56.4             59.4          85.9             87.3
<=90 kBtu/h........................................         63.7             65.8          92.0             92.4
<=95 kBtu/h........................................         63.7             66.2          92.0             92.5
<=100 kBtu/h.......................................         81.7             82.2          98.7             98.7
----------------------------------------------------------------------------------------------------------------

10. Accounting for Product Switching Under Potential Standards
    During the development of the 2006 NOPR for consumer furnaces, 
manufacturers commented that when presented with potential standards 
for non-weatherized gas furnaces set at a level effectively requiring 
condensing technology, they expect consumers to switch to heat pumps or 
repair their existing equipment due to the increased cost of condensing 
non-weatherized gas furnaces. 71 FR 59204, 59230-59231 (Oct. 6, 2006). 
During the development of the 2011 direct final rule for consumer 
furnaces, some commenters again stated that a furnace standard set at a 
level effectively requiring condensing furnaces would cause some 
consumers to switch from gas furnaces to electric resistance heating or 
heat pumps. 76 FR 37408, 37483 (June 27, 2011). For the 2011 direct 
final rule, DOE did not explicitly quantify this potential for product 
switching, assuming that such switching was likely minimal in response 
to standards. Id. at 76 37483-37484. As part of the development of the 
March 2015 NOPR during informal workshops, some commenters again stated 
that consumers might switch to alternative electric heating systems due 
to a standard set at a level effectively requiring condensing furnaces.
    As noted previously, DOE recognizes that consumers may elect to 
switch from one heating source to another. Those consumer choices are 
affected by many factors. As commenters to this proposed rule and prior 
rules have noted, one such factor is the furnace efficiency standard 
itself. Accordingly, in this rulemaking, DOE has considered the 
potential for a standard level to impact the choice between various 
types of heating products, for residential new construction, new 
owners, and the replacement of existing products. Because home builders 
are sensitive to the initial cost of heating equipment, a standard 
level that significantly increases purchase price may induce some 
builders to switch to a different heating product than they would have 
otherwise installed in the no-new-standards case. Such an amended 
standard level may also induce some homeowners to replace their 
existing furnace at the end of its useful life with a different type of 
heating product. The central assumption is that, for consumers to 
switch, the total installed cost of the alternative heating equipment 
would be less than the cost of a new consumer furnace at the amended 
standard level (operating costs may or may not be higher).

[[Page 87587]]

    In conducting this analysis, DOE has remained focused on the 
covered products subject to this rulemaking--consumer furnaces. That 
is, this analysis is intended to inform DOE's assessment of whether the 
standard level proposed is ``economically justified'' ``for [the] type 
(or class) of covered product.'' 42 U.S.C. 6295(o)(2)(A).
    To assess the effect of fuel switching, DOE modeled the proposed 
standard under two scenarios. The first scenario assumed no switching 
at all; that is, it assumed that consumers faced with negative LCCs as 
a result of the standard would nevertheless make those investments (the 
zero-switching scenario). Under the second scenario, DOE assumed that 
every consumer for whom switching would be economically justified 
(according to simplified assumptions, detailed below), would do so (the 
maximum-switching scenario). These scenarios are intended to bookend 
the range of reasonably plausible switching results foreseeable as a 
result of this rule.
    The assumptions underlying the maximum-switching scenario are 
intentionally simplified. The purpose of this scenario is not to model 
consumers' actual expected behavior, but rather to estimate an outer 
bound for the possible range of responses. Accordingly, DOE has not 
attempted to incorporate into this model the market inefficiencies and 
consumer biases known to shape consumers' actual purchasing decisions. 
Instead, by assuming perfect economic rationality, this model produces 
an estimate of the most switching reasonably foreseeable as a result of 
this rule.
    The results of these two estimates confirm DOE's conclusion that 
the proposed standard level is economically justified. That is, whether 
DOE assumes that no consumers will switch fuels as a result of the rule 
or assumes that the maximum reasonably foreseeable number of consumers 
will do so, the rule is economically justified. The analysis underlying 
that conclusion is explained further below.
a. Product Switching Resulting From Amended Standards for Non-
Weatherized Gas Furnaces
    In order to estimate the impact of potential product switching 
resulting from amended standards, DOE developed a consumer choice model 
to estimate the switching response of builders and homeowners in 
residential installations to potential amended AFUE standards for 
NWGFs. (Potential product switching for MHGFs is discussed in the 
following subsection.) However, the potential consumer switching 
response is highly uncertain, as this represents a significant change 
in residential heating equipment. Given this uncertainty, DOE chose to 
bound the range of potential impacts by analyzing several scenarios, 
including a scenario with no product switching, scenarios with a 
moderate amount of product switching, and an additional scenario with a 
much higher percentage of consumers switching to heat pump systems due 
to the potential availability of tax credits. By analyzing this range 
of scenarios, DOE can determine whether the potential for product 
switching affects its evaluation of economic justification.
    For the purposes of the reference case analysis, DOE assumed a 
moderate level of product switching. DOE analyzed product switching 
scenarios that represent the most common combinations of space 
conditioning and water heating products. The model considers three 
options available for each sample home when installing a heating 
product: (1) a NWGF that meets a particular standard level, (2) a heat 
pump, or (3) an electric furnace. In addition, for situations in which 
installation of a condensing furnace would leave an ``orphaned'' gas 
water heater requiring costly re-venting, the model allows for the 
option to purchase an electric water heater as an alternative. For 
option 2, DOE took into consideration the age of the existing central 
air conditioner, if one exists, by including its residual value in the 
choice model. If an existing air conditioner is not very old, it is 
unlikely that the consumer would opt to install a heat pump, which can 
also provide cooling.
    The consumer choice model calculates the PBP between the higher-
efficiency NWGF in each standards case compared to the electric heating 
options using the total installed cost and first-year operating cost 
for each sample household or building. The operating costs take into 
account the space-heating load and the water heating load for each 
household, as well as the energy prices over the lifetime of the 
available product options.\212\ DOE accounted for any additional 
installation costs to accommodate a new product. DOE also accounted for 
the cooling load of each relevant household that might switch from a 
NWGF and central air conditioners (``CAC'') to a heat pump. For 
switching to occur, the total installed cost of the electric option 
must be less than the NWGF standards case option.
---------------------------------------------------------------------------

    \212\ Electric furnaces are estimated to have the same lifetime 
as NWGFs (21.5 years); however, heat pumps have an estimated average 
lifetime of 19 years. To ensure comparable accounting, DOE 
annualized the installed cost of a second heat pump and multiplied 
the annualized cost by the difference in lifetime between the heat 
pump and a NWGF.
---------------------------------------------------------------------------

    DOE used updated CAC and heat pump prices from the 2016 CAC and 
heat pump direct final rule,\213\ assuming implementation of the CAC/HP 
minimum standards scheduled to take effect in 2023. 82 FR 1786 (Jan. 6, 
2017). These heat pump prices include the manufacturer production 
costs, shipping costs, markups, and installation costs determined in 
the 2016 final rule. These costs were updated to 2022$ and the 
installation costs were updated using the same labor costs as discussed 
in section IV.F.2 of this document. DOE additionally updated the 
decreasing price trend for heat pumps derived in the 2016 final rule 
with the latest price data available. This trend suppresses the cost of 
heat pumps over time for the analysis period in this rulemaking. The 
consumer choice model assumes that if a consumer switches to a heat 
pump, it is to a minimally compliant heat pump (SEER 14). If consumers 
were to instead install higher efficiency heat pumps, this would 
generally increase heat pump installation costs, lowering the rate of 
equipment switching. DOE estimated the price of electric furnaces in 
the engineering analysis (see section IV.C of this document). For water 
heaters, DOE used efficiency and consumer prices for models that meet 
the amended energy conservation standards that took effect on April 16, 
2015. 10 CFR 430.32(d). DOE estimated the price of gas and electric 
storage water heaters based on the 2010 heating products final rule. 75 
FR 20112 (April 16, 2010).\214\ For situations where a household with a 
NWGF might switch to an electric space-heating appliance, DOE 
determined the total installed cost of the electric heating options, 
including a separate circuit up to 100 amps that would need to be 
installed to power the electric resistance heater within an electric 
furnace or heat pump, as well as the cost of upgrading the electrical 
service panel for a fraction of households.
---------------------------------------------------------------------------

    \213\ U.S. Department of Energy-Office of Energy Efficiency and 
Renewable Energy, Residential Central Air Conditioners and Heat 
Pumps Technical Support Document (available at: www.regulations.gov/document/EERE-2014-BT-STD-0048-0098) (last accessed August 1, 2023).
    \214\ U.S. Department of Energy-Office of Energy Efficiency and 
Renewable Energy, Heating Products Final Rule (available at: 
www.regulations.gov/document?D=EERE-2006-STD-0129-0005) (last 
accessed August 1, 2023).
---------------------------------------------------------------------------

    For the purposes of the reference case analysis, the consumer 
choice model

[[Page 87588]]

needs to be calibrated to an available data point. The decision 
criterion in DOE's model was based on proprietary survey data from 
Decision Analyst, collected from five separate surveys conducted 
between 2006 and 2022.\215\ Each survey involved approximately 30,000 
homeowners. For a representative sample of consumers, the surveys 
identified consumers' willingness to purchase more-efficient space-
conditioning systems. The surveys asked respondents the maximum price 
they would be willing to pay for a product that was 25 percent more 
efficient than their existing product, which DOE assumed is equivalent 
to a 25-percent decrease in annual energy costs. From these data, as 
well as RECS billing data to determine average annual space-heating 
energy costs, DOE determined that consumers considering replacing their 
gas furnace would require, on average, a payback period of 3.5 years or 
less in order to purchase a condensing furnace rather than switch to an 
electric space-heating option. This resulting payback period 
requirement is very short, consistent with other studies discussed in 
section IV.F.8.c of this document that found consumers and 
organizations often have very short payback period requirements, 
despite the longer-term economic benefits, thereby leading to 
suboptimal allocation of energy efficiency as a decisional factor. This 
relatively low payback period requirement means that consumers are 
quite sensitive to first costs, and as such, this will tend to dominate 
the switching criterion.
---------------------------------------------------------------------------

    \215\ Decision Analysts, 2006, 2008, 2010, 2013, 2016, 2019, and 
2022 American Home Comfort Studies (available at: 
www.decisionanalyst.com/Syndicated/HomeComfort/) (last accessed 
August 1, 2023). Non-proprietary data of a similar nature were not 
available.
---------------------------------------------------------------------------

    The consumer choice model calculates the PBP between the condensing 
NWGF in each standards case compared to the electric heating options 
using the total installed cost and first-year operating cost as 
estimated for each sample household or building. For switching to 
occur, the total installed cost of the electric option must be less 
than the NWGF standards case option. The model assumes that a consumer 
will switch to an electric heating option if the PBP of the condensing 
NWGF relative to the electric heating option is greater than 3.5 years 
or the PBP relative to the electric heating option is negative.\216\ In 
the case of switching to an electric heating option, the model selects 
the most economically beneficial product. For the proposed energy 
conservation standard, the switching fraction of NWGF consumers is 8.9 
percent, and the switching fraction of MHGF consumers is 8.5 percent.
---------------------------------------------------------------------------

    \216\ The PBP is negative when the electric heating option has 
lower operating cost compared to the condensing NWGF option.
---------------------------------------------------------------------------

    This consumer model may overestimate the level of product switching 
that would occur, as not every consumer is likely to run through this 
PBP calculation to determine whether to switch or not. Familiarity bias 
and like-for-like replacement bias may reduce the impact of product 
switching. However, as previously mentioned, DOE developed several 
scenarios in order to place upper and lower limits on this effect, 
including a scenario in which no product switching occurs and a 
scenario with significantly more product switching. Analyzing all these 
scenarios allows DOE to account for the identified uncertainty in this 
consumer response.
    DOE acknowledges that the consumer survey data it used to determine 
the switching criterion do not directly address the consumer choice to 
switch heating fuels, but because the data reflect a trade-off between 
first cost and ongoing savings, it is reasonable to expect that the 
payback criterion is broadly reflective of the potential consumer 
behavior regarding switching. Furthermore, the fuel switching results 
from DOE's analysis match the overall findings from the GTI Fuel 
Switching Study (see appendix 8J of the final rule TSD), which surveyed 
both contractors and home builders.
    In addition to the primary estimate, DOE conducted sensitivity 
analyses using higher and lower levels of switching, as well as a 
scenario with no switching. The sensitivity analyses use payback 
periods that are one year higher or lower than 3.5 years (i.e., 2.5 
years and 4.5 years). DOE also analyzed a scenario in which potential 
tax credits (up to $2,000) significantly reduce the cost of installing 
a heat pump system, thereby incentivizing even more consumers to switch 
from non-weatherized gas furnaces to heat pumps. This scenario 
represents an upper bound on the fraction of consumers switching to 
alternative heating equipment in response to amended energy 
conservation standards for NWGFs.\217\
---------------------------------------------------------------------------

    \217\ DOE notes that any product switching that may occur in the 
absence of amended energy conservation standards due to tax credits 
is discussed in section IV.G of this document. Such switching would 
not be relevant in the LCC analysis as those consumers would switch 
in the no-new-standards case and thus not be part of the furnaces 
LCC sample anymore.
---------------------------------------------------------------------------

    The relative comparison of the standard levels analyzed for NWGFs 
remains similar, regardless of the switching scenario (including the 
scenario with no switching), as shown in appendix 8J of the final rule 
TSD. The average LCC savings and percentage of consumers experiencing a 
net cost vary between the different switching scenarios; however, at 
the adopted standard level, the average LCC savings are positive, and 
the percentage of consumers experiencing a net cost is below 25 percent 
in all scenarios. Therefore, DOE's evaluation of economic justification 
for NWGFs does not depend on the specific details or assumptions 
regarding product switching, and DOE would come to the same conclusions 
regarding economic justification even if the impacts of the fuel 
switching analysis were not included.
    In response to the NOPR, APGA commented that DOE's statutory 
interpretation that the incorporation of the results of fuel switching 
into the LCC analysis is permissible is contrary to clear intent of 
Congress. (APGA, No. 387 at pp. 19-20) APGA further commented that it 
is unlawful for DOE to compel fuel switching in a rule and that 
Congress intentionally designed EPCA to be fuel neutral--and 
specifically between gas furnaces and electric alternatives. APGA 
argued that EPCA requires DOE to consider the possibility of fuel 
switching and set a standard that ``is not likely to result in a 
significant shift from gas heating to electric resistance heating with 
respect to either residential construction or furnace replacement.'' 
APGA claimed that DOE allows fuel switching in some cases and not in 
others--for example depending on degree. APGA disagreed with DOE's 
interpretation given a plain reading of the statute and upon the 
strength of the legislative history. (APGA, No. 387 at pp. 36-39)
    AGA similarly stated that it is improper for DOE to include LCC 
savings associated with fuel switching in the energy saving and 
economic justification of a consumer natural gas furnace standard. 
(AGA, No. 405 at pp. 74-77) AGA further argued, similarly to APGA, that 
the proposed rule would unlawfully compel many consumers to switch from 
gas to electric appliances. AGA argued that when Congress gave the 
Department authority to establish new standards for furnaces, it 
specified that those standards must not be ``likely to result in a 
significant shift from gas heating to electric resistance heating with 
respect to either residential construction or furnace replacement,'' 
and, therefore, the legislative history demonstrates that Congress did 
not intend for energy conservation standards to allow DOE to favor one 
fuel

[[Page 87589]]

over another or limit consumer choice. (AGA, No. 405 at pp. 102-103) 
AGA argued that Congress designed the energy conservation standard 
program to be fuel-neutral and prevent fuel switching. (AGA, No. 405 at 
p. 105)
    HARDI commented that the NOPR did not meet the requirements 
outlined by EPCA, stating that the statute prescribes that standards 
cannot ``result in a significant shift from gas heating,'' and that the 
fuel-switching analysis does not demonstrate this requirement has been 
met. (HARDI, No. 384 at pp. 3-4)
    NPGA stated that because the proposed minimum efficiency level can 
only be achieved using condensing technology that requires a condenser 
and venting configurations that differ from atmospherically drafted 
furnaces, the proposal exceeds authority under EPCA, unlawfully compels 
fuel switching from gas furnaces to electric alternatives, and imposes 
design requirements. (NPGA, No. 395 at p. 2) NPGA further stated that 
Congress gave DOE authority to promulgate standards, but such standards 
must not be ``likely to result in a significant shift from gas heating 
to electric resistance heating with respect to either residential 
construction or furnace replacement.'' NPGA commented that the proposed 
standard is contrary to this requirement because it is so uneconomical 
that it is predicted to force consumers from gas furnaces to electric 
alternatives, such as electric resistance heating or heat pumps. (NPGA, 
No. 395 at p. 4) NPGA cited Senate and Congressional reports from 1986 
and 1987 discussing the standards to be set for small gas furnaces, in 
order to show that Congress did not want to set standards for small gas 
furnaces that would impact competition between fuel sources and cause a 
significant switch to electric resistance heating. (NPGA, No. 395 at 
pp. 4-8) NPGA commented that contrary to the intent of Congress, DOE's 
proposal embraces fuel switching, biases against gas in favor of 
electricity, and harms an important industry vital to consumer 
wellbeing. (NPGA, No. 395 at pp. 8-9) The Heartland Institute expressed 
concern that consumers will switch from natural gas to less-efficient 
electricity or heat their homes in a dangerous or more inefficient 
manner, stating that this is unlawful and that EPCA is designed to be 
fuel-neutral. (Heartland Institute, No. 376 at pp. 1-2) The Georgia Gas 
Authority commented that the lack of economic justification and the 
effect of driving consumers towards fuel-switching makes the proposed 
rule unlawful under EPCA. (Georgia Gas Authority, No. 367 at p. 2) 
Spire commented that DOE's fuel switching analysis is inconsistent with 
EPCA's statutory scheme because it fails to provide comparisons between 
the cost of furnaces with the required efficiency improvements and the 
value of the operating cost savings those efficiency improvements would 
provide as a result of the standard. (Spire, No. 413 at pp. 45-46) 
Spire also commented that the proposed standards promote 
electrification rather than conserve energy through efficiency in gas 
products, thereby conflicting with EPCA and being inconsistent with the 
overall statutory scheme. (Spire, No. 413 at pp. 2, 43-49) Finally, 
Spire commented that the fuel-switching analysis occurs in instances 
without new standards, and that the fuel-switching numbers provided 
include those instances. (Spire, Public Meeting Webinar Transcript, No. 
4099 at p. 15)
    The following paragraphs explain DOE's rationale as to why the 
Department's amended standard and fuel switching analysis are 
appropriate and are consistent with EPCA.
    First, DOE has concluded that the amended standards it is adopting 
for NWGFs and MHGFs are performance-based energy conservation standards 
that meet all relevant statutory requirements. As explained in section 
II.B of this document, DOE has determined that non-condensing 
technology and associated venting do not constitute a performance-
related ``feature'' under 42 U.S.C. 6295(o)(4), consistent with the 
Department's December 2021 Final Interpretive Rule. Consequently, DOE 
is not making any covered product with a performance-related feature 
unavailable as a result of this rulemaking. These furnace standards are 
AFUE-based standards, which reflect efficiencies that are achieved by 
furnaces currently on the market. Although such levels are typically 
achieved by use of condensing technology, DOE does not mandate any 
specific technology or design to be used for meeting the standard, 
thereby allowing manufacturers maximum flexibility in terms of 
incorporating future technological advancements they deem appropriate. 
In the end, DOE has determined that the adopted furnace standards would 
result in the maximum energy savings that are technologically feasible 
and economically justified. Because these standards have been set in 
accordance with the applicable statutory criteria, DOE finds Spire's 
and NPGA's assertions that DOE has exceeded its statutory authority to 
be without merit. So, too, DOE finds without merit Spire's comments 
that these standards seek to promote electrification rather than to 
improve the energy efficiency of gas furnaces or that DOE's rule 
evidences a bias against gas. Consistent with EPCA's mandate, DOE has 
established product classes for each fuel source--gas, oil, and 
electricity--and set standards for those classes based on the criteria 
EPCA requires, i.e., to achieve the maximum improvement in energy 
efficiency which the Secretary determines is technologically feasible 
and economically justified. (42 U.S.C. 6295(o)(2)(A))
    Second, DOE has concluded that an analysis of potential fuel 
switching effects is appropriate and consistent with EPCA. Initially, 
DOE notes that its analysis of fuel switching in the context of 
furnaces was initiated at the request of commenters who urged the 
Department to analyze such effects. As discussed previously, even in 
the absence of standards, consumers of HVAC appliances have a number of 
choices in terms of product selection in the current marketplace. For 
example, some number of consumers voluntarily switch their home heating 
system in any given year to a heat pump from a gas furnace, and some 
number of consumers switch from a gas furnace to an electric furnace. 
Understanding such routine changes is necessary for DOE to properly 
analyze the base case in any standards rulemaking, particularly as it 
relates to annual product shipments. DOE sees no reason why such real-
world effects should be ignored in the standards cases. Instead, the 
failure to properly account for such effects would be inconsistent with 
EPCA's direction to consider whether the standard is economically 
justified, accounting for, among other things, future product 
shipments. (See 42 U.S.C. 6295(o)(2)(B)(i)(I) and (III)) Consistent 
with that recognition, DOE has analyzed potential changes in consumer 
behavior in a number of other rulemakings--and without controversy in 
terms of the permissibility under EPCA of considering such effects. DOE 
has analyzed the impacts of a potential standard on out-of-scope 
products as well as cross-elasticities between different product 
classes in other rulemakings.\218\ DOE cautions that any primary 
analysis that refuses to acknowledge the potential for fuel switching 
(product switching) ignores reality, so DOE has continued to include 
the fuel switching model as part of its analysis, in order to provide 
the most accurate assessment of the costs and benefits of this 
rulemaking. However, as

[[Page 87590]]

discussed in the paragraph that follows, DOE has performed sensitivity 
analyses which assessed the effects of DOE's proposed standards if 
there were to be no fuel switching (see appendix 8J of the final rule 
TSD).
---------------------------------------------------------------------------

    \218\ For example, general service fluorescent lamps, motors, 
and clothes washers.
---------------------------------------------------------------------------

    DOE's sensitivity analysis shows that the rule would be 
economically justified even if consumers were assumed to forgo 
economically beneficial opportunities to switch from gas furnaces to 
electric heat pumps. For example, with the reference case switching 
assumptions, DOE estimates that 18.7 percent of NWGF consumers would 
experience a net cost with average LCC savings of $350. Assuming no 
switching, DOE estimates that 21.6 percent of consumers would 
experience a net cost with an overall average LCC savings of $164 
across all consumers. In either case, DOE considers the amended 
standard level to be economically justified. Thus, even if EPCA 
required the Department to ignore the likely real-world effects of its 
standards, and instead compelled an analysis that assumed consumers 
would eschew all fuel-switching, the resulting analysis would produce 
the same results: the standards adopted for gas-fired furnaces by this 
rule would still be the standards that achieve the maximum improvement 
in energy efficiency and that are technologically feasible and 
economically justified.
    The amended standards plainly do not compel fuel switching. DOE's 
rule does not ban gas furnaces, and the Department has concluded that 
there are technological solutions available to allow continued 
installation of gas-fired furnaces for virtually all installation 
scenarios, as discussed in section IV.F.2 of this document. 
Consequently, DOE's rule does not compel any consumer to convert to an 
electric space-heating product, and consumers continue to have a 
variety of choices to suit their needs. DOE does acknowledge (and 
accounts for in its analysis) that in certain difficult installation 
situations with higher costs, consumers may choose to change their HVAC 
equipment to a product using a different fuel type, but as previously 
discussed, DOE expects this percentage to be small. Furthermore, newer 
technology options such as DuraVent FasNSeal may further reduce the 
prevalence and cost of such problematic installations. Although gas 
industry commenters have made numerous qualitative arguments regarding 
such installations, they have provided no data to demonstrate the 
quantitative impacts or to show that DOE's estimates are incorrect. DOE 
also finds no basis to support the Heartland Institute's assertion that 
consumers who choose to change their home heating product would face 
safety challenges or encounter a lack of energy-efficient alternatives; 
DOE's energy conservation standards for any of its covered space-
heating products set minimum energy efficiency requirements for those 
products, and there are typically a variety of even more efficient 
products available on the market. DOE further has found that there are 
trained and qualified personnel available to adequately install and 
service such products, thereby alleviating any potential safety or 
reliability concerns.
    Finally, DOE clarifies the concept of fuel neutrality. Contrary to 
commenters' arguments, EPCA does not contain a general fuel-neutrality 
provision. In addition, in several specific provisions, EPCA requires 
particular consideration of fuel switching and the utility consumers 
derive from different fuels. DOE has adhered to these requirements of 
EPCA, as applicable. The Department has made clear in other rules that 
``DOE does not agree that EPCA, as amended, mandates fuel neutral 
energy conservation standards.'' See Full-Fuel-Cycle Final Statement of 
Policy, 76 FR 51281, 51284 (August 18, 2011). In that document, DOE 
confirmed that it will continue to consider comparable products that 
use different fuels in separate classes as required by 42 U.S.C. 
6295(q)(1). Id.
    As explained in DOE's August 2021 proposed interpretive rule, fuel 
switching is a natural part of market operation for the subject 
appliances, and it may occur even in the absence of amended energy 
conservation standards. The Department has recognized that ``fuel 
switching occurs frequently and most certainly in the context of new 
energy conservation standards.'' 86 FR 48049, 40856 (August 27, 2021). 
Installation costs may influence consumer decisions regarding fuel 
choice, and at any time, a segment of consumers may choose replacement 
products that rely on a different fuel source than that of the unit 
being replaced. Id. Because fuel switching may be impacted by the 
adoption of standards, when conducting an energy conservation standards 
rulemaking, the Department routinely accounts for potential fuel 
switching in its consumer choice model, which is one part of its full 
suite of analyses. Accordingly, ``[a]lthough DOE typically analyzes 
fuel-switching effects, the agency is generally free to set an 
appropriate level under the applicable statutory criteria regardless of 
any ancillary fuel switching effects.'' Id. Consequently, to the extent 
EPCA imposes a general principle of fuel-neutrality, DOE has understood 
that principle to be ``violate[d]'' only by ``a degree of fuel 
switching that is much greater than typically found in DOE energy 
conservation standards rulemakings.'' Id.
    The specific provision to which gas industry commenters cite in 
support of their fuel-neutrality argument is not applicable to this 
rulemaking. Specifically, commenters rely on a provision requiring DOE 
to determine that a particular energy conservation standard not 
``result in a significant shift from gas heating to electric resistance 
heating with respect to either residential construction or furnace 
replacements'' (see 42 U.S.C. 6295(f)(1)(B)(iii)). However, commenters 
ignore the limited applicability of that provision. That limitation is 
one of three requirements applicable to DOE's issuance of an energy 
conservation standard for small furnaces (i.e., less than 45,000 BTUs) 
(see 42 U.S.C. 6295(f)(1)(B)(i)), for which DOE was required to 
establish standards no later than January 1, 1989 (see Id. at 42 U.S.C. 
6295(f)(1)(B)). DOE discharged that obligation by rulemaking in 1989. 
See Energy Conservation Program for Consumer Products: Energy 
Conservation Standards for Two Types of Consumer Products, 54 FR 47916 
(Nov. 17, 1989). The statutory provision to which commenters point 
demonstrates that Congress knew how to address concerns about fuel 
neutrality, doing so explicitly at the relevant place in the statute; 
Congress did not choose to adopt fuel neutrality provisions in other, 
broader provisions of EPCA's rulemaking authority.
    The commenters seek to expand the reach of that provision to all 
subsequent furnace rulemakings. As explained subsequently, neither the 
language of the statute nor the legislative history support such a 
broad expansion of this fuel-neutrality limitation.
    Congress did not place this fuel neutrality requirement in a 
provision of EPCA applicable to all rulemakings or even in a separate 
provision applicable to all furnace rulemakings. Instead, this specific 
limitation was included in a grant of authority for a single rulemaking 
to be completed by January 1, 1989, establishing an energy conservation 
standard for furnaces (other than furnaces designed solely for 
installation in mobile homes) having an input of less than 45,000 Btu 
per hour and manufactured on or after January 1, 1992. (42 U.S.C. 
6295(f)(1)(B)(i)) The statute further provided that DOE's final rule 
must be set at an AFUE between 71 percent and 78 percent. (42 U.S.C. 
6295(f)(1)(B)(ii)) Congress set specific

[[Page 87591]]

AFUE levels for most consumer furnaces by statute. (See Id. at 42 
U.S.C. 6295(f)(1) and (2)) For this specific small furnaces rulemaking, 
however, Congress granted DOE discretion, but nevertheless imposed 
unusually prescriptive guidelines. Those specific guidelines make sense 
against a backdrop of otherwise congressionally mandated standards. 
However, they are entirely inconsistent with the general rulemaking 
authority Congress conferred upon the Department to set new or amended 
standards for covered products. The previous subsection makes this 
plain. Subsection (f)(1)(B)(ii) mandates that a January 1, 1989, 
regulation for ``such furnaces''--i.e., small furnaces manufactured 
after January 1, 1992--must set an AFUE between 71 and 78 percent. (Id. 
at 42 U.S.C. 6295(f)(1)(B)(ii)) But that provision is obviously 
inapplicable to all future furnace rulemakings. In its 1989 regulation, 
DOE established a standard for the small furnaces to which these 
provisions apply with an AFUE of 78 percent. In 2007, pursuant to 
EPCA's requirement that DOE consider amended standards for consumer 
furnaces, DOE promulgated amended standards for furnaces--including 
both these small furnaces and furnaces of other sizes--which raised the 
AFUE standard to 80-percent AFUE for NWGFs, to 81-percent AFUE for 
weatherized gas furnaces, to 80-percent AFUE for MHGFs, and to 82-
percent AFUE for non-weatherized oil-fired furnaces. Such a rule would 
have been impossible if the efficiency range specified by 42 U.S.C. 
6295(f)(1)(B)(ii)--71-78 percent AFUE--applied to that rulemaking. Of 
course, it did not, because 42 U.S.C. 6295(f)(1)(B)(ii) applied only to 
the Department's initial small-furnace rulemaking in 1989. Commenters 
never explain why subsection (f)(1)(B)(iii)--proscribing a significant 
shift to electric resistance heating--should apply to future 
rulemakings while subsection (f)(1)(B)(ii) should not.
    Further, even if applicable to this rulemaking, the specific 
prohibition of 42 U.S.C. 6295(f)(1)(B)(iii) would have far less effect 
here than commenters assert. That section prevented DOE from setting a 
standard that would likely result in a significant shift from gas 
heating to ``electric resistance heating.'' Although that statutory 
requirement to avoid a shift to electric resistance heating was limited 
to the past rulemaking conducted under 42 U.S.C. 6295(f)(1)(B)(iii), 
DOE has concluded that the current rulemaking is also unlikely to drive 
a shift to electric resistance heating. To the extent the standard at 
issue here may result in a shift, it is far more likely to result in a 
shift from gas heating to electric heat pumps, a different technology 
with very different characteristics. At the time these particular 
statutory provisions were adopted, electric heat pumps were not as 
common with low market share in regions traditionally heated by 
furnaces, but in the intervening years, the heat pump market has seen 
considerable development. Heat pumps are far more efficient than 
electric resistance heating and can be more energy efficient than gas-
fired furnaces. It would pervert EPCA's energy-savings purpose to infer 
from a prohibition on setting a standard likely to result in an 
inefficient shift an additional, a textual prohibition on setting a 
standard likely to result in an efficient one.
    Although the relevant statutory text is clear and controls, DOE 
nonetheless examined the legislative history to confirm its reading of 
the text, particularly since certain commenters advanced a contrary 
reading based at least in part on legislative history. This inquiry 
confirmed DOE's understanding of the statutory text and likewise 
confirmed that the contrary reading espoused by those commenters is 
incorrect, for the reasons discussed subsequently. The legislative 
history that commenters cite supports the Department's interpretation. 
In one set of remarks regarding amendments to EPCA, Senator Bennett 
Johnston, Chairman of the Senate Committee on Energy and Natural 
Resources, stated:

    We were concerned that if the Secretary establishes a standard 
for small gas furnaces at 78 percent, as originally proposed, the 
first cost differential between electric resistance heat and natural 
gas will increase to the point where builders will not even consider 
gas heat, particularly in southern areas where heating is a minor 
part of the overall residential energy requirement. With regard to 
the first cost, according to AGA, a 71-percent efficient gas furnace 
costs $475. Electric-resistance-heating equipment costs on an 
average $350, a difference of $125. By contrast, a 78-percent 
efficient gas furnace entails additional installation and duct work 
cost estimated conservatively at $150 to $200. Thus, the builder 
could save some $500 per living unit by choosing electric resistance 
heat over a 78-percent efficient gas furnace.
    One of the main goals of this legislation is to encourage energy 
conservation without unduly altering the economics of fuel choices. 
This goal will be impaired unless the standard for small gas 
furnaces is set so as to avoid raising the cost of these furnaces to 
the point where builders are forced to select electric resistance 
heat instead of a gas furnace purely on the basis of first cost.
    That is why I added language in our Energy and Natural Resources 
Committee report making it clear that the Secretary must pay due 
consideration to the need for utilities to continue to compete 
fairly when DOE considers setting the standard for small gas 
furnaces. I made it clear the committee was concerned that setting a 
standard for small gas furnaces at or near the 78-percent level 
mandated in the bill for larger gas furnaces would increase the 
first cost of the small gas furnace sufficiently to induce a 
significant switch to electric resistance heating.
    The report language goes on to say that the bill will, upon a 
sufficient showing, * * * forbid a standard for small gas furnaces 
being set at a level that would increase the price to the point that 
the product would be noncompetitive, resulting in minimal demand for 
the product.\219\
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    \219\ 132 Cong. Rec. 31328 (Oct. 15, 1986) (emphasis added).

---------------------------------------------------------------------------
    In Senate Report No. 99-497, the report states in relevant part:

    In addition, the Committee agreed to adopt specific report 
language clarifying its intent with respect to small furnaces; those 
having an input of less than 45,000 Btu's per hour.
    The Committee did not establish an initial standard for small 
gas furnaces in the statute and instead directed the DOE to 
establish the standard by rule at an annual fuel utilization 
efficiency of not less than 71 percent and not more than 78 percent. 
The Committee was concerned that setting a standard for small gas 
furnaces, at or near 78 percent (the level for larger gas furnaces), 
would increase their initial price. Because of the competition 
between small gas furnaces and electric resistance heating in some 
areas of the Nation, such a price increase for small gas furnaces 
could induce builders or consumers to switch to electric resistance 
heating. No specific standard for electric resistance heating is 
included in this bill.
    Section 325(j) provides several safeguards against a standard 
for small gas furnaces being set at a level that results in a buying 
preference or significant switching from gas heating to electric 
resistance heating. The Secretary must consider the impact of any 
lessening of competition that is likely to result from the 
establishment of a standard for small furnaces. He must consider the 
economic impact of the standard on manufacturers and consumers. In 
addition, the Secretary must consider the total projected amount of 
energy savings likely to result from the establishment or revision 
of a standard for small furnaces.
    Finally, section 325(j)(4) forbids a standard being set so as to 
result in the unavailability in the United States in any covered 
product type (or class) of performance charact[e]ristics, such as 
size or capacity. This paragraph, upon a sufficient showing, would 
forbid a standard for small gas furnaces being set at a level that 
would increase the price to the point that the product would be 
noncompetitive and that would result in minimal demand for the 
product.'' \220\ Language from Senate Report

[[Page 87592]]

No. 100-6 similarly reflects Congress's specific focus on small gas 
furnaces: ``On page 23, lines 13 through 18, the Committee modified 
the language of the bill amending section 325(f)(1)(B) of EPCA to 
include an additional clause (iii). The purpose of the new clause is 
to clarify that, in setting an energy conservation standard for 
small gas furnaces (those having an input of less than 45,000 Btu's 
per hour), the Secretary of Energy shall, in a manner which is 
otherwise consistent with this Act, establish the standard at a 
level between 71 percent and 78 percent AFUE `which the Secretary 
determines is not likely to result in a significant shift from gas 
heating to electric resistance heating with respect to either 
residential construction or furnace replacement.
---------------------------------------------------------------------------

    \220\ S. Rep. No. 99-497, at 5 (1986) (emphasis added).
---------------------------------------------------------------------------

    The Committee did not establish an initial standard for small 
gas furnaces in the statute and instead directed the DOE to 
establish the standard by rule at an annual fuel utilization 
efficiency of not less than 71 percent and not more than 78 percent. 
The Committee was concerned that setting a standard for small gas 
furnaces, at or near 78 percent (the level for larger gas furnaces), 
would increase their initial price. Because of the competition 
between small gas furnaces and electric resistance heating in some 
areas of the Nation, such a price increase for small gas furnaces 
could induce builders or consumers to switch to electric resistance 
hearing. No specific standard for electric resistance heating is 
included in this bill.
    Section 325(j) provides additional safeguards against a standard 
for small gas furnaces being set at a level that results in a buying 
preference or significant switching from gas heating to electric 
resistance heating (see section-by-section analysis).\221\
---------------------------------------------------------------------------

    \221\ S. Rep. No. 100-6, at 5-6 (emphasis added).

    Although the legislative history reveals a broader statement \222\ 
by one individual member of Congress, once again Senator Bennett 
Johnston, its breadth is an outlier which contrasts with his own later 
statements and committee report language which demonstrates a focus on 
the small furnaces standard. The grants of rulemaking authority at 42 
U.S.C. 6295(f)(4) and 42 U.S.C. 6295(m)(1), on which this rulemaking 
relies, do not limit the Department's discretion in the manner of 42 
U.S.C. 6295(f)(1)(B)(iii). As relevant here, rather, the Department's 
discretion under those provisions is constrained by the generally 
applicable limits found in 42 U.S.C. 6295(m), (o), (p), and (q). Those 
provisions disallow establishment of a standard likely to result in the 
unavailability of a feature (see 42 U.S.C. 6295(o)(4)), and require 
establishment of a separate standard for any covered products that 
``consume a different kind of energy from that consumed by other 
covered products within'' the regulated type of products (42 U.S.C. 
6295(q)(1)(A)). The standards established by this final rule comport 
with these statutory requirements.
---------------------------------------------------------------------------

    \222\ At 133 Cong. Rec. 545 (Jan. 6, 1987), Senator Johnston 
states, ``One very sensitive aspect of this bill has been to 
minimize the effect it might have on the intense competition between 
the electric and gas industries. We don't want the bill to have the 
effect of creating a significant bias against any fuel--be it oil, 
gas, or electricity--so as to favor one over the other.''
---------------------------------------------------------------------------

    AGA stated that it is improper for DOE to consider fuel switching 
as one of the benefits of the proposed standards. To be consistent with 
EPCA's text, purpose, structure, and intent, AGA argued instead that 
the purported savings due to fuel switching must be subtracted from the 
analysis of whether the standards would be economically justified. 
(AGA, No. 405 at p. 105) In response, DOE notes that the impacts of 
fuel switching are not necessarily benefits. There are differences in 
costs and energy consumption compared to the no-new-standards case, and 
DOE is merely accounting for these differences in the sensitivity 
analysis described in this section. DOE has evaluated a variety of 
fuel-switching scenarios (including a scenario with no switching). The 
relative comparison of the standard levels analyzed for NWGFs remains 
similar, regardless of the switching scenario. The results for all 
scenarios are found in appendices 8J and 10E of the final rule TSD. 
Therefore, DOE's evaluation of economic justification for NWGFs does 
not depend on the specific details or assumptions regarding product 
switching, and DOE comes to the same conclusions even if the impacts of 
fuel switching are not included.
    AGA argued that DOE also fails to acknowledge that with a 
condensing furnace, consumers will use more electricity, counteracting 
the fuel savings. AGA asserted that DOE should recognize that fuel 
switching, under the proposed rule, would increase overall energy 
consumption, which runs counter to the objectives of an energy 
conservation standard. (AGA, No. 405 at pp. 74-77) In response, DOE 
finds AGA's claim to be incorrect and without merit. DOE's analysis 
does account for the slight increase in electricity consumption for 
condensing furnaces compared to non-condensing furnaces, as presented 
in section IV.E.4 of this document, and the estimated energy savings of 
the rule incorporate this impact. DOE also accounts for the increase in 
electricity consumption if a consumer switches to a heat pump or 
electric furnace. These effects are incorporated in both the LCC 
analysis and national impact analysis. However, the energy savings from 
reduced natural gas consumption vastly outweigh the slight increase in 
electricity consumption. Furthermore, DOE fully accounts for these 
impacts in all fuel-switching scenarios. Even in scenarios where some 
fraction of consumers switch to an electric heating alternative, the 
energy savings from reduced natural gas consumption vastly outweigh the 
increase in electricity consumption. It would run counter to the 
purposes of EPCA to forgo such energy savings unnecessarily.
    Spire commented that forced transition to electric alternatives 
would increase energy consumption. (Spire, No. 413 at pp. 5-14) In 
response, DOE accounts for the increased electricity consumption as a 
result of product switching to electric alternatives in its analysis.
    APGA commented that DOE's analysis fails to appropriately account 
for the increased emissions from the electricity sector that results 
from increased electrical energy consumption caused by fuel switching. 
(APGA, No. 387 at p. 29) AGA commented that DOE should fully examine 
the impacts fuel switching would have on the entire energy system, 
including utilities and end-use residential consumers. According to the 
commenter, fuel switching can impact existing and future natural gas 
utility and electricity consumers, so, therefore, the Department should 
thoroughly examine how fuel switching would impact future electricity 
generation, transmission, or distribution infrastructure requirements. 
(AGA, No. 405 at pp. 105-106) In response, DOE emphasizes that the 
impacts of fuel switching are incorporated in all parts of its analysis 
(as part of the reference new-standards scenario). This includes the 
impacts on end-use residential consumers, electric utilities, natural 
gas utilities, and emissions reductions or increases. The results do 
account for increased emissions from the electricity sector. The 
utility impact analysis specifically accounts for the effects of fuel 
switching.
    APGA opined that the estimates of potential switching in the TSD 
remain low, especially given financial incentives just passed by 
Congress in the Inflation Reduction Act, various initiatives of DOE to 
support low-income households, and numerous State initiatives. 
According to APGA, another reason that DOE's estimate of fuel switching 
is low is that DOE continues to underestimate the cost of difficult 
retrofits. The commenter reasoned that additional fuel switching to 
electric appliances decreases energy savings under DOE's analysis. 
(APGA, No. 387 at pp. 33-34) As discussed more fully

[[Page 87593]]

subsequently, DOE has amended its shipments projection to account for 
existing policy initiatives with known impacts (see section IV.G.2 of 
this document), which has resulted in adjustments to the no-new-
standards shipments projection. For the final rule, the shipments 
projected in 2050 are approximately 3 percent lower than was estimated 
in the NOPR. With respect to costs, DOE estimates its installation 
costs based on the best available data and information submitted by 
commenters, as discussed in section IV.F.2 of this document. DOE has 
evaluated all relevant information and data and has not identified any 
data that contradict its cost estimates. DOE concludes that its 
installation cost estimates are reasonable and representative and, 
therefore, that the resulting fuel-switching impacts are reasonable and 
representative. Finally, DOE accounts for all energy consumption 
differences compared to the no-new-standards case. In fuel-switching 
scenarios where some fraction of consumers switch to an electric 
heating alternative, the energy savings from reduced natural gas 
consumption vastly outweigh the increase in electricity consumption.
    Spire claimed that DOE employs a fuel-switching analysis that 
assumes that consumers facing higher initial costs will engage in fuel-
switching and does not consider the economic outcome of an investment 
in a standards-compliant furnace. Spire further argued that this is 
statutorily prohibited, as it is not fuel-neutral and is not comparing 
directly within classes because the technology is changing (non-
condensing to electric). Spire claimed that DOE's fuel-switching 
analysis seeks to justify standards imposing economically unjustified 
efficiency by driving consumers to choose alternatives to gas furnaces. 
(Spire, No. 413 at pp. 43-44) In response, DOE finds that Spire is 
incorrect in its characterization of the analysis. The analysis 
considers the economic outcome of an investment in a standards-
compliant furnace. Only a small fraction of consumers then opt for an 
electric alternative after this consideration. Even in the absence of 
amended standards, some portion of consumers with furnaces will choose 
to convert their home's heating system to a heat pump, changes which 
reflect consumer choice and the availability of alternative space-
heating appliances in the marketplace. As commenters acknowledge, 
amended standards are likely to have some effect on such consumer 
purchasing decisions, so it would be inappropriate for DOE to fail to 
analyze these effects in both the no-new-standards case and standards 
cases. Furthermore, DOE evaluates a range of sensitivity scenarios with 
respect to fuel-switching assumptions, including a scenario with no 
fuel switching. The relative comparison of the standard levels analyzed 
for NWGFs remains similar, regardless of the switching scenario. The 
results for all scenarios are found in appendices 8J and 10E of the 
final rule TSD. Therefore, DOE's evaluation of economic justification 
for NWGFs does not depend on the specific details or assumptions 
regarding product switching, and DOE would reach the same conclusions 
even if the impacts of fuel switching are not included. To be clear, 
contrary to the assertions of Spire and others, justification for the 
amended standards set by DOE in this final rule does not hinge on fuel-
switching results.
    Spire commented that DOE's analysis does not appear to account for 
base case fuel switching (i.e., fuel switching that would occur in the 
absence of new standards). (Spire, No. 413 at p. 50) In response, DOE 
notes that this assertion is incorrect. As previously mentioned, DOE 
incorporates existing market trends, including a shift to heat pumps 
and other heating alternatives in the absence of new standards, in its 
shipments projection and national impact analysis (see section IV.G of 
this document for further discussion). The LCC analysis specifically 
analyzes existing furnace consumers and the impacts on them due to a 
standard. Consumers that have already switched in the absence of a 
standard are not part of the LCC analysis, as they are not directly 
impacted by the rule; however, the reduction of future furnace 
shipments due to product switching will reduce overall energy savings 
in the national impact analysis, and that is accounted for in the 
analysis.
    Spire further argued that DOE's assumptions appear to be designed 
to maximize LCC savings rather than to simulate actual consumer 
purchasing behavior. (Spire, No. 413 at p. 51) In response, DOE notes 
that this is a significant mischaracterization of the analysis. The 
incorporation of product switching is intended to capture a potential 
effect raised in previous comments. DOE evaluated a variety of fuel-
switching scenarios (including a scenario with no switching). The 
relative comparison of the standard levels analyzed for NWGFs remains 
similar, regardless of the switching scenario. The results for all 
scenarios are found in appendices 8J and 10E of the final rule TSD. 
Therefore, DOE's evaluation of economic justification for NWGFs does 
not depend on the specific details or assumptions regarding product 
switching, and DOE reaches the same conclusions even if the impacts of 
fuel switching are not included.
    Spire argued that DOE's fuel-switching analysis understates the 
adverse impacts of fuel switching resulting from the standards by 
significantly understating the costs associated with switching to heat 
pumps and ignoring the extent to which high initial costs and 
installation constraints can be expected to drive fuel-switching 
consumers to the worst option from an energy conservation perspective: 
electric resistance heating. (Spire, No. 413 at p. 15) Spire further 
argued that DOE arbitrarily limits the fuel-switching options to heat 
pumps and electric furnaces, ignoring the fact that baseboard heating 
is readily available, easy to install, and has extremely low initial 
costs. (Spire, No. 413 at p. 52)
    In response, DOE notes that its estimates of heat pump costs are 
based on the 2016 final rule technical support document for central air 
conditioners and heat pumps and adjusted to 2022$. These are the most 
recently published estimates by DOE. Heat pump costs are unlikely to 
have changed significantly in the intervening years, other than due to 
the dollar value (which was accounted for). DOE's current analysis is 
consistent with the prior analysis specific to heat pumps. DOE further 
notes that the product-switching analysis considers alternative heating 
options that work with the existing ducted HVAC system. For a stand-
alone gas furnace, the only other option is an electric furnace (i.e., 
electric resistance heating). For a system that includes both an air 
conditioner and a furnace, a heat pump becomes another comparable 
option. DOE also considers switching options related to a water heater 
that formerly shared an exhaust vent with a NWGF. Switching from a NWGF 
to electric baseboard heating requires extensive electrical work in all 
rooms of a home and a likely upgrade of the electrical panel, which 
likely costs several thousands of dollars. DOE disagrees that this is a 
low-cost option and estimates that very few consumers, if any, would 
switch to this option as a result of amended energy conservation 
standards, given the availability of other lower-cost alternatives. 
Additionally, DOE does not consider electric resistance space heaters 
as a viable space-heating alternative to a NWGF, because such heaters 
provide only localized heating utility as opposed to whole-home 
heating.

[[Page 87594]]

    Spire argued that fuel switching substantially increases overall 
carbon emissions and claimed that DOE is understating the adverse 
energy consumption and emissions impacts due to product switching. 
(Spire, No. 413 at pp. 5-6) In response, DOE notes that these 
assertions are incorrect and a mischaracterization of the analysis. 
Product switching does not substantially increase carbon emissions, and 
DOE evaluates a full range of energy savings and emissions impacts for 
all the switching sensitivity scenarios (including a scenario with no 
switching). The national impact analysis results for all scenarios are 
presented in appendix 10E of the final rule TSD. Although incorporating 
product switching decreases national energy savings (due to increased 
electricity consumption), in all scenarios, the rule will result in 
significant energy savings and emissions reductions compared to the no-
new-standards case. The energy savings from reduced natural gas 
consumption vastly outweigh the increase in electricity consumption, 
when addressed on a comparable FFC basis.
    APGA stated that a 95-percent AFUE furnace costs nearly three times 
as much as an 80-percent AFUE natural gas furnace and that an average 
air-source heat-pump system could cost $5,000 to $10,000 to install, 
which the commenter claimed is several times more than a gas furnace. 
(APGA, No. 387 at p. 65) APGA further commented that the heat pumps and 
central air conditioners test procedure final rule that the July 2022 
NOPR cited for its product prices did not clearly explain how the 
prices were developed. APGA questioned whether DOE used a different 
methodology to predict the future prices of heat pumps, and the 
commenter stated that these matters should be clearly explained in the 
final rule. (APGA, No. 387 at p. 53) DOE has described how it estimated 
furnace costs previously in significant detail. With respect heat 
pumps, as noted, DOE utilized the estimated costs published in the 
January 2017 direct final rule for central air conditioners and heat 
pumps. 82 FR 1786 (Jan. 6, 2017). The heat pump product switching 
analysis is only relevant for households with an existing air 
conditioning system, because adding an air conditioner or heat pump 
requires significant additional installation costs, as well as space 
requirements (including adding a concrete pad). Households without an 
existing air conditioning system are unlikely to switch to a heat pump 
in response to an amended standard for consumer furnaces, whereas 
households with an existing (and aging) air conditioning system might 
opt to switch to a heat pump for both their heating and cooling needs.
    PHCC commented that DOE's assumption that heat pump equipment costs 
will go down is incorrect, as material prices have increased due to the 
COVID-19 pandemic and resulting supply chain issues. PHCC further 
stated that heat pump costs are too low as estimated in the NOPR, and 
that the costs for adding power capacity and estimates of the number of 
homes that require additional power capacity are also too low. (PHCC, 
No. 403 at p. 5) In response, DOE acknowledges the supply chain issues 
that were prevalent during the COVID-19 pandemic; however, DOE 
estimates that by the first year of compliance (i.e., 2029) these 
constraints will no longer be relevant. DOE has also adjusted all cost 
estimates to $2022 to reflect recent inflation trends. Lastly, no 
additional data were submitted to support further adjustment of the 
number of homes that require additional power capacity.
    PHCC expressed uncertainty as to whether DOE's updates related to 
heat pumps and to its fuel-switching analysis are sufficient, including 
whether the Department considered the impacts on the recent proposal to 
require a new refrigerant. (PHCC, No. 403 at pp. 4-5) In response, DOE 
notes that it incorporates the latest refrigerant requirements for heat 
pumps in its fuel-switching estimates.
    PHCC commented that the fuel-switching and repair information in 
Tables V.3 and V.4 of the NOPR are understated. (PHCC, No. 403 at p. 6) 
In response, DOE notes that the commenter did not provide any 
meaningful information or data to update or improve the analysis. DOE's 
analysis is based on the best available data and information, including 
that submitted by commenters. DOE has evaluated all relevant 
information and data and has not identified any data that contradicts 
its estimates. Therefore, DOE concludes that its estimate of the 
percentage of consumers switching to an electric heating alternative or 
opting for extended repair are reasonable and representative.
    NGA of Georgia commented that the proposed rule will create a 
competitive disadvantage because the high initial cost of the 
installation requirements for condensing furnaces will cause consumers 
to switch from natural gas to less-efficient home heating alternatives 
such as oil, kerosene, and electric resistance furnaces. (NGA of 
Georgia, No. 380 at p. 3) In response, DOE disagrees that consumers 
will likely switch to oil or kerosene alternatives, as there are 
significantly higher operating and installation costs for those fuels. 
For example, as projected in AEO2023, the cost of fuel oil per MMBtu is 
more than double that of natural gas. Therefore, DOE does not include 
these fuels in its fuel-switching estimates. With respect to electric 
furnaces, DOE already accounts for a fraction of consumers that opt to 
switch to an electric furnace and includes these impacts in its 
analysis.
    The Georgia Gas Authority stated that the residential customers 
served by its members continue to choose the non-condensing furnace as 
the most economical and energy-efficient option. The commenter stated 
that this is evidenced by the number of non-condensing furnaces 
financed through the Georgia Gas Authority's on-bill financing program 
and the responses of HVAC contractors interviewed throughout the 
various regions their members serve. According to the commenter, the 
interviewed HVAC contractors indicated that the unavailability of non-
condensing furnaces would cause widespread fuel switching to electric 
heating. Furthermore, the Georgia Gas Authority stated that many 
natural gas customers would face higher monthly energy costs without 
any improved energy efficiencies by switching to electric appliances. 
(The Georgia Gas Authority, No. 367 at p. 2) In response, DOE estimates 
the total costs and benefits associated with existing non-condensing 
furnace consumers moving to a condensing furnace. DOE's analysis is 
national in scope but captures regional variability. DOE's analyses 
show that a majority of consumers, nationally, are expected to receive 
a net LCC benefit under this rulemaking, and DOE disagrees with the 
commenter that most consumers would switch to an electric alternative. 
In particular, the availability of condensing furnaces will change in 
the new-standards case, and, therefore, it is highly unlikely that 
consumers will switch to electric alternatives due to the 
unavailability of products. Furthermore, DOE's analysis estimates that 
only a modest fraction of consumers would switch to an electric 
alternative. The full impacts of this switch, including all operating 
costs and energy consumption impacts, are accounted for in DOE's 
analysis and evaluation of economic justification.
    The DCA also commented that this proposed rulemaking would lead to 
customers switching to electric furnaces. The commenter further added 
that this switch would lead to higher operating costs and necessitate 
upgrades to electrical systems. (DCA, No. 372 at

[[Page 87595]]

p. 2) In response, DOE has evaluated this possibility of consumers 
switching to electric furnaces as part of the fuel-switching analysis, 
including the impacts of potentially higher operating costs and the 
need for upgrades to electrical systems.
    Edison Electric Institute commented that the fuel-switching 
analysis should account for the other standards that have been 
implemented for related products such as heat pumps. (Edison Electric 
Institute, Public Meeting Webinar Transcript, No. 363 at p. 85) Edison 
Electric Institute similarly commented that the fuel-switching model 
should include technologies such as oil furnaces or other technologies 
besides electric heating systems. (Edison Electric Institute, Public 
Meeting Webinar Transcript, No. 4099 at p. 18) In response, DOE notes 
that the fuel-switching analysis does account for relevant and up-to-
date standards for heat pumps. DOE further estimates that switching 
from gas-fired to oil-fired furnaces is highly unlikely, given the 
installation costs necessary to do so and significantly higher fuel oil 
prices. As a general matter, there has been an overall market shift 
away from oil-fired furnaces.
    HARDI commented that DOE's analysis fails to adequately measure the 
impact of the NOPR. Specifically, HARDI commented that the LCC model 
and its fuel-switching analysis contain incorrect assumptions that will 
make it more difficult for distributors to predict the market changes 
and warehouse the appropriate inventory. (HARDI, No. 384 at p. 2) In 
response, DOE notes that in the standards case, the market for furnaces 
will be more predictable in terms of furnace efficiency options. DOE 
acknowledges the uncertainty in how consumers may respond in terms of 
product switching, which is why there are several product switching 
sensitivity scenarios, but in all cases, DOE concludes that the rule is 
economically justified.
    Sierra Club and Earthjustice commented that the modeling of 
consumers' decisions to switch to electric space-heating appliances in 
response to amended consumer furnace standards is solidly grounded in 
the available data. (Sierra Club and Earthjustice, No. 401 at p. 2) 
Sierra Club and Earthjustice further commented that industry 
stakeholders misapprehend DOE's objective in modeling consumer 
decisions about fuel switching. These commenters stated, as long-term 
industry trends suggest, some portion of consumers will switch to heat 
pumps no matter what standard DOE selects. Further, Sierra Club and 
Earthjustice stated that the amended standard would not be driving the 
broader shift to electric heating appliances, but it may encourage 
customers to invest in cost-effective electric alternatives to consumer 
furnaces. These organizations commented that the base-case efficiency 
and consumer fuel-switching analysis serve different roles in the 
analysis of impact. (Sierra Club and Earthjustice, No. 401 at p. 2) In 
response, DOE clarifies that there are indeed separate aspects to fuel 
switching addressed in the analysis. To the extent that the existing 
NWGF market is shifting to electric heating alternatives, such as heat 
pumps, in the absence of any amended energy conservation standard for 
NWGFs, that is reflected in the no-new-standards case shipments 
projection, as discussed in more detail in section IV.G of this final 
rule. The second aspect of fuel switching is in response to an amended 
energy conservation standard for NWGFs. DOE agrees with Sierra Club and 
Earth Justice that an amended energy conservation standard will not 
drive a significantly broader shift to electric heating alternatives. 
As explained previously, the estimated fraction of consumers that 
switch to an electric heating alternative in response to an amended 
energy conservation standard for NWGFs is expected to be modest.
    Joint Efficiency Commenters stated that DOE's sensitivity analyses 
demonstrate that the proposed standards are cost-effective even with 
alternative assumptions for key parameters. These groups further 
commented that, while higher product switching was found to result in 
greater LCC savings and a lower simple payback period, assuming no 
product switching still resulted in positive LCC savings for the 
proposed standard level. (Joint Efficiency Commenters, No. 381 at pp. 
4-5) DOE agrees.
b. Product Switching Resulting From Amended Standards for Mobile Home 
Gas Furnaces
    As in the NOPR analysis, DOE has included product switching in its 
analysis for MHGFs for this final rule, including a variety of 
sensitivity scenarios. The MHGF product-switching methodology is 
similar to the product-switching methodology for NWGFs, except that the 
model does not assume any switching from gas storage water heaters to 
electric storage water heaters, since MHGFs and gas storage water 
heaters do not share common vents. See appendix 8J of the TSD for this 
final rule for more details regarding the product-switching model for 
MHGFs.
    The relative comparison of the standard levels analyzed for MHGFs 
in this final rule remains similar, regardless of the switching 
scenario (including the scenario with no switching), as presented in 
appendix 8J of the final rule TSD. The average LCC savings and 
percentage of consumers experiencing a net cost vary between the 
different switching scenarios. However, at the adopted standard level, 
the average LCC savings are positive, and the percentage of consumers 
experiencing a net cost is below 25 percent in all scenarios. 
Therefore, DOE's evaluation of economic justification demonstrates that 
MHGFs are not significantly impacted by the specific details or 
assumptions regarding product switching.
    MHI suggested that the standards proposed in the July 2022 NOPR 
could lead consumers to adopt less-efficient, and sometimes dangerous, 
heating methods. (MHI, No. 344 at p. 1) JCI similarly commented that 
DOE should evaluate whether the proposed MHGF standards would drive 
homeowners to unsafe heating alternatives such as portable space 
heaters. (JCI, No. 411 at p. 2) In response, DOE has not found data to 
suggest that MHGF standards would drive homeowners to unsafe heating 
alternatives such as portable space heaters. In addition, DOE notes 
that the commenters did not provide, and that DOE was unable to 
identify, data to support the claim that consumers would switch to 
dangerous heating methods in response to an amended efficiency standard 
for the subject furnaces. While homeowners of manufactured homes could 
purchase multiple portable space heaters to fulfill their heating needs 
throughout the winter in various rooms, switching to portable electric 
resistance heating would substantially increase operating costs for 
most consumers to maintain the same level of comfort and increase 
monthly utility bills for most owners of manufactured homes. DOE 
believes this occurrence will be rare because homeowners are unlikely 
to forgo the use of heat throughout the winter, are unlikely to choose 
unsafe heating alternatives where warnings regarding their constant use 
are readily available and apparent, and are sensitive to monthly 
expenses on utility bills. Thus, DOE believes any occurrences of the 
type posited by MHA and JCI would be rare in practice. DOE has 
identified and evaluated the likely heating alternatives for consumers 
of MHGFs, based on existing and safe products on the market, in its 
switching analysis.

[[Page 87596]]

11. Accounting for Furnace Repair as an Alternative to Replacement 
Under Potential Standards
    For this final rule, DOE added a repair option into its consumer 
choice model. Because repair is likely to be considered first by 
consumers facing furnace replacement, DOE evaluated this option before 
the product switching options.
    To estimate the fraction of consumers in a standards case that 
would choose to repair their existing furnace rather than replace it or 
switch to an alternative product, DOE used a price elasticity 
parameter, which relates the incremental total installed cost to total 
gas furnace shipments, and an efficiency elasticity parameter, which 
relates the change in the operating cost to gas furnace shipments. Both 
types of elasticity relate changes in demand to changes in the 
corresponding characteristic (price or efficiency). A regression 
analysis estimated these terms separately from each other and found 
that the price elasticity of demand for several appliances is on 
average -0.45.\223\ Thus, for example, a price increase of 10 percent 
would result in a shipment decrease of 4.5 percent, all other factors 
held constant. The same regression analysis found that the efficiency 
elasticity is estimated to be on average 0.2 (i.e., a 10-percent 
efficiency improvement, equivalent to a 10-percent decrease in 
operating costs, would result in a shipments increase of 2 percent, all 
else being equal). From these two parameters, DOE derived a probability 
that a given household will not purchase a furnace, which is 
interpreted as the household repairing rather than replacing the 
furnace. The regression analysis included a range for the elasticity 
parameters. The price elasticity parameter was adjusted by income such 
that the higher elasticity was assigned to lower-income households and 
the lower elasticity was assigned to higher-income households, 
resulting in a greater probability of repairing existing equipment for 
lower-income households. Households that are designated as doing a 
repair rather than replacement are not considered in the subsequent 
switching analysis. DOE also conducted sensitivity analyses using 
higher and lower rates of repair. See appendix 8J of the TSD for this 
final rule for more details on the repair vs. replace consumer choice 
model for NWGFs and MHGFs.
---------------------------------------------------------------------------

    \223\ Fujita, S., Estimating Price Elasticity Using Market-Level 
Appliance Data. LBNL-188289 (August 2015) (available at: eta-publications.lbl.gov/sites/default/files/lbnl-188289.pdf) (last 
accessed August 1, 2023).
---------------------------------------------------------------------------

    HARDI commented that the proposed standards would increase repairs 
of older equipment, which would make it more challenging to stock 
repair parts, make these repairs more expensive, and take longer due to 
more product shipments. Finally, HARDI argued that many consumers would 
still opt for these higher repair costs rather than replace their 
furnace due to the increased cost of a new, standards-compliant unit. 
(HARDI, No. 384 at pp. 2-3) ACCA also stated its expectation that the 
proposals in the July 2022 NOPR would result in a significant increase 
in homeowners opting to repair their existing equipment rather than 
working with a licensed professional to replace it. (ACCA, No. 398 at 
p. 3)
    In response, DOE acknowledges that some consumers may opt to extend 
the lifetime of an existing lower-efficiency furnace rather than 
replace it, and the Department includes this effect in its analysis as 
part of its repair vs. replace methodology. Incorporating this effect 
into DOE's analysis reduces the total energy savings expected as a 
result of the standards. However, DOE estimates that only a few percent 
of consumers will opt for an extended repair, which will only delay the 
replacement by a few years given that the furnace will ultimately need 
to be replaced (see results presented in section V.B of this document). 
DOE's shipments projection accounts for these extended repair 
situations. With respect to the availability of non-condensing furnace 
replacement parts, DOE acknowledges that as the share of non-condensing 
furnaces in the building stock decreases over time, the availability of 
replacement parts will decrease as well, but the Department expects 
that manufacturers will have both an economic incentive to continue to 
make such parts available, as well as a desire to maintain good 
relations with their customer base.
    PHCC expressed disagreement with DOE's conclusion that new 
standards will not cause consumers to repair products or use alternate 
heating methods. The commenter surmised that DOE's rationale relates to 
contractors not doing much of this type of repair work in the market 
now, but PHCC argued that the relatively low rate of repair is likely 
tied to consumers currently having other non-condensing furnace 
options. PHCC pointed to the air-conditioning industry, where repairs 
increased when refrigerant requirements changed. Finally, the commenter 
argued that low- and fixed-income consumers would be impacted by these 
increased costs, and that these costs should be considered as a part of 
the LCC and PBP analysis. (PHCC, No. 403 at p. 5)
    In response, DOE clarifies that it does include repair and 
maintenance costs as part of the analysis, differentiated by efficiency 
level. DOE also considers that a fraction of consumers may choose to 
repair a furnace, rather than replace it, at the end of its lifetime, 
in response to an amended energy conservation standard, as described 
previously. DOE also clarifies that it considered the possibility that 
consumers may adopt alternative heating methods in response to an 
amended energy conservation standard for consumer furnaces, as 
described in section IV.F.10 of this document.
12. Payback Period Analysis
    The payback period is the amount of time (expressed in years) it 
takes the consumer to recover the additional installed cost of more-
efficient products, compared to baseline products, through energy cost 
savings. Payback periods that exceed the life of the product mean that 
the increased total installed cost is not recovered in reduced 
operating expenses.
    The inputs to the PBP calculation for each efficiency level are the 
change in total installed cost of the product and the change in the 
first-year annual operating expenditures relative to the baseline. The 
PBP calculation uses the same inputs as the LCC analysis when deriving 
first-year operating costs, except that discount rates are not needed.
    As noted previously in section III.F.2 of this document, EPCA 
establishes a rebuttable presumption that a standard is economically 
justified if the Secretary finds that the additional cost to the 
consumer of purchasing a product complying with an energy conservation 
standard level will be less than three times the value of the first 
year's energy savings resulting from the standard, as calculated under 
the applicable test procedure. (42 U.S.C. 6295(o)(2)(B)(iii)) For each 
considered efficiency level, DOE determined the value of the first 
year's energy savings by calculating the energy savings in accordance 
with the applicable DOE test procedure, and multiplying those savings 
by the average energy price projection for the year in which compliance 
with the amended standards would be required.
    APGA argued that since the product switching decision criterion is 
based on a simple payback period calculation, the inclusion of product 
switching biases the average PBPs to be more attractive than they 
should be. (APGA, No. 387 at pp. 57-58) In response, DOE notes that it 
has performed a sensitivity scenario

[[Page 87597]]

with no product switching, including calculating the resulting PBPs, 
and the conclusions of economic justification remain the same 
regardless of whether product switching is included or not.

G. Shipments Analysis

1. Shipments Model and Inputs
    DOE uses projections of annual product shipments to calculate the 
national impacts of potential amended or new energy conservation 
standards on energy use, NPV, and future manufacturer cash flows.\224\ 
The shipments model takes an accounting approach, tracking market 
shares of each product class and the vintage of units in the stock. 
Stock accounting uses product shipments as inputs to estimate the age 
distribution of in-service product stocks for all years. The age 
distribution of in-service product stocks is a key input to 
calculations of both the NES and NPV, because operating costs for any 
year depend on the age distribution of the stock.
---------------------------------------------------------------------------

    \224\ DOE uses data on manufacturer shipments as a proxy for 
national sales, as aggregate data on sales are lacking. In general, 
one would expect a close correspondence between shipments and sales.
---------------------------------------------------------------------------

    DOE developed shipment projections based on historical data and an 
analysis of key market drivers for each product. DOE estimated NWGF and 
MHGF shipments by projecting shipments in three market segments: (1) 
replacement of existing consumer furnaces; (2) new housing; and (3) new 
owners in buildings that did not previously have a NWGF or MHGF or 
existing NWGF or MHGF owners that are adding an additional consumer 
furnace.\225\ DOE also considered whether standards that require more 
efficient consumer furnaces would have an impact on consumer furnace 
shipments, as discussed in section IV.G.2 of this final rule.
---------------------------------------------------------------------------

    \225\ The new owners primarily consist of households that add or 
switch to NWGFs or MHGFs during a major remodel. Because DOE 
calculates new owners as the residual between its shipments model 
compared to historical shipments, new owners also include shipments 
that switch away from NWGFs or MHGFs.
---------------------------------------------------------------------------

    An anonymous commenter stated that with recent shortages, it has 
been hard to find air-conditioner or furnace units that meet the ultra-
low NOX requirement in areas that require them. (Anonymous 
2, No. 346 at p. 1) The anonymous commenter further recommended that 
more resources should be made available to manufacturers so that 
availability is no longer an issue. (Id.) The same anonymous commenter 
also stated that heat pumps alleviate the issue of not having available 
resources to meet ultra-low NOX requirements. (Id.) The same 
anonymous commenter referenced a blog from Lee's Air, Plumbing, and 
Heating that may serve as a resource for helping residential homeowners 
upgrade old furnaces to ultra-low NOX systems. (Id.) In 
response, DOE acknowledges recent supply chain constraints but assumes 
that all such constraints will be resolved by the first year of 
compliance (2029), as such constraints were heavily tied to the COVID-
19 pandemic. DOE assumes that current supply chain issues will not 
persist out to 2029 and beyond, given that such issues are already in 
the process of resolving and current supply chains are not as 
constrained as they were during the pandemic.
    The Georgia Gas Authority stated that over the past 15 years, the 
average residential natural gas consumption per customer has dropped 
from 72 MMBtu per year to 65 MMBtu per year. The Georgia Gas Authority 
commented that condensing units are currently 50 percent of the market 
and 60 percent of shipped NWGFs. (Georgia Gas Authority, No. 367 at p. 
2)
    Citing a report from the Bonneville Power Administration, NEEA 
stated that 65 percent of gas furnace sales in the Northwest in 2020 
were at an efficiency of 95 percent AFUE or higher. Similarly, NEEA 
added that less than one-third of gas furnaces sales in the Northwest 
are non-condensing, and that this figure has been stable and declining 
from 2016 to 2020. (NEEA, No. 368 at p. 3)
    The Heartland Institute commented that condensing furnaces capture 
more than half the market, with six in ten NWGFs shipped being 
condensing models. Accordingly, the commenter argued that the proposed 
standards for NWGFs and MHGFs are not needed. (Heartland Institute, No. 
376 at p. 2)
    APGA asserted that growth in the market share for condensing 
furnaces is likely to be higher than DOE's estimate and undermines 
DOE's economic justification for further market intervention in the 
form of new standards. (APGA, No. 387 at pp. 7-8)
    In contrast, NYSERDA further commented that DOE's condensing 
furnace national projections are lower than as described in the 2021 
HARDI data for the Northeast and New York, which shows 76 percent and 
64 percent of natural gas furnace shipments as being condensing 
systems, respectively. (Id.) NYSERDA also commented that HARDI sales 
data for New York show that over 50 percent of furnaces sold in the 
Northeast and over 45 percent of those sold in New York are at 96-
percent AFUE. (NYSERDA, No. 379 at p. 2)
    DOE acknowledges the increasing market saturation of condensing 
furnaces and has included this trend as part of the shipments analysis 
based on historical shipments data. These data do indicate a high 
fraction of condensing furnaces in the Northeast.
    Evergreen Action commented that condensing furnaces represent about 
half of the new purchases on the current market; the other half of 
purchases are made by landlords or builders who are not responsible for 
the utility bills, or by homeowners who are making a quick decision 
when replacing a broken furnace. (Evergreen Action, No. 364 at p. 1) In 
response, although DOE acknowledges that a mix of landlords or 
homeowners purchase consumer furnaces, the Department bases its 
shipments projection on historical shipment and saturation data. DOE 
further notes that these observations regarding landlords and builders, 
as well as homeowners making quick replacement decisions, are 
consistent with DOE's discussion of market failures in section IV.F.8 
of this document.
    Nortek commented that the proposed furnace standards could lead the 
already relatively small retail market for MHGFs to shrink, which could 
cause companies to stop making them. The commenter further stated that 
this could reduce competition and, in turn, cause problems for 
manufactured homeowners who would have to turn to more expensive 
alternatives. (Nortek, No. 406 at p. 6)
    Mortex commented that DOE's shipments estimates for MHGFs are too 
high, and estimating that these values should be closer to 36,000 
(consistent with 2021 shipments). In contrast to DOE's projection of 
increasing shipments, Mortex forecasted that shipments of MHGFs will 
decline, reaching 19,000 by 2040. (Mortex, No. 410 at p. 2)
    As discussed in the subsections that fellow, DOE's shipments 
projections for MHGFs are based on historical shipment data submitted 
to DOE by manufacturers and trade associations and historical and 
projected manufactured housing data (existing and new construction), as 
described in chapter 9 and appendix 9A of the final rule TSD. Projected 
housing trends are based on AEO2023. These data indicate that MHGF 
shipments are unlikely to decrease to the level suggested by Mortex, 
primarily due to replacements needed for existing manufactured homes.
    AGA inquired about how the modeled market correlates to the 2020 
RECS data, pointing out that the modeled market

[[Page 87598]]

share of the Pacific Region in 2029 differs from the 2020 RECS data. 
(AGA, Public Meeting Transcript, No. 363 at p. 55) In response, DOE 
clarifies that it includes market share trends into its analysis, such 
that the market shares projected for 2029 will not exactly match 2020 
market shares. Furthermore, RECS data represent the market share of the 
existing stock, whereas the market share for 2029 represents new 
shipments of consumer furnaces.
a. Historical Shipments Data
    DOE assembled historical shipments data for NWGFs and MHGFs from 
Appliance Magazine for 1954-2012,\226\ AHRI from 1996-2022,\227\ HARDI 
from 2013-2022,\228\ and BRG from 2000-2022.\229\ DOE also used the 
1992 and 1994-2003 shipments data by State provided by AHRI \230\ and 
2004-2009 and 2010-2015 shipments data by North and rest of country 
regions provided by AHRI,\231\ as well as HARDI shipments data that is 
disaggregated by region and most States to disaggregate shipments by 
region. DOE also used CBECS 2018 data and BRG shipments data to 
estimate the commercial fraction of shipments. Disaggregated shipments 
for MHGFs are not available, so DOE disaggregated MHGF shipments from 
the total by using a combination of data from the U.S. Census 
^{232 233} American Housing Survey (AHS),\234\ and RECS.\235\
---------------------------------------------------------------------------

    \226\ Appliance Magazine. Appliance Historical Statistical 
Review: 1954-2012 (2014).
    \227\ Air-Conditioning, Heating, & Refrigeration Institute, 
Furnace Historical Shipments Data. (1996-2022) (Available at: 
www.ahrinet.org/resources/statistics/historical-data/furnaces-historical-data) (last accessed August 1, 2023).
    \228\ Heating, Air-conditioning and Refrigeration Distributors 
International (HARDI). DRIVE portal (HARDI Visualization Tool 
managed by D+R International until 2022), proprietary Gas Furnace 
Shipments Data from 2013-2022 proprietary Gas Furnace Shipments Data 
from 2013-2022 provided to Lawrence Berkeley National Laboratory 
(LBNL).
    \229\ BRG Building Solutions. The North American Heating & 
Cooling Product Markets (2023 Edition) (available at: 
www.brgbuildingsolutions.com/reports-insights) (last accessed August 
1, 2023).
    \230\ Air-Conditioning, Heating, and Refrigeration Institute 
(formerly Gas Appliance Manufacturers Association). Updated 
Shipments Data for Residential Furnaces and Boilers, April 25, 2005 
(available at: www.regulations.gov/document/EERE-2006-STD-0102-0138) 
(last accessed August 1, 2023).
    \231\ Air-Conditioning, Heating, and Refrigeration Institute. 
Non-Condensing and Condensing Regional Gas Furnace Shipments for 
2004-2009 and 2010-2015 Data Provided to DOE contractors, July 20, 
2010, and November 26, 2016.
    \232\ U.S. Census Bureau, Manufactured Homes Survey: Annual 
Shipments to States from 1994-2022 (available at: www.census.gov/data/tables/time-series/econ/mhs/shipments.html) (last accessed Aug. 
1, 2023).
    \233\ U.S. Census Bureau, Manufactured Homes Survey: Historical 
Annual Placements by State from 1980-2013 (available at: 
www.census.gov/data/tables/time-series/econ/mhs/historical-annual-placements.html) (last accessed August 1, 2023).
    \234\ U.S. Census Bureau--Housing and Household Economic 
Statistics Division, American Housing Survey, multiple years from 
1973-2021 (available at: www.census.gov/programs-surveys/ahs/data.html) (last accessed August 1, 2023).
    \235\ Energy Information Administration (EIA). Residential 
Energy Consumption Survey (RECS), multiple years from 1979-2020 
(available at: www.eia.gov/consumption/residential/) (last accessed 
August 1, 2023).
---------------------------------------------------------------------------

b. Shipment Projections in No-New-Standards Case
    As stated previously, DOE estimated NWGF and MHGF shipments by 
projecting shipments in three market segments: (1) replacement of 
existing furnaces; (2) new housing; and (3) new owners in buildings 
that did not previously have a NWGF or MHGF or existing NWGF or MHGF 
owners that are adding an additional consumer furnace. These 
projections reflect equipment switching that is occurring without 
standards and additions to homes without central heating.
    To project furnace replacement shipments, DOE developed retirement 
functions from furnace lifetime estimates and applied them to the 
existing products in the housing stock, which are tracked by vintage. 
DOE calculated replacement shipments using historical shipments and the 
lifetime estimates (average 21.5 years). In addition, DOE adjusted 
replacement shipments by taking into account demolitions, using the 
estimated changes to the housing stock from AEO2023.
    To project shipments to the new housing market, DOE utilized a 
forecast of new housing construction and historic saturation rates of 
furnaces in new housing. DOE used the AEO2023 housing starts and 
commercial building floor space projections and data from U.S. Census 
Characteristics of New Housing,^{236 237} Home Innovation 
Research Labs Annual Builder Practices Survey,\238\ RECS 2020, AHS 
2021, and CBECS 2018 to estimate new construction saturations. DOE also 
estimated future furnace saturation rates in new single-family housing 
based on a weighted average of values from the U.S. Census Bureau's 
Characteristics of New Housing from 1990 through 2022.\239\
---------------------------------------------------------------------------

    \236\ U.S. Census. Characteristics of New Housing from 1999-2022 
(available at: www.census.gov/construction/chars/) (last accessed 
August 1, 2023).
    \237\ U.S. Census. Characteristics of New Housing (Multi-Family 
Units) from 1973-2022 (available at: www.census.gov/construction/chars/mfu.html) (last accessed August 1, 2023).
    \238\ Home Innovation Research Labs (independent subsidiary of 
the National Association of Home Builders (NAHB). Annual Builder 
Practices Survey (2015-2019) (available at: www.homeinnovation.com/trends_and_reports/data/new_construction) (last accessed August 1, 
2023).
    \239\ U.S. Census Bureau, Characteristics of New Housing 
(available at: www.census.gov/construction/chars/) (last accessed 
August 1, 2023).
---------------------------------------------------------------------------

    To project shipments to the new-owner market, DOE estimated the new 
owners based on the residual shipments from the calculated replacement 
and new construction shipments compared to historical shipments over 
five years (2016-2020 for this final rule). DOE compared this with data 
from Decision Analysts' 2002 to 2019 American Home Comfort Study,\240\ 
2023 BRG data,\241\ and AHRI's estimated shipments in 2000,\242\ which 
showed similar historical fractions of new owners. DOE assumed that the 
new-owner fraction would be the 10-year average in 2029 and then 
decrease to zero by the end of the analysis period (2058). If the 
resulting fraction of new owners is negative, DOE assumed that it was 
primarily due to equipment switching or non-replacement and added this 
number to replacements (thus reducing the replacements value).
---------------------------------------------------------------------------

    \240\ Decision Analysts, 2002, 2004, 2006, 2008, 2010, 2013, 
2016, 2019, and 2022 American Home Comfort Study (available at: 
www.decisionanalyst.com/Syndicated/HomeComfort/) (last accessed 
August 1, 2023).
    \241\ BRG Building Solutions. The North American Heating & 
Cooling Product Markets (2023 Edition) (available at: 
www.brgbuildingsolutions.com/reports-insights) (last accessed August 
1, 2023).
    \242\ AHRI (formerly GAMA), Furnace and Boiler Shipments data 
provided to DOE for Furnace and Boiler ANOPR (Jan. 23, 2002).
---------------------------------------------------------------------------

    Table IV.12 shows the fraction of shipments for the replacement, 
new construction, and new owner markets in 2029. For NWGFs in 
residential applications, 59 percent of shipments are projected to be 
in the North and 41 percent in the rest of the country. For NWGFs in 
commercial applications, 51 percent of shipments are projected to be in 
the North and 49 percent in the rest of the country. For MHGFs, 70 
percent of shipments are projected to be in the North and 30 percent in 
the rest of the country. See chapter 9 of the final rule TSD for more 
details on the shipments analysis.

[[Page 87599]]



       Table IV--12 Total and Fraction of Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces Shipments by Market Segment (Replacements, New
                                                          Construction, and New Owners) in 2029
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                              North             Rest of country             Total
                  Product class                             Market segment           -------------------------------------------------------------------
                                                                                       Million        %       Million        %       Million       %
--------------------------------------------------------------------------------------------------------------------------------------------------------
NWGF (Residential)..............................  Replacements *....................      1.412         82       0.948         79       2.360         81
                                                  New Construction..................      0.316         18       0.255         21       0.571         19
                                                                                     -------------------------------------------------------------------
                                                     Total..........................      1.728        100       1.202        100       2.930        100
--------------------------------------------------------------------------------------------------------------------------------------------------------
NWGF (Commercial)...............................  Replacements *....................      0.057         74       0.052         72       0.109         73
                                                  New Construction..................      0.020         26       0.020         28       0.040         27
                                                                                     -------------------------------------------------------------------
                                                     Total..........................      0.077        100       0.072        100       0.149        100
--------------------------------------------------------------------------------------------------------------------------------------------------------
MHGF............................................  Replacements *....................      0.050         70       0.020         64       0.070         68
                                                  New Construction..................      0.021         30       0.011         36       0.032         32
                                                                                     -------------------------------------------------------------------
                                                     Total..........................      0.071        100       0.031        100       0.102        100
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Includes new owners.
Note: percentages may not add up to 100 percent due to rounding

    Regarding the proposed California 2016 Air Quality Management Plan 
(AQMP),\243\ which targets ozone-depleting NOX emissions, 
DOE notes that the proposed control measure has two components: (1) 
implementing the existing Rule 1111 \244\ emission limit of 
NOX for residential space heaters; and (2) incentivizing the 
replacement of older space heaters with more efficient low-
NOX products, and/or ``green technologies'' such as solar 
heating or heat pumps. Incentivizing heat pumps is only one of the 
proposed approaches to reduce NOX emissions that were 
offered in the plan, but it is unclear how this would trigger actual 
market and/or policy changes in the future. Current requirements in 
many parts of California for low-NOX and ultra-low-
NOX furnaces could also increase the cost of these furnaces, 
but it is currently unclear if it will be enough to drive shipments 
towards other heating options (including heat pumps). Thus, it is very 
uncertain to what extent installations of heat pumps would increase.
---------------------------------------------------------------------------

    \243\ South Coast Air Quality Management District. 2016 Air 
Quality Management Plan (AQMP) (available at: www.aqmd.gov/home/air-quality/clean-air-plans/air-quality-mgt-plan/final-2016-aqmp) (last 
accessed Feb. 15, 2022).
    \244\ See www.aqmd.gov/docs/default-source/rule-book/reg-xi/rule-1111.pdf (last accessed May 31, 2023).
---------------------------------------------------------------------------

    For the NOPR, assumptions regarding future policies encouraging 
electrification of households were speculative at that time, so such 
policies were not incorporated into the shipments projection. For the 
final rule, DOE accounted for the 2022 update to Title 24 in California 
\245\ and also the decision of the California Public Utilities 
Commission to eliminate ratepayer subsidies for the extension of new 
gas lines beginning in July 2023. Together, these policies are expected 
to lead to the eventual phase-out of NWGFs and MHGFs in new single-
family homes in California. The California Air Resources Board has 
adopted a 2022 State Strategy for the State Implementation Plan that 
would effectively ban sales of new gas furnaces beginning in 2030.\246\ 
However, because a final decision on a rule would not happen until 
2025, DOE did not include this latter policy in its analysis for the 
final rule.
---------------------------------------------------------------------------

    \245\ The 2022 update includes heat pumps as a performance 
standard baseline for water heating or space heating in single-
family homes, as well as space heating in multi-family homes. Under 
the California Code, builders will need to either include one high-
efficiency heat pump in new constructions or subject those buildings 
to more-stringent energy efficiency standards.
    \246\ See https://ww2.arb.ca.gov/resources/documents/2022-state-
strategy-state-implementation-plan-2022-state-sip-
strategy#:~:text=The%202022%20State%20SIP%20Strategy,all%20nonattainm
ent%20areas%20across%20California (last accessed August 1, 2023).
---------------------------------------------------------------------------

    DOE understands that ongoing electrification policies at the 
Federal, State, and local levels are likely to encourage installation 
of heat pumps in some new homes and adoption of heat pumps in some 
homes that currently use NWGFs and MHGFs. However, there are many 
uncertainties about the timing and effects of these policies that make 
it difficult to fully account for their likely impact on NWGF and MHGF 
market shares in the time frame for this analysis (i.e., 2029 through 
2058). Nonetheless, DOE has modified some of its projections to attempt 
to account for impacts that are most likely in the relevant time frame. 
The assumptions are described in chapter 9 and appendix 9A of the final 
rule TSD. The changes result in a decrease of NWGF and MHGF shipments 
in the no-new-standards case in 2029 compared to the NOPR analysis, 
with a corresponding decrease in estimated energy savings resulting 
from the standards. DOE acknowledges that electrification policies may 
result in a larger decrease in shipments of NWGFs and MHGFs than 
projected in this final rule, especially if stronger policies are 
adopted in coming years. However, this would occur in the no-new-
amended-standards case and, thus, would only reduce the energy savings 
estimated in this rule. For example, if incentives and rebates shifted 
five percent of shipments in the no-new-amended-standards case from 
NWGFs to heat pumps, then the energy savings estimated and associated 
monetized benefits for NWGFs in this rule would decline by 
approximately five percent. The estimated consumer impacts are likely 
to be similar, however, except that the percentage of consumers with no 
impact at a given efficiency level would increase. Nor does DOE expect 
that a modest shift in shipments would have a significant effect on 
manufacturers. DOE notes that the economic justification for the rule 
would be unlikely to significantly change even if DOE were to include 
these larger impacts of incentives and rebates in the no-new-standards 
case, although the absolute magnitude of the savings might decline.
    Regarding this aspect of the July 2022 NOPR, Lennox commented that 
Resolution 22-14 (i.e., the 2022 State SIP Strategy in California), the 
New York State scoping plan, and the incentives and tax credits for 
electric HVAC in the Inflation Reduction Act

[[Page 87600]]

will contribute to additional shifting towards electrification for 
heating and cooling. The commenter asserted that DOE should consider 
these factors in the shipment estimates and related analysis for 
consumer furnaces. (Lennox, No. 389 at p. 3)
    In response, as noted in the previous discussion, DOE has accounted 
for some policies encouraging the electrification of homes, such as the 
2022 update to Title 24 in California. The shipments analysis reflects 
these initiatives. With respect to the California 2022 State Strategy 
for the State Implementation Plan, a rule specific to NWGFs and MHGFs 
is not yet final and remains uncertain at this time. Similarly, the 
specific implementation of any incentives or rebates as part of the New 
York State Scoping Plan and Inflation Reduction Act remain speculative 
at this time. Therefore, DOE did not incorporate either of these 
initiatives in the shipments projections for this rulemaking. As DOE 
has noted, however, the economic justification for the rule would be 
unlikely to change significantly, even if DOE were to include these 
larger impacts of incentives and rebates in the no-new-standards case, 
although the absolute magnitude of the savings might decline.
    Rheem commented that it does not agree with DOE's shipment 
projections that predict a 30-percent increase in furnace sales between 
2035 and 2050, arguing that they are inaccurate because of the Federal 
and State-level policy trends toward electric appliances which is 
largely buoyed by manufacturers. (Rheem, No. 394 at p. 2) In response, 
DOE clarifies that at the proposed standard levels in the NOPR, total 
furnace shipments (NWGFs and MHGFs) only increased by approximately 15 
percent between 2035 and 2050, not 30 percent. DOE notes, however, that 
it has revised its shipments projection to reflect Federal, State, and 
local-level initiatives currently in effect, as described previously, 
which results in a smaller increase in furnace sales. Accordingly, for 
the final rule shipments projection, total furnace shipments (NWGFs and 
MHGFs) are expected to increase by approximately 5 percent between 2035 
and 2050.
    Atmos Energy commented that the proposed rule would likely reduce 
the effectiveness of existing rebate programs, arguing that it would 
undermine the overall goals of the energy efficiency program. The 
commenter added that the proposed rule would reduce the pool of 
customers able to take advantage of available incentive programs. 
(Atmos Energy, No. 415 at p. 4) Atmos Energy further stated that it 
currently offers conservation and energy efficiency programs in its 
Louisiana, Mississippi, Colorado, and Mid-Tex divisions, adding that it 
provides financial incentives to purchase high-efficiency natural gas 
equipment, smart thermostats, and home weatherization upgrades. Atmos 
Energy stated that in 2020, 1.39 million therms of natural gas were 
conserved and 8,117 tons of CO2 emissions were avoided 
annually as a result of energy efficiency programs. (Atmos Energy, No. 
415 at p. 5) In response, DOE acknowledges that rebate programs 
incentivizing the purchase of higher efficiency condensing furnaces 
will no longer be needed after energy conservation standards for 
consumer furnaces come into effect.
2. Impact of Potential Standards on Shipments
a. Impact of Equipment Switching
    DOE applied the consumer choice model described in section IV.F.10 
of this document to estimate the impact on NWGF and MHGF shipments of 
product switching that may be incentivized by potential standards. The 
options available to each sample household or building are to purchase 
and install: (1) the NWGF or MHGF that meets a particular standard 
level, (2) a heat pump, or (3) an electric furnace.\247\
---------------------------------------------------------------------------

    \247\ DOE also accounted for situations when installing a 
condensing furnace could leave an ``orphaned'' gas storage water 
heater that would require expensive re-sizing of the vent system. 
Rather than incurring this cost, the consumer could choose to 
purchase an electric storage water heater along with a new furnace.
---------------------------------------------------------------------------

    As applied in the LCC and PBP analyses, the consumer choice model 
considers product prices in the compliance year and energy prices over 
the lifetime of products installed in that year. The shipments model 
considers the switching that might occur in each year of the analysis 
period (2029-2058). To do so, DOE estimated the switching in the first 
year of the analysis period (2029) and derived trends from 2029 to 
2058. First, DOE applied the NWGF and MHGF product price trend 
described in section IV.F.1 of this document to project prices in 2058. 
DOE used the appropriate energy prices over the lifetime of products 
installed in each year. Although the inputs vary, the decision criteria 
were the same in each year. For each considered standard level, the 
number of NWGFs or MHGFs shipped in each year is equal to the base 
shipments in the no-new-standards case minus the number of NWGF or MHGF 
buyers who switch to either a heat pump or an electric furnace. The 
shipments model also tracks the number of additional heat pumps and 
electric furnaces shipped in each year.
b. Impact of Repair vs. Replace
    As discussed in section IV.F.11 of this document, for this final 
rule, DOE estimated a fraction of both NWGF and MHGF replacement 
installations that choose to repair their equipment, rather than 
replace their equipment or switch to a heat pump or electric furnace, 
in the new standards case. The approach captures not only a decrease in 
NWGF and MHGF replacement shipments, but also the energy use from 
continuing to use the existing furnace and the cost of the repair. For 
purposes of this analysis, DOE assumes that the demand for space 
heating is inelastic and, therefore, that no modeled household or 
commercial building will forgo either repairing or replacing their 
equipment (either with a new NWGF of MHGF or a suitable space-heating 
alternative). While DOE recognizes that edge cases exist, DOE believes 
that its analytical assumption of inelasticity is representative of the 
vast majority of households.
    For details on DOE's shipments analysis, product and fuel 
switching, and the repair option, see chapter 9 of the final rule TSD.

H. National Impact Analysis

    The NIA assesses the national energy savings (NES) and the NPV from 
a national perspective of total consumer costs and savings that would 
be expected to result from new or amended energy conservation standards 
at specific efficiency levels.\248\ (``Consumer'' in this context 
refers to consumers of the product being regulated.) DOE calculates the 
NES and NPV for the potential standard levels considered based on 
projections of annual product shipments, along with the annual energy 
consumption and total installed cost data from the energy use and LCC 
analyses.\249\ For the present analysis, DOE projected the energy 
savings, operating cost savings, product costs, and NPV of consumer 
benefits over the lifetime of NWGFs and MHGFs sold from 2029 through 
2058.
---------------------------------------------------------------------------

    \248\ The NIA accounts for impacts in the 50 States and U.S. 
territories.
    \249\ For the NIA, DOE adjusts the installed cost data from the 
LCC analysis to exclude sales tax, which is a transfer.
---------------------------------------------------------------------------

    DOE evaluates the impacts of new or amended standards by comparing 
a case without such standards with standards-case projections. The no-
new-standards case characterizes energy use and consumer costs for each 
product class in the absence of new or amended energy conservation 
standards. For this

[[Page 87601]]

projection, DOE considers historical trends in efficiency and various 
forces that are likely to affect the mix of efficiencies over time. DOE 
compares the no-new-standards case with projections characterizing the 
market for each product class if DOE adopted new or amended standards 
at specific energy efficiency levels (i.e., the TSLs or standards 
cases) for that class. For the standards cases, DOE considers how a 
given standard would likely affect the market shares of products with 
efficiencies greater than the standard. In the standards cases, a small 
fraction of households will replace the furnace a second time within 
the 30-year analytical period of the NIA. For these households, the 
installation cost adders for going from a non-condensing furnace to a 
condensing furnace are not applied in the standards cases for the 
second replacement, as the household will already have a condensing 
furnace.
    DOE uses a spreadsheet model to calculate the energy savings and 
the national consumer costs and savings from each TSL. AEO2023 is the 
source of the energy price trends as well as other inputs to the NIA 
such as projected housing starts and new commercial building floor 
space, heating and cooling degree day projections, and building shell 
efficiency projections. Interested parties can review DOE's analyses by 
changing various input quantities within the spreadsheet. The NIA 
spreadsheet model uses typical values (as opposed to probability 
distributions) as inputs.
    Table IV.13 summarizes the inputs and methods DOE used for the NIA 
analysis for the final rule. Discussion of these inputs and methods 
follows the table. See chapter 10 of the final rule TSD for further 
details.

   Table IV.13--Summary of Inputs and Methods for the National Impact
                                Analysis
------------------------------------------------------------------------
            Inputs                               Method
------------------------------------------------------------------------
Shipments....................  Annual shipments from shipments model.
Compliance Date of Standard..  2029.
Efficiency Trends............  No-new-standards case: Based on
                                historical data.
                               Standard cases: Roll-up in the compliance
                                year (except for EL 1, 90-percent AFUE
                                for NWGFs as described below) and then
                                DOE estimated growth in shipment-
                                weighted efficiency in all the standards
                                cases, except max-tech.
Annual Energy Consumption per  Annual weighted-average values are a
 Unit.                          function of energy use at each TSL.
                                Incorporates projection of future energy
                                use based on AEO2023 projections for HDD/
                                cooling degree days (CDD) and building
                                shell efficiency index.
Total Installed Cost per Unit  Annual weighted-average values are a
                                function of cost at each TSL.
                                Incorporates projection of future
                                product prices based on historical data.
Repair and Maintenance Cost    Annual weighted-average values vary by
 per Unit.                      efficiency level.
Energy Price Trends..........  AEO2023 projections (to 2050) and
                                extrapolation thereafter. Natural gas
                                and electricity marginal prices based on
                                EIA and RECS 2020 and CBECS 2018 billing
                                data.
Energy Site-to-Primary and     A time-series conversion factor based on
 FFC Conversion.                AEO2023.
Discount Rate................  Three and seven percent.
Present Year.................  2023.
------------------------------------------------------------------------

1. Product Efficiency Trends
    A key component of the NIA is the trend in energy efficiency 
projected for the no-new-standards case and each of the standards 
cases. Section IV.F.8 of this document describes how DOE developed an 
energy efficiency distribution for the no-new-standards case (which 
yields a shipment-weighted average efficiency) for each of the 
considered product classes for the year of anticipated compliance with 
an amended or new standard (2029). To project the trend in efficiency 
absent amended standards for NWGFs and MHGFs over the entire shipments 
projection period, DOE extrapolated the historical trends in efficiency 
that were described in section III.F.8 of this document. These trends 
are based on industry shipment data from AHRI and HARDI and include a 
near 100-percent saturation of condensing furnaces in the North region. 
For this final rule, DOE estimated that the national market share of 
condensing products would grow from 61 percent in 2029 to 71 percent by 
2058 for NWGFs, and from 34 percent to 48 percent for MHGFs during 
those same years. The market shares of the different condensing 
efficiency levels (i.e., 90-, 92-, 95-, and 98-percent AFUE for NWGFs 
and 92-, 95-, and 96-percent AFUE for MHGFs) are maintained in the same 
proportional relationship as in 2029. The approach is further described 
in appendix 8I and chapter 10 of the final rule TSD.
    For the standards cases, DOE used a ``roll-up'' scenario to 
establish the shipment-weighted efficiency for the year that standards 
are assumed to become effective (2029). In this scenario, the market 
shares of products in the no-new-standards case that do not meet the 
standard under consideration would ``roll up'' to meet the new standard 
level, and the market share of products above the standard would remain 
unchanged. In the standards case with a 90-percent AFUE national 
standard, DOE estimated that many consumers will purchase a 92-percent 
AFUE NWGF rather than a 90-percent AFUE furnace because the extra 
installed cost is minimal, and the market has already moved 
significantly toward the 92-percent AFUE level. To develop standards-
case efficiency trends after 2029, DOE estimated growth in shipment-
weighted efficiency in the standards cases, except in the max-tech 
standards case.
2. National Energy Savings
    The national energy savings analysis involves a comparison of 
national energy consumption of the considered products between each 
potential standards level (TSL) case and the case with no new or 
amended energy conservation standards. DOE calculated the national 
energy consumption by multiplying the number of units (stock) of each 
product (by vintage or age) by the unit energy consumption (also by 
vintage). DOE calculated annual NES based on the difference in national 
energy consumption for the no-new-standards case and for each higher-
efficiency standards case. DOE estimated energy consumption and savings 
based on site energy and converted the electricity consumption

[[Page 87602]]

and savings to primary energy (i.e., the energy consumed by power 
plants to generate site electricity) using annual conversion factors 
derived from AEO2023. For natural gas and LPG, DOE assumed that site 
energy consumption is the same as primary energy consumption. 
Cumulative energy savings are the sum of the NES for each year over the 
timeframe of the analysis.
    The per-unit annual energy use is adjusted with the building shell 
improvement index, which results in a decline of three percent in the 
heating load from 2029 to 2058, and the climate index, which results in 
a decline of nine percent in the heating load.
    DOE incorporated a rebound effect for NWGFs and MHGFs by reducing 
the site energy savings (and the associated FFC energy savings) in each 
year by 15 percent. However, for commercial applications, DOE applied 
no rebound effect in order to be consistent with other recent standards 
rulemakings (see section IV.F.3 of this document).
    In the standards cases, there are fewer shipments of NWGFs or MHGFs 
compared to the no-new-standards case because of product switching and 
repair vs. replaced, but there are additional shipments of heat pumps, 
electric furnaces, and electric water heaters. DOE incorporated the 
per-unit annual energy use of the heat pumps and electric furnaces that 
was calculated in the LCC and PBP analyses (based on the specific 
sample households that switch to these products) into the NIA model.
    NYSERDA expressed support for DOE's methodology and approaches used 
for this NOPR, particularly around the rebound effect, stating that it 
is consistent with documented behaviors. The commenter further stated 
agreement with DOE's use of the 15-percent estimate for rebound effect. 
(NYSERDA, No. 379 at pp. 11-12) DOE agrees and maintains a 15-percent 
rebound effect estimate for the final rule.
    NYSERDA recommended that DOE should qualitatively discuss the 
indirect rebound effect in the rebound section of the TSD. (NYSERDA, 
No. 379 at p. 13)
    In response, DOE acknowledges that indirect rebound (increased 
energy consumption by consumers in other areas due to the monetary 
savings from efficiency standards) may be a factor warranting 
consideration in the context of amended energy conservation standards 
for the subject furnaces, but quantifying such a macroeconomic effect 
is particularly challenging and subject to inherently large 
uncertainties. However, regardless of the specific magnitude of this 
effect, DOE notes that it is very likely to be welfare-increasing even 
if energy savings are reduced.\250\
---------------------------------------------------------------------------

    \250\ For example, see www.journals.uchicago.edu/doi/abs/10.1093/reep/rev017?journalCode=reep (last accessed August 1, 2023).
---------------------------------------------------------------------------

    In the standards cases, there are fewer shipments of NWGFs or MHGFs 
compared to the no-new-standards case because of product switching and 
product repairs, but there are also additional shipments of heat pumps, 
electric furnaces, and electric water heaters. DOE incorporated the 
per-unit annual energy use of the heat pumps and electric furnaces that 
was calculated in the LCC and PBP analyses (based on the specific 
sample households that switch to these products) into the NIA model.
    In 2011, in response to the recommendations of a committee on 
``Point-of-Use and Full-Fuel-Cycle Measurement Approaches to Energy 
Efficiency Standards'' appointed by the National Academy of Sciences, 
DOE announced its intention to use FFC measures of energy use and 
greenhouse gas and other emissions in the national impact analyses and 
emissions analyses included in future energy conservation standards 
rulemakings. 76 FR 51281 (August 18, 2011). After evaluating the 
approaches discussed in the August 18, 2011 announcement, DOE published 
a statement of amended policy in which DOE explained its determination 
that EIA's National Energy Modeling System (NEMS) is the most 
appropriate tool for its FFC analysis and its intention to use NEMS for 
that purpose. 77 FR 49701 (August 17, 2012). NEMS is a public domain, 
multi-sector, partial equilibrium model of the U.S. energy sector \251\ 
that EIA uses to prepare its Annual Energy Outlook. The FFC factors 
incorporate losses in production and delivery in the case of natural 
gas (including fugitive emissions) and additional energy used to 
produce and deliver the various fuels used by power plants. The 
approach used for deriving FFC measures of energy use and emissions is 
described in appendix 10A of the final rule TSD.
---------------------------------------------------------------------------

    \251\ For more information on NEMS, refer to The National Energy 
Modeling System: An Overview 2023, DOE/EIA-0581(2023) (available at: 
www.eia.gov/forecasts/aeo/index.cfm) (last accessed August 1, 2023).
---------------------------------------------------------------------------

3. Net Present Value Analysis
    The inputs for determining the NPV of the total costs and benefits 
experienced by consumers are: (1) total annual installed cost; (2) 
total annual operating costs (energy costs and repair and maintenance 
costs), and (3) a discount factor to calculate the present value of 
costs and savings. DOE calculates net savings each year as the 
difference between the no-new-standards case and each standards case in 
terms of total savings in operating costs versus total increases in 
installed costs. DOE calculates operating cost savings over the 
lifetime of each product shipped during the projection period.
    As discussed in section IV.F.1 of this document, DOE developed NWGF 
and MHGF price trends based on historical PPI data. DOE applied the 
same trends to project prices for each product class at each considered 
efficiency level. DOE's projection of product prices is described in 
appendix 10C of the final rule TSD.
    To evaluate the effect of uncertainty regarding the price trend 
estimates, DOE investigated the impact of different product price 
projections on the consumer NPV for the considered TSLs for NWGFs and 
MHGFs. In addition to the default price trend, DOE considered two 
product price sensitivity cases: (1) a high-price-decline case based on 
PPI data from 1990-2006 and (2) a constant-price-trend case. The 
derivation of these price trends and the results of these sensitivity 
cases are described in appendix 10C of the final rule TSD.
    As described in section IV.H.2 of this document, DOE assumed a 15-
percent rebound from an increase in utilization of the product arising 
from the increase in efficiency (i.e., the direct rebound effect). In 
considering the economic impact on consumers due to the direct rebound 
effect, DOE accounted for change in consumer surplus attributed to 
additional heating/comfort from the purchase of a more-efficient unit. 
Overall consumer surplus is generally understood to be enhanced from 
rebound. The net consumer impact of the rebound effect is included in 
the calculation of operating cost savings in the consumer NPV results. 
See appendix 10G of the final rule TSD for details on DOE's treatment 
of the monetary valuation of the rebound effect.
    The operating cost savings are energy cost savings, which are 
calculated using the estimated energy savings in each year and the 
projected price of the appropriate form of energy. To estimate energy 
prices in future years, DOE multiplied the average regional energy 
prices by the projection of annual national-average residential energy 
price changes in the Reference case from AEO2023, which has an end year 
of 2050. To estimate price trends after 2050, DOE used the average 
annual rate of change in prices from 2045 through 2050. As part of the 
NIA, DOE also analyzed scenarios that used inputs from variants of the 
AEO2023 Reference

[[Page 87603]]

case that have lower and higher economic growth. Those cases have lower 
and higher energy price trends compared to the Reference case. NIA 
results based on these cases are presented in appendix 10D of the final 
rule TSD.
    In considering the consumer welfare gained due to the direct 
rebound effect, DOE accounted for change in consumer surplus attributed 
to additional heating from the purchase of a more efficient unit. 
Overall consumer welfare is generally understood to be enhanced from 
rebound. The net consumer impact of the rebound effect is included in 
the calculation of operating cost savings in the consumer NPV results. 
See appendix 10G of the final rule TSD for details on DOE's treatment 
of the monetary valuation of the rebound effect.
    In calculating the NPV, DOE multiplies the net savings in future 
years by a discount factor to determine their present value. For this 
final rule, DOE estimated the NPV of consumer benefits using both a 3-
percent and a 7-percent real discount rate. DOE uses these discount 
rates in accordance with guidance provided by the Office of Management 
and Budget (``OMB'') to Federal agencies on the development of 
regulatory analysis.\252\ The discount rates for the determination of 
NPV are in contrast to the discount rates used in the LCC analysis, 
which are designed to reflect a consumer's perspective. The 7-percent 
real value is an estimate of the average before-tax rate of return to 
private capital in the U.S. economy. The 3-percent real value 
represents the ``social rate of time preference,'' which is the rate at 
which society discounts future consumption flows to their present 
value.
---------------------------------------------------------------------------

    \252\ United States Office of Management and Budget, Circular A-
4: Regulatory Analysis (Sept. 17, 2003) Section E (available at: 
obamawhitehouse.archives.gov/omb/circulars_a004_a-4/) (last accessed 
August 1, 2023).
---------------------------------------------------------------------------

I. Consumer Subgroup Analysis

    In analyzing the potential impact of new or amended energy 
conservation standards on consumers, DOE evaluates the impact on 
identifiable subgroups of consumers that may be disproportionately 
affected by a new or amended national standard. The purpose of a 
subgroup analysis is to determine the extent of any such 
disproportional impacts. DOE evaluates impacts on particular subgroups 
of consumers by analyzing the LCC impacts and PBP for those particular 
consumers from alternative standard levels. For this final rule, DOE 
analyzed the impacts of the considered standard levels on three 
subgroups: (1) low-income households, (2) senior-only households, and 
(3) small businesses. The analysis used subsets of the RECS 2020 sample 
composed of households that meet the criteria for the considered 
subgroups. DOE used the LCC and PBP spreadsheet model to estimate the 
impacts of the considered efficiency levels on these subgroups. Chapter 
11 in the final rule TSD describes the consumer subgroup analysis.
1. Low-Income Households
    Low-income households are significantly more likely to be renters 
and/or live in subsidized housing units, compared to homeowners. DOE 
notes that in these cases, the landlord purchases the equipment and may 
pay the gas bill as well. RECS 2020 includes data on whether a 
household pays for the gas bill, allowing DOE to categorize households 
appropriately in the analysis.\253\ For this consumer subgroup 
analysis, DOE considers the impact on the low-income household 
narrowly, excluding any costs or benefits that are accrued by either a 
landlord or subsidized housing agency. This allows DOE to determine 
whether low-income households are disproportionately affected by an 
amended energy conservation standard in a more representative manner. 
DOE takes into account a fraction of renters that face costly product 
switching, that is, when landlords switch to products that have lower 
upfront costs but higher operating costs, which will be incurred by 
tenants. Table IV.19 summarizes the low-income statistics and potential 
impacts. For the low-income subgroup, renters account for more than 
half of the NWGF installations and close to thirty percent of the MHGF 
installations.
---------------------------------------------------------------------------

    \253\ RECS 2020 includes a category for households that pay only 
some of the gas bill. For the low-income consumer subgroup analysis, 
DOE assumes that these households pay 50 percent of the gas bill, 
and, therefore, would receive 50 percent of operating cost benefits 
of an amended energy conservation standard.

                   Table IV.19--Low-Income Subgroup Characteristics and Potential Net Benefits
----------------------------------------------------------------------------------------------------------------
                                 Percentage of low-income
Type of household * (pay for             sample *               Benefits from  energy      Responsibility for
          gas?) **           --------------------------------       cost  savings           incremental cost
                                   NWGF            MHGF
----------------------------------------------------------------------------------------------------------------
Renters (Pay for Gas Bill)..            43.0            27.8  Full....................  None.
Renters (Pay for Part of Gas             1.5             0.0  Partial savings.........  None.
 Bill).
Renters (Do Not Pay for Gas              8.6             2.0  None....................  None.
 Bill).
Owners (Pay for Gas Bill)...            45.9            64.3  Full....................  Full.
Owners (Pay for Part of Gas              0.1             0.0  Partial savings.........  Full.
 Bill).
Owners (Do Not Pay for Gas               0.9             5.9  None....................  Full.
 Bill).
----------------------------------------------------------------------------------------------------------------
* RECS 2020 lists three categories: (1) Owned or being bought by someone in your household (classified as
  ``Owners'' in this table); (2) Rented (classified as ``Renters'' in this table); (3) Occupied without payment
  of rent (also classified as ``Renters'' in this table). Therefore, renters include occupants in subsidized
  housing including public housing, subsidized housing in private properties, and other households that do not
  pay rent. RECS 2020 does not distinguish homes in subsidized or public housing.
** RECS 2020 lists four categories: (1) Household is responsible for paying for all used in this home; (2) All
  used in this home is included in the rent or condo fee; (3) Some is paid by the household, some is included in
  the rent or condo fee; and (4) Paid for some other way. ``Pay for Gas Bill'' includes only category (1); all
  other categories are included in ``Don't Pay for Gas Bill.'' Note that DOE also takes into account if the
  occupant pays for electricity, as for some higher-efficiency options, electricity use can vary compared to
  baseline equipment.

    Atmos Energy commented that in fulfilling its statutory 
obligations, DOE cannot rely on potential external measures to mitigate 
the negative impacts of its standards, including rebate programs so as 
to improve its analytical outcomes and reduce the burden on low-income 
households. (Atmos Energy, No. 415 at p. 3)
    In response, DOE clarifies that it does not rely on potential 
measures, such as rebate programs, to justify a standard. These 
measures are not part of the low-income subgroup analysis. DOE merely

[[Page 87604]]

notes their possible existence, which would improve the assessed 
impacts to low-income households as presented in section V.B of this 
document.
    MHI commented that it stands ready to work with DOE to ensure that 
standards for consumer furnaces do not negatively impact potential 
manufactured homeowners. (MHI, No. 365 at p. 5)
    In response, DOE analyzed the impact of the considered amended 
energy conservation standards on manufactured-home households, 
including low-income manufactured-home households, and the Department 
has concluded that these standards are economically justified, as 
discussed in section V.C of this document.
    Measures of energy insecurity provide another accounting of the 
number of households that are affected by cost changes due to rules for 
heating equipment energy efficiency in addition to the senior-only and 
low-income categories used by DOE in this analysis. Energy insecurity 
in the 2020 RECS quantifies the households reporting one or more of the 
metrics for energy insecurity, including that they that are forgoing 
basic necessities to pay for energy, and that they leave their home at 
an unhealthy temperature due to energy cost. The energy insecurity data 
are disaggregated by heating equipment type, income category, race, 
ethnicity, presence of children, presence of seniors, regional 
distribution, and ownership/rental status. DOE has determined that the 
energy-insecure designation captures more households than the low-
income and seniors-only categories used for distributional analysis. 
Similar PBP and net savings/net cost analysis applied to energy 
insecure households could result in larger impacts than for the 
categories DOE chose to analyze and may be more directly interpreted in 
terms of welfare changes that can be disaggregated by the factors 
already listed.
    Commenting on the NOPR, a number of commenters opposed the proposed 
rule based on, in part, the potential impacts to low-income households.
    Southwest Gas Corporation commented that for low-income and 
vulnerable populations, the appliance replacement and retrofit costs 
would be a financial burden. Southwest estimated that the NOPR would 
not be economically justifiable for a majority of its customers. 
(Southwest, No. 353 at p. 2)
    The Georgia Gas Authority recognized the importance of appliance 
efficiency but argued that energy conservation standards should not 
sacrifice the well-being of low-income families to achieve such goals. 
(The Georgia Gas Authority, No. 367 at p. 2)
    NGA of Georgia stated that DOE's proposed rule would place an undue 
burden on those who can afford it the least, including seniors and low-
income consumers. (NGA of Georgia, No. 380 at p. 1) The commenter more 
specifically argued that the rule would unfairly impact low- and fixed-
income homeowners and renters, seniors, and small businesses. NGA of 
Georgia added that low- and fixed-income homeowners are less likely to 
purchase a new home and, thus, would be forced to endure costly 
retrofit installations. Additionally, the commenter stated, that low- 
and fixed-income homeowners typically live in smaller spaces requiring 
less energy to heat, which diminishes the value of a high-efficiency 
product in such applications. Further, NGA of Georgia stated that low-
income renters would be forced to deal with increased rent when 
landlords try to recoup the high cost of retrofitting apartments with 
condensing furnaces. (NGA of Georgia, No. 380 at p. 2)
    APGA claimed that DOE's analysis shows that low-income households 
fare much worse than average consumers under the proposed rule. APGA 
further claimed that DOE has not fully accounted for the impacts on 
low-income residents. The commenter asserted that regional differences 
in the impact of the proposed rule would create even more unfavorable 
results for low-income households in certain negatively affected 
regions; for example, the South, where APGA has many members, would be 
expected to be more adversely affected than average. APGA further 
argued that the impact of fuel switching on low-income households is 
not clear in the NOPR. (APGA, No. 387 at pp. 45-47)
    Spencer and Dayaratna stated that the amended standards proposed in 
the July 2022 NOPR will unjustifiably reduce consumer choice. The 
commenters added that the economic value of energy efficiency is best 
determined by individual consumers and businesses. The commenters also 
added that the flexibility to assess individual economic tradeoffs is 
even more important to low-income Americans, citing statements from OMB 
and research studies. Spencer and Dayaratna argued that a nine-year 
payback period may not make sense for many Americans who would be 
better served by having additional resources available for food or 
housing. The commenters opined that DOE should not compel Americans to 
take on these extra costs or degrade the livability of their homes. 
(Spencer and Dayaratna, No. 390 at pp. 8-9)
    Black Hills Energy commented that, if adopted, the proposed rule 
would negatively impact individual homeowners, including senior and 
low-income households, small business, and the overall furnace market. 
The commenter stated that DOE should not issue a rule with such 
negative impacts as those described in the proposal that would affect 
low-income households, seniors, and energy insecure consumers. (Black 
Hills Energy, No. 397 at pp. 1-2)
    PHCC commented that energy insecurity is a significant concern and 
that access to gas products and non-condensing products remains an 
important solution to this issue. (PHCC, No. 403 at p. 5)
    AHRI stated that the impacts of a full condensing furnace standards 
would fall disproportionately on lower-income and senior households. 
AHRI referenced a statement from MHI that the median income for mobile 
home purchasers is $35,000 and that manufactured homeowners comprise a 
disproportionate amount of the Nation's fixed-income citizens and 
first-time homebuyers. (AHRI, No. 414-2 at p. 3)
    Atmos Energy commented that DOE should amend the proposed furnace 
standards to address the significant adverse impacts on low-income 
households, adding that DOE's assessment on this matter is 
insufficient. (Atmos Energy, No. 415 at p. 2) Atmos Energy further 
commented that the proposed rule burdens low-income households because 
it would cause an increase in furnace costs. Atmos Energy stated that 
condensing furnaces cost consumers around $1,300 more than non-
condensing furnaces, adding that this increase in cost would burden 
homeowners and place upward pressure on rents by adding to maintenance 
costs. (Atmos Energy, No. 415 at p. 3)
    Several commenters expressed concern regarding the July 2022 NOPR's 
potential impacts on housing affordability and consumers. AGA et al., 
The Coalition, The Heartland Institute, Plastics Pipe Institute, ACCA, 
and DCA all commented that the proposed rule would have significant 
adverse impacts, especially on low-income or fixed-income households, 
seniors, energy insecure consumers, small businesses, and/or the 
overall furnace market. (AGA et al., No. 391 at p. 1; The Coalition, 
No. 378 at p. 2; The Heartland Institute, No. 376 at pp. 1-2; Plastics 
Pipe Institute, No. 404 at p. 1; ACCA, No. 398 at pp. 1-2; DCA, No. 372 
at pp. 1-2) Strauch objected to the life-cycle methodology of DOE's 
proposed rulemaking due to concerns about consumer impacts. (Strauch, 
No. 366 at p. 1) Strauch stated

[[Page 87605]]

that poorer individuals or those with fixed incomes may not be able to 
afford the up-front investment that would allow them access to the 
future dollar savings of a more-efficient product. (Id.) Strauch also 
noted that the elderly population similarly may not live long enough to 
recover these additional costs through energy savings. (Id.) Strauch 
also argued that the July 2022 NOPR will reduce consumer choice. (Id.)
    MTNGUD, WMU, Consumer Energy Alliance, LANGD, Georgia Gas 
Authority, and the Heartland Institute stated that the potential 
negative impacts of the proposals in the July 2022 NOPR on consumers, 
including senior-only households, low-income households, and small 
business consumers, are inconsistent with the Biden-Harris 
Administration's priority of achieving environmental justice in Federal 
programs. (MTNGUD, No. 350 at p. 1; WMU, No. 350 at p. 1; Consumer 
Energy Alliance, No. 354 at p. 1; LANGD, No. 355, at p. 1; Georgia Gas 
Authority, No 367 at p. 2; The Heartland Institute, No. 376 at p. 1) 
Also, several commenters noted that manufactured housing provides a 
source of affordable homeownership, which is impacted by this 
rulemaking. (Nortek, No. 406 at p. 5; MHI, No. 344 at p. 1; MHI, Public 
Meeting Webinar Transcript, No. 363 at p. 25-29; MHI, No. 365 at p. 1) 
Nortek commented that the median annual income of manufactured 
homeowners is below the national average, and that these individuals 
and families make up a larger group of America's fixed-income citizens 
and first-time homebuyers. Nortek stated that this makes the 
demographic more vulnerable to changes that could price them out of the 
homebuying market. (Nortek, No. 406 at p. 5) MHI similarly argued that 
the July 2022 NOPR could reduce the affordability of manufactured homes 
without providing substantial energy-efficiency or cost-saving 
benefits. (MHI, No. 344 at p. 1; MHI, Public Meeting Webinar 
Transcript, No. 363 at pp. 25-27) Also, MHI asserted that should 
furnaces become less affordable, some manufactured housing owners may 
switch to less efficient and less safe heating methods. (MHI, No. 365 
at p. 1) Nortek further stated that additional regulation that 
increases the cost to purchase or maintain a home could prevent some 
financially vulnerable consumers from achieving homeownership. (Nortek, 
No. 406 at p. 2) The Coalition commented that, given current housing 
prices, many potential homebuyers have been priced out of the market. 
(The Coalition, No. 378 at p. 3) The Coalition also stated that these 
proposed standards place added pressure on households that are 
simultaneously struggling with rapidly rising prices for food, 
utilities, transportation, and other basic needs. (Id.)
    In contrast, a number of other commenters supported the proposed 
rule based on, in part, the potential benefits to low-income 
households.
    NCEL stated that outdated and inefficient gas furnaces generate 
high energy bills that particularly burden lower-income households. The 
State legislators commented that heating bills are one of the biggest 
energy expenses for most households, and those with inefficient gas 
furnaces face annual average heating bills of about $700. Furthermore, 
NCEL stated that increasing gas furnace efficiency will go a long way 
towards easing the burden of energy costs. (NCEL, No. 359 at p. 1)
    GHHI stated that due to historic underinvestment in low-income 
communities of color, residents often lack the resources to fix their 
aging and deteriorating homes, leading to poor insulation, drafts, and 
outdated HVAC systems. Consequently, GHHI stated that low-income 
communities, disproportionately of Black, Hispanic, and Native 
backgrounds, end up paying three times as much of their income on 
energy bills compared to those with higher income. (GHHI, No. 371 at p. 
2) While GHHI acknowledged that newer appliances have greater upfront 
costs, GGHI argued that the savings from reduced utility costs mean the 
payback period from low-income families averages just over two years. 
(GHHI, Public Meeting Webinar Transcript, No. 363 at p. 18) The State 
Agencies commented that a 95-percent AFUE would help to decrease the 
energy burden for low-income households that spend a large portion of 
their income on energy bills. (State Agencies, No. 375 at p. 2)
    NYSERDA commented that, based on their review of DOE's LCC 
analysis, the commenter has concluded that for New York and the rest of 
the U.S., establishing a standard at TSL 8 would yield significant 
consumer benefits that outweigh potential costs, especially for low-
income consumers and those living in disadvantaged communities. 
(NYSERDA, No. 379 at p. 3) The commenter stated that DOE's LCC analysis 
demonstrates the importance of this standard for low-income households. 
NYSERDA further commented that it found that adopting TSL 8 would not 
unfairly burden low-income or disadvantaged communities in the 
Northeast but instead would provide significant benefits, especially to 
renters who pay for utility bills. (NYSERDA, No. 379 at pp. 6-7)
    NYSERDA commented that in September 2022, Con Edison reported that, 
for that winter, electricity bills in their territory are expected to 
increase by 22 percent (to an average of $116 per month), and natural 
gas bills are expected to increase by 32 percent (to an average of $460 
per month). NYSERDA emphasized the importance of transitioning to more 
efficient appliances for the general New York population, especially 
low-income households. (NYSERDA, No. 379 at p. 6)
    NCLC et al. commented on a 2021 analysis by the Pew Research 
Center, stating that 60 percent of those in the lowest income quartile 
are renters and that only 10 percent of households in the highest 
income quartile rent. NCLC et al. added that since tenants cannot 
dictate the efficiency of furnaces that owners purchase, strong 
standards are often the only way to ensure that tenants will benefit 
from having efficient furnaces. (NCLC et al., No. 383 at pp. 4-5)
    The Pennsylvania Groups commented in support of improved efficiency 
standards because they expect that such standards would help reduce 
energy burden disparities for systematically marginalized communities 
across the Commonwealth. These commenters stated that communities of 
color and low-income families face high energy burdens and often 
struggle to afford and maintain energy services to their homes. (The 
Pennsylvania Groups, No. 396 at p. 2)
    The Pennsylvania Groups stated that to achieve baseline 
affordability standards, a family's total housing costs--including 
utility costs--should account for no more than 30 percent of the 
household's total income. These commenters further stated that 
throughout Pennsylvania, families living at or below 150 percent of the 
Federal Poverty Line spend as much as 29 percent of their income on 
utility costs alone. (The Pennsylvania Groups, No. 396 at p. 2)
    The Pennsylvania Groups stated that these households often forgo 
other basic necessities in order to pay their heating bills, and when 
they cannot keep up with payments, their heat is shut off. These 
commenters further stated that this shut-off creates serious risks to 
the health and well-being of family members and threatens stable 
employment and education. (The Pennsylvania Groups, No. 396 at p. 3)
    The Pennsylvania Groups commented that low-income and BIPOC (Black, 
Indigenous, and People of Color) residents disproportionately occupy

[[Page 87606]]

older, lower-quality housing, and these homes are more likely to use 
less-efficient, natural gas-fueled appliances. These commenters stated 
that Pennsylvania has some of the oldest housing stock in the country 
and that 55 percent of homes are heated with gas or propane. The 
Pennsylvania Groups pointed out that renters may bear even more of the 
negative impacts of wasteful furnaces than homeowners. (The 
Pennsylvania Groups, No. 396 at p. 3) They stated that the increased 
demand for rental housing and escalating rental costs have resulted in 
a market with limited access to safe, healthy, and quality housing, 
with significant cost burdens to low-income households. (The 
Pennsylvania Groups, No. 396 at pp. 3-4)
    The Pennsylvania Groups stated that their Commonwealth has over 
435,000 low-income renters whose home heating is up to their landlords. 
Additionally, these commenters stated that the estimated savings under 
DOE's proposed standard would be a significant amount to low-income 
families. (The Pennsylvania Groups, No. 396 at p. 4)
    Climate and Health Coalition stated that high heating bills can 
force a terrible choice upon consumers between paying for heat and 
other necessities, particularly for low-income households which pay 
three times as much of their incomes on energy costs than non-low-
income households and are disproportionately Black, Hispanic, and 
Native American. (Climate and Health Coalition, No. 399 at p. 4)
    The NCLC commented that low-income rental properties are more 
likely to have less-efficient furnaces and pass the associated larger 
energy bill on to tenants. (NCLC, Public Meeting Webinar Transcript, 
No. 363 at pp. 8-10)
    NEEA stated that the proposals in the July 2022 NOPR will improve 
equitable outcomes by ensuring that rental units have efficient 
heating, thereby benefiting the larger portion of lower-income rental 
units, and better insulating lower-income households from variable 
energy prices. (NEEA, No. 368 at pp. 3-4) The Joint Efficiency 
Commenters stated that DOE's analysis shows that the majority of 
consumers, and especially low-income consumers, will benefit from the 
proposed standard level for MHGFs. (Joint Efficiency Commenters, No. 
381 at p. 5) Climate Smart Missoula et al. stated that DOE's proposal 
would lead to health benefits through the emissions reductions and by 
lowering utility bills for low-to-moderate income households, thereby 
freeing up resources that can be spent on food and medicine. (Climate 
Smart Missoula et al., No. 393 at pp. 1-2) NCLC commented that 
increased efficiency standards will benefit low-income families by 
lowering utility bills and mitigating harms caused by global warming, 
which provides both pocketbook savings and health benefits. (NCLC et 
al., No. 383 at p. 2)
    CFA stated that all of the conclusions about consumer benefits in 
the aggregate (i.e., payback period less than half the appliance 
lifetime, many more consumers with net benefits than with net costs, 
and individual who benefit having larger gains than the losses of 
individuals who do not) apply to low-income consumers as well. (CFA, 
Public Meeting Webinar Transcript, No. 363 at p. 20)
    PSEA stated that high-efficiency condensing furnaces dramatically 
reduced the energy costs of low-income Philadelphians while also 
reducing indoor air pollution, and stated that the proposed standards 
would bring tremendous financial benefits and health benefits to low-
income people nationwide. (PSEA, Public Meeting Webinar Transcript, No. 
363 at p. 37)
    In response, DOE acknowledges the importance of considering the 
potential impacts on low-income households from energy conservation 
standards for consumer furnaces. As discussed in further detail in 
section V.C of this document, DOE concludes that low-income households 
are not disproportionately negatively impacted compared to the national 
average. DOE's analysis takes into account a variety of factors, as 
described in detail in section IV.F of this document, that are 
important to consider for low-income households, including typical 
equipment price, installation costs, furnace sizing, heating load, 
discount rate. DOE also considers the possibility of equipment 
switching to alternative options that meet all safety requirements. DOE 
finds no evidence that consumers are likely to switch to less-safe 
heating methods, and even if some consumers do so, such switching is 
likely to be very rare.
    A significantly higher fraction of low-income households are 
renters compared to the national average. Renters are unlikely to be 
responsible for the selection and purchase of a consumer furnace but 
are often responsible for energy costs. The main LCC results assume all 
equipment costs are ultimately paid for by the household, as an upper-
bound estimate of costs paid for by each household, and the low-income 
subgroup analysis represent a lower-bound estimate by assuming no 
passthrough. DOE did not make this upper-bound assumption in the low-
income subgroup analysis in order to better understand the likely 
impacts on this specific subgroup, excluding the impact to landlords, 
who are not part of the low-income subgroup. There is no evidence DOE 
is aware of that suggests a price increase on the installation of a 
consumer furnace, paid for by a landlord, would be passed down to any 
significant extent to low-income renters. Rental markets are a separate 
market determined by their own supply and demand, and low-income rents 
can be further restricted by local requirements or subsidies. There are 
some indications that premium, efficient appliances can result in 
higher rents, but this correlation mostly applies to premium rental 
properties, not low-income households. Therefore, DOE assumes that 
landlords are very likely to bear the increased installation costs, not 
the low-income renter households.
    The main LCC results and the low-income subgroup results provide an 
upper and lower bound on the likely impacts to low-income renter 
households, either assuming 100 percent of equipment and installation 
costs are passed through to renters or 0 percent of costs are passed 
through. Even if costs are passed through to renters to some extent in 
practice, DOE concludes that low-income renters are very likely to 
disproportionately benefit from an energy conservation standard for 
consumer furnaces as a result of significant operating cost savings. 
DOE acknowledges that for low-income owner households, there are some 
consumers with a net LCC cost and some households with a net LCC 
savings. Those are included as part of the overall low-income subgroup 
results. In addition, these results are all considered as part of DOE's 
evaluation of economic justification, balancing the various burdens and 
benefits of a potential standard.
    ACCA recommended that DOE should focus on educating and 
incentivizing homeowners to demand that HVAC systems are installed 
according to the industry's recommended minimum standards (including 
proper equipment sizing, duct redesign and sealing, and appropriate 
refrigerant charge levels). (ACCA, No. 398 at p. 2) ACCA commented that 
implementing such changes would result in a 25 to 30 percent efficiency 
improvement and would result in fewer negative consumer impacts. (Id.)
    APGA asserted that to the extent that a landlord incurs net costs 
under the proposed rule, landlords will flow those cost increases 
through to their low-income tenants, but DOE's methodology 
intentionally excludes that negative

[[Page 87607]]

impact in its analysis. APGA argued that DOE's failure even to try to 
consider how much of the cost will be passed down to low-income renters 
is unreasonable. (APGA, No. 387 at pp. 47-48)
    As discussed previously, DOE does not agree with comments asserting 
that furnace cost increases will pass through to low-income tenants. 
DOE is not aware of any evidence to suggest this is the case. Rental 
markets are a separate market and not dictated by the cost of furnace 
(especially low-income rental properties), particularly when all rental 
properties are subject to the same energy conservation standards for 
furnaces, and, thus, there is no differentiation between rental 
properties based on the installed furnace. Furthermore, even if some 
fraction of total installed costs were passed through to tenants 
through rent increases, the benefits of a higher-efficiency furnace 
would still vastly outweigh the costs. Any increase in rent would be 
averaged over many months and years, such that increases in first cost 
for lower income households would be constrained with higher than 
average discount rates.
    DOE also notes that a program based on educating and incentivizing 
homeowners is highly unlikely to achieve the level of energy savings in 
this rule, as evaluated in the discussion of alternative programs to 
energy conservation standards, presented in chapter 17 of the final 
rule TSD.
    AGA claimed that the reported percentage impacts for low-income 
consumers only include the results of low-income renters that pay their 
gas bills. According to the commenter, the remainder of low-income 
households is substantial and includes owner-occupied units and renters 
that do not pay their bills. AGA stated that the inclusion of fuel 
switching in the overall LCC savings significantly impacts the total 
and average LCC savings for low-income and senior households. AGA also 
pointed out that low-income consumers in four separate regions have 
negative LCC savings under a no-switching scenario. (AGA, No. 405 at 
pp. 98-102)
    In response, DOE notes that the commenter's assertions are 
incorrect. The low-income subgroup results include all low-income 
households that meet the definition, including renters (both renters 
who pay and who do not pay their energy bills) and owner-occupied 
households. A significant fraction of low-income households are 
renters, as shown in section IV.I of this document. For owner-occupied 
low-income households, DOE acknowledges that some households will 
experience a net savings and that some will experience a net cost, but 
the Department considers this distribution of impacts, including 
regional variability, in its evaluation of economic justification. DOE 
has also considered all of the product switching sensitivity scenarios 
as part of its evaluation. DOE acknowledges there is a range of 
potential impacts across these scenarios, but as discussed in section 
V.C of this document, they do not alter DOE's conclusions.
    NCP pointed out that in DOE's LCC analysis, savings were negative 
for housing types with more than five units, which are frequently 
occupied by consumers with lower incomes. (NCP, No. 370 at p. 2)
    In response and as noted previously, DOE has conducted its main LCC 
analysis to assume 100 percent of total installed costs of a standards-
compliant furnace are passed through to renters. Again, this is likely 
to provide a very conservative estimate of the impacts to renters, 
including those who live in housing types with more than five units. 
However, when assuming that the landlord is likely to bear most if not 
all of these costs, those households disproportionately benefit from an 
energy conservation standard for consumer furnaces.
    Atmos Energy commented that the proposed rule burdens low-income 
households because of the physical differences that become more 
problematic in multifamily dwelling units and smaller or older homes. 
The commenter elaborated that when switching to a condensing furnace, 
there are physical design changes required in the house, such as larger 
cabinets, different venting/combustion air intake systems, and the 
addition of condensate drain systems. (Atmos Energy, No. 415 at p. 3)
    As discussed in more detail in section IV.F of this document, DOE 
accounts for a variety of factors in its analysis, including the need 
for different venting/combustion air intake systems and possible 
alterations such as larger cabinets, and installation of condensate 
drain systems. These factors are considered for all households, 
including low-income households.
    Atmos Energy commented that the proposed rule burdens low-income 
households because eliminating more affordable classes of furnaces that 
can be accommodated without renovations would make furnace replacements 
out of reach for many households with modest incomes. The commenter 
added that this would advantage wealthier households that can afford to 
replace less-efficient furnaces with newer models and reap the 
accompanying energy savings benefits. (Atmos Energy, No. 415 at p. 3)
    As discussed previously, DOE acknowledges that total installed 
costs for a standards-compliant furnace is expected to increase, but 
the commenter fails to acknowledge that operating costs will decrease. 
DOE evaluates the full impact on households, including both the initial 
total installed costs and operating costs, when evaluating economic 
justification. DOE acknowledges that some low-income households may 
have a particularly high discount rate, and this is reflected in the 
discount rate distribution for the lowest income bin (see section 
IV.F.7 of this document). DOE also has no evidence that the majority of 
low-income households who are renters who will to be burdened with an 
increase in total installed costs, and, thus, DOE disagrees with the 
assertion that the rule is primarily advantageous to wealthier 
households.
    The Coalition commented that regulatory requirements, including the 
amended standards proposed in the July 2022 NOPR, collectively create a 
substantial financial burden for the development and rehabilitation of 
housing. The commenter pointed to studies suggesting that regulatory 
requirements account for almost 25 percent of the average cost of a new 
single-family home and account for an average of 40.6 percent of the 
total development costs of new multi-family communities. The Coalition 
argued that these proposed furnace standards would add to these 
regulatory burdens. (The Coalition, No. 378 at pp. 3-4)
    The Coalition further commented that the proposed furnace standards 
would have adverse impacts on housing providers, renters, and 
manufacturers by effectively eliminating non-condensing furnaces as an 
option for home heating. The Coalition added that these standards would 
increase the cost of a furnace, stating that condensing furnaces cost 
consumers approximately $1,300 more than non-condensing furnaces. The 
commenter predicted that this additional cost would need to be absorbed 
by new home buyers and would increase maintenance costs, arguing that 
these added costs would be significant for households with modest 
incomes and providers of affordable housing. (The Coalition, No. 378 at 
p. 4)
    In response, DOE notes that installation cost of a 95-percent AFUE 
furnace in new construction can be less expensive than the installation 
cost of an 80-percent AFUE furnace, as discussed in section IV.F.2 of 
this document. This is primarily due to

[[Page 87608]]

lower costs to install venting systems in new construction, with 
shorter vent lengths and without the need to remove an existing venting 
system. Despite this, market data show that 80-percent AFUE furnaces 
continue to be installed in new construction. Therefore, DOE does not 
agree that an energy conservation standard will have an adverse impact 
on builders or housing providers, nor will it negatively impact the 
development of more affordable housing options. To the extent that an 
amended energy conservation standard for consumer furnaces adds to 
total construction costs, which are then absorbed by new home buyers, 
that is included in DOE's analysis. Those new home buyers would then 
also benefit from reduced operating costs as part of the LCC analysis. 
Finally, other regulatory requirements on builders and developers would 
apply in both the no-new-standards case as well as the new-standards 
case, and, therefore, such requirements do not factor in DOE's 
analysis.
    NGA of Georgia stated that the proposed rule would negatively 
impact Georgians and reduce competition. The commenter stated that the 
proposal disproportionately prioritizes uncertain CO2 
emissions reductions over the broader negative impacts to consumers. 
NGA of Georgia argued that affordability, end-user utility, and 
resiliency cannot be deprioritized in favor of increased emissions 
reductions. (NGA of Georgia, No. 380 at p. 1)
    In response, DOE acknowledges that some fraction of consumers will 
experience net savings, whereas others will experience net costs. DOE's 
analyses account for regional variation, and consumers in different 
States (as represented in the RECS and CBECS surveys) are represented 
in the LCC. Thus, DOE's evaluation of economic justification considers 
a distribution showing the full range of consumer impacts. DOE further 
notes that its conclusions would be the same even without considering 
the monetized benefits of emissions reductions. Accordingly, DOE 
concludes that affordability, end-user utility, and resiliency will not 
be negatively impacted by the standards being adopted in this final 
rule.
    ACCA expressed concern that a landlord will not see a return on 
their cost for a more expensive but higher efficiency furnace. ACCA 
argued that landlords will likely turn to alternative heating options 
resulting in increased monthly utility bills for their tenants and 
additional safety concerns. (ACCA, No. 398 at p. 3) DOE notes that this 
comment is not specific to the low-income subgroup. In the main LCC 
results, the product switching analysis includes examples of households 
experiencing higher operating costs after switching to lower cost 
electric alternatives. The product switching analysis only considers 
alternative options that meet all safety requirements.
    Joint Efficiency Commenters stated that there are other energy 
efficiency programs that can help offset the costs of switching to a 
higher-efficiency gas furnace or electric heating system, adding that 
there are particular programs for low- and moderate-income households. 
These commenters further stated that these types of programs would 
reduce the number of low-income consumers that may be 
disproportionately impacted by the proposed standard. (Joint Efficiency 
Commenters, No. 381 at p. 3)
    NCLC et al. commented that with passage of the Inflation Reduction 
Act, Public Law 117-169, there will be funding to help consumers 
install efficient heating products, as well as assistance from rebate 
and subsidy programs offered by many State agencies and utility 
companies. Furthermore, NCLC et al. agreed that there will often be 
programs available for mitigating the cost impact of purchasing and 
installing efficient furnaces, particularly for low-income households. 
(NCLC et al., No. 383 at p. 7)
    In response, DOE acknowledges that rebate and incentive programs 
may assist low-income owner households with the purchase of more-
efficient consumer furnaces. However, as discussed in section IV.G of 
this document, the implementation details of such future programs 
remain unknown at the time of the analysis, and DOE did not include 
them in its analysis. However, DOE notes that if such programs were to 
be deployed after the compliance date of an amended standard, the 
consumer benefits of the amended standards would be even higher. If 
such programs were implemented prior to the compliance date of an 
amended standard, incentivizing low-income households to adopt more 
efficient furnaces, such households would no longer be impacted by the 
amended standard.
    NCLC et al. commented that the proposed TSL 8 standard will 
significantly reduce greenhouse gas and other emissions, adding that 
this reduction will benefit low-income households and racial 
minorities. (NCLC et al., No. 383 at p. 7) DOE agrees with this 
comment.

J. Manufacturer Impact Analysis

1. Overview
    DOE performed an MIA to estimate the financial impacts of amended 
energy conservation standards on manufacturers of NWGFs and MHGFs and 
to estimate the potential impacts of such standards on domestic 
employment, manufacturing capacity, and cumulative regulatory burden 
for those manufacturers. The MIA has both quantitative and qualitative 
aspects. The quantitative part of the MIA includes analyses of 
projected industry cash flows, the INPV, additional investments in 
research and development (R&D) and manufacturing capital necessary to 
comply with amended standards, and the potential impact on domestic 
manufacturing employment. Additionally, the MIA seeks to qualitatively 
determine how amended energy conservation standards might affect 
manufacturing capacity and competition, as well as how standards 
contribute to manufacturers' overall regulatory burden. Finally, the 
MIA serves to identify any disproportionate impacts on manufacturer 
subgroups, including small business manufacturers.
    The quantitative part of the MIA primarily relies on the Government 
Regulatory Impact Model (GRIM),\254\ an industry cash-flow model with 
inputs specific to this rulemaking. The key GRIM inputs include data on 
the industry cost structure, unit production costs, product shipments, 
manufacturer markups, and investments in R&D and manufacturing capital 
required to produce compliant products. The key GRIM outputs are the 
INPV, which is the sum of industry annual cash flows over the analysis 
period, discounted using the industry-weighted average cost of capital, 
and the impact on domestic manufacturing employment. The model uses 
standard accounting principles to estimate the impacts of amended 
energy conservation standards on the NWGF and MHGF manufacturing 
industry by comparing changes in INPV and domestic manufacturing 
employment between the no-new-standards case and the various standards 
cases (i.e., TSLs). To capture the uncertainty relating to manufacturer 
pricing strategies following amended standards, the GRIM estimates a 
range of possible impacts under different markup scenarios.
---------------------------------------------------------------------------

    \254\ A copy of the GRIM spreadsheet tool is available on the 
DOE website for this rulemaking: www1.eere.energy.gov/buildings/appliance_standards/standards.aspx?productid= 59&action=viewlive.
---------------------------------------------------------------------------

    The qualitative part of the MIA addresses manufacturer 
characteristics

[[Page 87609]]

and market trends. Specifically, the MIA considers such factors as a 
potential standard's impact on manufacturing capacity, competition 
within the industry, the cumulative regulatory burden impact of other 
DOE and non-DOE regulations, and impacts on manufacturer subgroups. The 
complete MIA is outlined in chapter 12 of the final rule TSD.
    DOE conducted the MIA for this rulemaking in three phases. In Phase 
1 of the MIA, DOE prepared a profile of the NWGF and MHGF manufacturing 
industry based on the market and technology assessment, preliminary 
manufacturer interviews, and publicly-available information. This 
included a top-down cost analysis of NWGF and MHGF manufacturers that 
DOE used to derive preliminary financial inputs for the GRIM (e.g., 
revenues; materials, labor, overhead, and depreciation expenses; 
selling, general, and administrative expenses (SG&A); R&D expenses; and 
tax rates). DOE also used public sources of information to further 
calibrate its initial characterization of the NWGF and MHGF 
manufacturing industry, including company filings of form 10-K from the 
SEC,\255\ corporate annual reports, the U.S. Census Bureau's Annual 
Survey of Manufactures (ASM),\256\ and prior NWGF and MHGF rulemakings, 
as well as subscription-based market research tools (i.e., reports from 
Dun & Bradstreet \257\).
---------------------------------------------------------------------------

    \255\ U.S. Securities and Exchange Commission's Electronic Data 
Gathering, Analysis, and Retrieval system (EDGAR) database 
(available at: www.sec.gov/edgar/search/) (last accessed August 1, 
2023).
    \256\ U.S. Census Bureau's Annual Survey of Manufactures: 2018-
2021 (available at: www.census.gov/programs-surveys/asm/data/tables.html) (last accessed August 1, 2023).
    \257\ The Dun & Bradstreet Hoovers subscription login is 
accessible online at: app.dnbhoovers.com/login (last accessed August 
1, 2023).
---------------------------------------------------------------------------

    In Phase 2 of the MIA, DOE prepared a framework industry cash-flow 
analysis to quantify the potential impacts of new or amended energy 
conservation standards. The GRIM uses several factors to determine a 
series of annual cash flows starting with the announcement of the 
standard and extending over a 30-year period following the compliance 
date of the standard. These factors include annual expected revenues, 
costs of sales, SG&A and R&D expenses, taxes, and capital expenditures. 
In general, energy conservation standards can affect manufacturer cash 
flow in three distinct ways: (1) creating a need for increased 
investment; (2) raising production costs per unit, and (3) altering 
revenue due to higher per-unit prices and changes in sales volumes.
    In addition, during Phase 2, DOE developed interview guides to 
distribute to manufacturers of NWGF and MHGF in order to develop other 
key GRIM inputs, including product and capital conversion costs, and to 
gather additional information on the anticipated effects of amended 
energy conservation standards on revenues, direct employment, capital 
assets, industry competitiveness, and manufacturer subgroup impacts.
    In Phase 3 of the MIA, DOE's contractor conducted structured, 
detailed interviews with representative NWGF and MHGF manufacturers. 
These interviews discussed engineering, manufacturing, procurement, and 
financial topics to validate assumptions used in the GRIM. The 
interviews also solicited information about manufacturers' views of the 
industry as a whole and their key concerns regarding this rulemaking. 
DOE's contractor conducted manufacturer interviews for the withdrawn 
March 2015 NOPR. DOE's contractor conducted additional abridged 
interviews in October 2021 for the purposes of updating analyses. As 
part of Phase 3, DOE also evaluated subgroups of manufacturers that may 
be disproportionately impacted by amended standards or that may not be 
accurately represented by the average cost assumptions used to develop 
the industry cash-flow analysis. Such manufacturer subgroups may 
include small business manufacturers, low-volume manufacturers, niche 
players, and/or manufacturers exhibiting a cost structure that largely 
differs from the industry average, all of whom could be more negatively 
affected by amended energy conservation standards. DOE identified one 
subgroup for a separate impact analysis: small business manufacturers. 
The small business subgroup is discussed in section VI.B, ``Review 
Under the Regulatory Flexibility Act,'' of this document and in chapter 
12 of the final rule TSD.
2. Government Regulatory Impact Model and Key Inputs
    DOE uses the GRIM to quantify the changes in cash flows over time 
due to amended energy conservation standards that result in a higher or 
lower INPV for the standards cases as compared to the no-new-standards 
case. The GRIM uses a standard, annual discounted cash-flow analysis 
that incorporates manufacturer costs, manufacturer markups, shipments, 
and industry financial information as inputs. The GRIM models changes 
in costs, distribution of shipments, investments, and manufacturer 
margins that could result from an amended energy conservation standard. 
The GRIM spreadsheet uses the inputs to arrive at a series of annual 
cash flows, beginning in 2023 (the base year of the analysis) and 
continuing to 2058 (the terminal year of the analysis). DOE calculated 
INPVs by summing the stream of annual discounted cash flows during this 
period. For manufacturers of NWGFs and MHGFs, DOE used a real discount 
rate of 6.4 percent, which was derived from industry corporate annual 
reports and public filings to the Securities and Exchange Commission 
(SEC 10-Ks) and then modified according to feedback received during 
manufacturer interviews.
    Many GRIM inputs came from the engineering analysis, the NIA, 
manufacturer interviews, and other research conducted during the MIA. 
The major GRIM inputs are described in detail in the following 
sections.
    The GRIM results are presented in section V.B.2 of this document. 
Additional details about the GRIM, the discount rate, and other 
financial parameters can be found in chapter 12 of the final rule TSD.
a. Manufacturer Production Costs
    Manufacturing more efficient products is typically more expensive 
than manufacturing baseline products due to the use of more complex 
components, which are typically more costly than baseline components. 
The changes in the MPCs of covered products can affect the shipments, 
revenue, gross margins, and cash flow of the industry. To calculate the 
MPCs for NWGFs and MHGFs at and above the baseline, DOE performed 
teardowns for representative units. The data generated from these 
analyses were then used to estimate the incremental materials, labor, 
depreciation, and overhead costs for products at each efficiency level. 
For a complete description of the MPCs, see section IV.C of this 
document or chapter 5 of the final rule TSD.
b. Shipments Projections
    The GRIM estimates industry revenues based on total unit shipment 
projections and the distribution of those shipments by efficiency level 
and product class. Changes in sales volumes and efficiency mix over 
time can significantly affect manufacturer finances. For this analysis, 
the GRIM uses the NIA's annual shipment projections derived from the 
shipments analysis from 2023 (the base year) to 2058 (the end year of 
the analysis period). In the shipments analysis, DOE estimates the 
distribution of efficiencies

[[Page 87610]]

in the no-new-standards case and standards cases for all product 
classes. To account for a regional standard at TSL 4, shipment values 
in the GRIM are broken down by region, North and rest of country, for 
the NWGF and MHGF product classes.
    The NIA assumes that product efficiencies in the no-new-standards 
case that do not meet the energy conservation standard in the standards 
case either ``roll up'' to meet the amended standard or switch to 
another product, such as a heat pump or electric furnace. In other 
words, the market share of products that are below the energy 
conservation standard is added to the market share of products at the 
minimum energy efficiency level allowed under each standard case. The 
market share of products above the amended energy conservation standard 
is assumed to be unaffected by that standard in the compliance year. 
For a complete description of the shipments analysis, see section IV.G 
of this document and chapter 9 of the final rule TSD.
c. Capital and Product Conversion Costs
    Amended energy conservation standards could cause manufacturers to 
incur one-time conversion costs to bring their production facilities 
and product designs into compliance. DOE evaluated the level of 
conversion-related expenditures that would be needed to comply with 
each considered efficiency level in each product class. For the MIA, 
DOE classified these conversion costs into two major groups: (1) 
capital conversion costs; and (2) product conversion costs. Capital 
conversion costs are one-time investments in property, plant, and 
equipment necessary to adapt or change existing production facilities 
such that new, compliant product designs can be fabricated and 
assembled. Product conversion costs are one-time investments in 
research, development, testing, marketing, and other non-capitalized 
costs necessary to make product designs comply with amended energy 
conservation standards.
    To evaluate the level of capital conversion costs manufacturers 
would likely incur to comply with amended energy conservation 
standards, DOE used manufacturer interviews to gather data on the 
anticipated level of capital investment that would be required at each 
efficiency level. Manufacturer data were aggregated to better reflect 
the industry as a whole and to protect confidential information. DOE 
then scaled up the capital conversion cost feedback from interviews to 
estimate total industry capital conversion costs.
    DOE assessed the product conversion costs at each considered AFUE 
efficiency level by integrating data from quantitative and qualitative 
sources. DOE considered market-share weighted feedback regarding the 
potential costs at each efficiency level from multiple manufacturers to 
estimate product conversion costs. Once again, manufacturer data were 
aggregated to better reflect the industry as a whole and to protect 
confidential information.
    DOE adjusted the conversion cost estimates developed in support of 
the July 2022 NOPR to 2022$ for this analysis. Industry conversion 
costs for the adopted standard total $162.0 million. It consists of 
$117.3 million in capital conversion costs and $44.8 million in product 
conversion costs.
    In general, DOE assumes all conversion-related investments occur 
between the year of publication of the final rule and the year by which 
manufacturers must comply with the new standard. The conversion cost 
figures used in the GRIM can be found in section V.B.2 of this 
document. For additional information on the estimated capital and 
product conversion costs, see chapter 12 of the final rule TSD.
d. Manufacturer Markup Scenarios
    MSPs include direct manufacturing production costs (i.e., labor, 
materials, and overhead estimated in DOE's MPCs) and all non-production 
costs (i.e., SG&A, R&D, and interest), along with profit. To calculate 
the MSPs in the GRIM, DOE applied manufacturer markups to the MPCs 
estimated in the engineering analysis for each product class and 
efficiency level. Modifying these manufacturer markups in the standards 
case yields different sets of impacts on manufacturers. For the MIA, 
DOE modeled two standards-case scenarios to represent uncertainty 
regarding the potential impacts on prices and profitability for 
manufacturers following the implementation of amended energy 
conservation standards: (1) a preservation of gross margin percentage 
scenario; and (2) a tiered scenario.\258\ These scenarios lead to 
different manufacturer markup values that, when applied to the MPCs, 
result in varying revenue and cash flow impacts. The industry cash-flow 
analysis results in section V.B.2 of this document present the impacts 
of the upper and lower bound manufacturer markup scenarios on INPV. For 
the proposed AFUE standards, the preservation of gross margin 
percentage scenario represents the upper bound scenario, and the tiered 
scenario represents the lower bound scenario for INPV impacts.
---------------------------------------------------------------------------

    \258\ DOE analyzed the preservation of per-unit operating profit 
scenario for the proposed standby mode and off mode standards in the 
July 2022 NOPR. DOE is not analyzing the preservation of per-unit 
operating profit scenario for this final rule, as DOE is not 
adopting the standby mode/off mode power standards for NWGFs/MHGFs 
proposed in the July 2022 NOPR at this time.
---------------------------------------------------------------------------

    Under the preservation of gross margin percentage scenario, DOE 
applied a single uniform ``gross margin percentage'' markup across all 
efficiency levels, which assumes that following amended standards, 
manufacturers would be able to maintain the same amount of profit as a 
percentage of revenues at all efficiency levels within a product class. 
As production costs increase with efficiency, this scenario implies 
that the per-unit dollar profit will increase. Based on publicly 
available financial information for NWGF and MHGF manufacturers, as 
well as comments from manufacturer interviews, DOE assumed average 
gross margin percentages of 25.3 percent for NWGFs and 21.3 percent for 
MHGF.\259\ Manufacturers noted that this scenario represents the upper 
bound of the NWGF and MHGF industry's profitability in the standards 
case because manufacturers can fully pass on additional costs due to 
standards to consumers.
---------------------------------------------------------------------------

    \259\ The gross margin percentages correspond to manufacturer 
markups of 1.34 for NWGFs and 1.27 for MHGFs.
---------------------------------------------------------------------------

    DOE also modeled a tiered scenario, which reflects the industry's 
``good, better, best'' pricing structure. DOE implemented the tiered 
markup scenario because several manufacturers stated in interviews that 
they offer multiple tiers of product lines that are differentiated, in 
part, by efficiency level. Manufacturers further noted that tiered 
pricing encompasses additional differentiators such as comfort 
features, brand, and warranty. To account for this nuance in the GRIM, 
DOE's tiered mark-up structure incorporates both AFUE and combustion 
systems (e.g., single-stage, two-stage, and modulating combustion 
systems) into its ``good, better, best'' markup analysis.
    Multiple manufacturers suggested that amended standards could lead 
to a compression of overall mark-ups and reduce the profitability of 
higher-efficiency products. During interviews, manufacturers provided 
information on the range of typical manufacturer mark-ups in the 
``good, better, best'' tiers. DOE used this information to estimate 
manufacturer mark-ups for NWGFs and MHGFs under a tiered pricing 
strategy in the no-new-standards case. In the standards cases, DOE 
modeled the

[[Page 87611]]

situation in which amended standards result in a reduction of product 
differentiation, compression of the markup tiers, and an overall 
reduction in profitability.
    A comparison of industry financial impacts under the two scenarios 
is presented in section V.B.2.a of this document.

K. Emissions Analysis

    The emissions analysis consists of two components. The first 
component estimates the effect of potential energy conservation 
standards on power sector and site (where applicable) combustion 
emissions of CO2, NOX, SO2, and Hg. 
The second component estimates the impacts of potential standards on 
emissions of two additional greenhouse gases, CH4 and 
N2O, as well as the reductions in emissions of other gases 
due to ``upstream'' activities in the fuel production chain. These 
upstream activities comprise extraction, processing, and transporting 
fuels to the site of combustion.
    The analysis of electric power sector emissions of CO2, 
NOX, SO2, and Hg uses emissions intended to 
represent the marginal impacts of the change in electricity consumption 
associated with amended or new standards. The methodology is based on 
results published for the AEO, including a set of side cases that 
implement a variety of efficiency-related policies. The methodology is 
described in appendix 13A in the final rule TSD. The analysis presented 
in this document uses projections from AEO2023. Power sector emissions 
of CH4 and N2O from fuel combustion are estimated 
using Emission Factors for Greenhouse Gas Inventories published by the 
Environmental Protection Agency (EPA).\260\
---------------------------------------------------------------------------

    \260\ Available at: www.epa.gov/sites/production/files/2021-04/documents/emission-factors_apr2021.pdf (last accessed August 1, 
2023).
---------------------------------------------------------------------------

    The on-site operation of the subject consumer furnaces requires 
combustion of fossil fuels and results in emissions of CO2, 
NOX, SO2, CH4, and N2O 
where these products are used. Site emissions of these gases were 
estimated using Emission Factors for Greenhouse Gas Inventories and, 
for NOX and SO2, emissions intensity factors from 
an EPA publication.\261\
---------------------------------------------------------------------------

    \261\ U.S. Environmental Protection Agency. External Combustion 
Sources. In Compilation of Air Pollutant Emission Factors. AP-42. 
Fifth Edition. Volume I: Stationary Point and Area Sources. Chapter 
1 (available at: www.epa.gov/air-emissions-factors-and-quantification/ap-42-compilation-air-emissions-factors#Proposed/) 
(last accessed August 1, 2023).
---------------------------------------------------------------------------

    FFC upstream emissions, which include emissions from fuel 
combustion during extraction, processing, and transportation of fuels, 
and ``fugitive'' emissions (direct leakage to the atmosphere) of 
CH4 and CO2, are estimated based on the 
methodology described in chapter 15 of the final rule TSD.
    The emissions intensity factors are expressed in terms of physical 
units per MWh or MMBtu of site energy savings. For power sector 
emissions, specific emissions intensity factors are calculated by 
sector and end use. Total emissions reductions are estimated using the 
energy savings calculated in the national impact analysis.
    GHHI stated that the reductions in nitrous oxide emissions will 
create more than $21 billion in health benefits from reduced medical 
spending on treatment and improved economic productivity. (GHHI, No. 
371 at p. 2)
    NCLC et al. commented that reducing the combustion of natural gas 
in furnaces would reduce emissions of CO2, nitrogen oxides, 
and methane, which in turn would yield health benefits. NCLC et al. 
further commented that these benefits are important for low-income 
communities and racial minorities, stating that these groups already 
experience higher rates of negative health outcomes, have limited 
healthcare access, and struggle with higher amounts of medical debt. 
These commenters added that the reduction of heating-energy bills would 
further benefit low-income households who are forced to cut back on 
other necessities to pay energy bills. (NCLC et al., No. 383 at p. 8)
    Climate and Health Coalition expressed support for the eventual 
elimination of gas use within the home, and during the transition, 
Climate and Health Coalition stated that DOE's proposed rule would 
reduce pollutants that harm human health, reduce climate change 
emissions, and save all customers (including disadvantaged and low-
income communities) money. (Climate and Health Coalition, No. 399 at p. 
1) Climate and Health Coalition further commented that exposure to air 
pollutants caused by burning natural gas contributes to premature 
mortality and increased risk for illness, including ischemic heart 
disease, stroke, chronic obstructive pulmonary disease (COPD), lung 
cancer, heart attack, type-2 diabetes, headache, fatigue, 
unconsciousness, lower-respiratory infections, and even death. (Climate 
and Health Coalition, No. 399 at pp. 1-3) Additionally, these 
commenters stated that there is a growing body of evidence showing an 
association between long-term exposure to air pollution and adverse 
birth outcomes. (Climate and Health Coalition, No. 399 at pp. 1-2) 
Furthermore, Climate and Health Coalition stated that air pollution can 
exacerbate asthma and cardiopulmonary symptoms, are associated with 
upper respiratory infections and cough, increase lower respiratory 
tract illnesses, and reduce lung function in children. (Climate and 
Health Coalition, No. 399 at pp. 2-3)
    In response, DOE acknowledges the potential health and climate 
benefits of reducing emissions and continues to estimate site and power 
plant emissions reductions for CO2, CH4, 
N2O, NOX, SO2, and Hg in this final 
rule.
    APGA expressed concerned that DOE's assumed fuel sulfur content 
leads to overstatements of SO2 emissions from on-site 
operation of furnaces, especially as utilities across the country can 
have much less total sulfur in their gas and still meet odorant 
requirements. (APGA, No. 387 at pp. 29-30)
    DOE acknowledges that there is some uncertainty in the sulfur 
content of fuel. However, the resulting site emission reductions of 
SO2 are over an order of magnitude smaller than the 
corresponding increases in SO2 emissions due to increased 
electricity consumption in the amended standards case, and, therefore, 
any changes to the sulfur content assumptions would have very little 
impact on overall results and would not alter DOE's evaluation of 
economic justification.
    APGA noted that EPA is in the process of promulgating regulations 
to impose a methane fee (i.e., a charge on methane emissions from the 
petroleum and natural gas sector, where methane emissions from an 
applicable facility (upstream of gas distribution) exceed a pre-
determined waste emissions threshold). APGA argued that given that such 
a fee would reduce methane emissions, DOE's estimates are likely 
overstated and must be recalculated to account for the impact of EPA's 
new methane fee. (APGA, No. 387 at p. 30)
    In response, DOE notes that its estimates of emissions reductions, 
including methane, are based on various projections from the latest 
AEO. AEO's methodology incorporates all regulations affecting the 
energy sector, if they are finalized. If a rule is proposed but not yet 
finalized, it will not be incorporated into the reference case of AEO, 
as it may ultimately differ from its proposed rule (or not be 
finalized). Should EPA finalize a regulation regarding a methane fee, 
it will be incorporated into future publications of AEO. AEO2023 does 
not incorporate this regulation. DOE notes that, even if methane 
emissions were lower than estimated in this final rule, the

[[Page 87612]]

Department's conclusions regarding economic justification and 
technological feasibility of the rule would be the same.
    Spencer and Dayaratna cited a report from the U.S. Environmental 
Protection Agency indicating that U.S. air quality has been improving 
for decades, suggesting that this weakens DOE's finding that the air 
quality benefits associated with DOE's proposal would outweigh the 
costs. (Spencer and Dayaratna, No. 390 at pp. 5-6)
    In response, DOE notes that this assertion is incorrect. DOE 
acknowledges that air quality is generally improving, but this would 
occur in the no-new-standards case as well as the new-standards-case. 
DOE's analysis specifically considers the difference between the two 
cases (i.e., emissions reductions from an energy conservation standard 
on consumer furnaces only). This difference between the no-new-
standards and new-standards cases is the same regardless of the 
background air quality. Furthermore, DOE incorporates projections from 
AEO with respect to the fuel mix of future electricity generation, 
which includes a greater fraction of renewable sources with no 
emissions. Therefore, improving emissions from the power sector are 
included in DOE's analysis.
    Atmos Energy commented that DOE's analysis should differentiate 
between the carbon dioxide emissions from natural gas-fueled and 
propane-fueled furnaces and evaluate them separately. (Atmos Energy, 
No. 415 at p. 7)
    DOE acknowledges that propane and natural gas have different carbon 
dioxide emissions. However, this difference is orders of magnitude 
smaller than the total emissions reductions estimated in the analysis. 
Furthermore, as discussed in section V.C of this document, DOE comes to 
the same conclusions with or without taking into consideration the 
impact of emissions reductions, and, therefore, any adjustments to the 
emissions analysis for propane would not change DOE's conclusions.
1. Air Quality Regulations Incorporated in DOE's Analysis
    DOE's no-new-standards case for the electric power sector reflects 
the AEO, which incorporates the projected impacts of existing air 
quality regulations on emissions. AEO2023 generally represents current 
legislation and environmental regulations, including recent government 
actions, that were in place at the time of preparation of AEO2023, 
including the emissions control programs discussed in the following 
paragraphs.\262\
---------------------------------------------------------------------------

    \262\ For further information, see the Assumptions to AEO2023 
report that sets forth the major assumptions used to generate the 
projections in the Annual Energy Outlook (available at: www.eia.gov/outlooks/aeo/assumptions/) (last accessed August 1, 2023).
---------------------------------------------------------------------------

    SO2 emissions from affected electric generating units 
(``EGUs'') are subject to nationwide and regional emissions cap-and-
trade programs. Title IV of the Clean Air Act sets an annual emissions 
cap on SO2 for affected EGUs in the 48 contiguous States and 
the District of Columbia (DC). (42 U.S.C. 7651 et seq.) SO2 
emissions from numerous States in the eastern half of the United States 
are also limited under the Cross-State Air Pollution Rule (CSAPR). 76 
FR 48208 (August 8, 2011). CSAPR requires these States to reduce 
certain emissions, including annual SO2 emissions, and went 
into effect as of January 1, 2015.\263\ AEO2023 incorporates 
implementation of CSAPR, including the update to the CSAPR ozone season 
program emission budgets and target dates issued in 2016. 81 FR 74504 
(Oct. 26, 2016). Compliance with CSAPR is flexible among EGUs and is 
enforced through the use of tradable emissions allowances. Under 
existing EPA regulations, for States subject to SO2 
emissions limits under CSAPR, any excess SO2 emissions 
allowances resulting from the lower electricity demand caused by the 
adoption of an efficiency standard could be used to permit offsetting 
increases in SO2 emissions by another regulated EGU.
---------------------------------------------------------------------------

    \263\ CSAPR requires States to address annual emissions of 
SO2 and NOX, precursors to the formation of 
fine particulate matter (PM2.5) pollution, in order to 
address the interstate transport of pollution with respect to the 
1997 and 2006 PM2.5 National Ambient Air Quality 
Standards (NAAQS). CSAPR also requires certain States to address the 
ozone season (May-September) emissions of NOX, a 
precursor to the formation of ozone pollution, in order to address 
the interstate transport of ozone pollution with respect to the 1997 
ozone NAAQS. 76 FR 48208 (August 8, 2011). EPA subsequently 
published a supplemental rule in the Federal Register that included 
an additional five States in the CSAPR ozone season program, 76 FR 
80760 (Dec. 27, 2011).
---------------------------------------------------------------------------

    However, beginning in 2016, SO2 emissions began to fall 
as a result of the Mercury and Air Toxics Standards (MATS) for power 
plants. 77 FR 9304 (Feb. 16, 2012). In the MATS final rule, EPA 
established a standard for hydrogen chloride as a surrogate for acid 
gas hazardous air pollutants (HAP), and also established a standard for 
SO2 (a non-HAP acid gas) as an alternative equivalent 
surrogate standard for acid gas HAP. The same controls are used to 
reduce HAP and non-HAP acid gas; thus, SO2 emissions are 
being reduced as a result of the control technologies installed on 
coal-fired power plants to comply with the MATS requirements for acid 
gas. In order to continue operating, coal plants must have either flue 
gas desulfurization or dry sorbent injection systems installed. Both 
technologies, which are used to reduce acid gas emissions, also reduce 
SO2 emissions. Because of the emissions reductions under the 
MATS, it is unlikely that excess SO2 emissions allowances 
resulting from the lower electricity demand would be needed or used to 
permit offsetting increases in SO2 emissions by another 
regulated EGU. Therefore, energy conservation standards that decrease 
electricity generation will generally reduce SO2 emissions. 
DOE estimated SO2 emissions reduction using emissions 
factors based on AEO2023.
    CSAPR also established limits on NOX emissions for 
numerous States in the eastern half of the United States. Energy 
conservation standards would have little effect on NOX 
emissions in those States covered by CSAPR emissions limits if excess 
NOX emissions allowances resulting from the lower 
electricity demand could be used to permit offsetting increases in 
NOX emissions from other EGUs. In such case, NOX 
emissions would remain near the limit even if electricity generation 
goes down. Depending on the configuration of the power sector in the 
different regions and the need for allowances, however, NOX 
emissions might not remain at the limit in the case of lower 
electricity demand. That would mean that standards might reduce 
NOX emissions in covered States. Despite this possibility, 
DOE has chosen to be conservative in its analysis and has maintained 
the assumption that standards will not reduce NOX emissions 
in States covered by CSAPR. Energy conservation standards would be 
expected to reduce NOX emissions in the States not covered 
by CSAPR.\264\ DOE used AEO2023 data to derive NOX emissions 
factors for the group of States not covered by CSAPR.
---------------------------------------------------------------------------

    \264\ See footnote 246.
---------------------------------------------------------------------------

    The MATS limit mercury emissions from power plants, but they do not 
include emissions caps and, as such, DOE's energy conservation 
standards would be expected to slightly reduce Hg emissions. DOE 
estimated mercury emissions reduction using emissions factors based on 
AEO2023, which incorporates the MATS.

L. Monetizing Emissions Impacts

    As part of the development of this final rule, for the purpose of 
complying with the requirements of Executive

[[Page 87613]]

Order 12866, DOE considered the estimated net monetary benefits from 
changes in emissions of CO2, CH4, N2O, 
NOX, and SO2 that are expected to result from 
each of the TSLs considered. In order to make this calculation 
analogous to the calculation of the NPV of consumer benefit, DOE 
considered the reduced emissions expected to result over the lifetime 
of products shipped in the projection period for each TSL. This section 
summarizes the basis for the values used for monetizing the emissions 
benefits and presents the values considered in this final rule.
1. Monetization of Greenhouse Gas Emissions
    To monetize the benefits of reducing GHG emissions, this analysis 
uses the interim estimates presented in the Technical Support Document: 
Social Cost of Carbon, Methane, and Nitrous Oxide Interim Estimates 
Under Executive Order 13990 published in February 2021 by the IWG.\265\
---------------------------------------------------------------------------

    \265\ See www.whitehouse.gov/wp-content/uploads/2021/02/TechnicalSupportDocument_SocialCostofCarbonMethaneNitrousOxide.pdf 
(last accessed August 1, 2023).
---------------------------------------------------------------------------

    DOE estimates the monetized benefits of the reductions in emissions 
of CO2, CH4, and N2O by using a 
measure of the social cost (SC) of each pollutant (e.g., SC-
CO2). These estimates represent the monetary value of the 
net harm to society associated with a marginal increase in emissions of 
these pollutants in a given year, or the benefit of avoiding that 
increase. These estimates are intended to include (but are not limited 
to) climate-change-related changes in net agricultural productivity, 
human health, property damages from increased flood risk, disruption of 
energy systems, risk of conflict, environmental migration, and the 
value of ecosystem services.
    DOE exercises its own judgment in presenting monetized climate 
benefits as recommended by applicable Executive orders, and DOE would 
reach the same conclusion presented in this final rule in the absence 
of the social cost of greenhouse gases. That is, the social costs of 
greenhouse gases, whether measured using the February 2021 interim 
estimates presented by the Interagency Working Group on the Social Cost 
of Greenhouse Gases or by another means, did not affect the rule 
ultimately being adopted by DOE.
    DOE estimated the global social benefits of CO2, 
CH4, and N2O reductions (i.e., SC-GHGs) using SC-
GHG values that were based on the interim values presented in the 
Technical Support Document: Social Cost of Carbon, Methane, and Nitrous 
Oxide Interim Estimates under Executive Order 13990, published in 
February 2021 by the IWG. The SC-GHGs is the monetary value of the net 
harm to society associated with a marginal increase in emissions in a 
given year, or the benefit of avoiding that increase. In principle, SC-
GHGs includes the value of all climate change impacts, including (but 
not limited to) changes in net agricultural productivity, human health 
effects, property damage from increased flood risk and natural 
disasters, disruption of energy systems, risk of conflict, 
environmental migration, and the value of ecosystem services. The SC-
GHGs, therefore, reflects the societal value of reducing emissions of 
the gas in question by one metric ton. The SC-GHGs is the theoretically 
appropriate value to use in conducting benefit-cost analyses of 
policies that affect CO2, N2O, and CH4 
emissions. As a member of the IWG involved in the development of the 
February 2021 SC-GHG TSD, DOE agrees that the interim SC-GHG estimates 
represent the most appropriate estimate of the SC-GHG until revised 
estimates have been developed reflecting the latest, peer-reviewed 
science.
    The SC-GHGs estimates presented here were developed over many 
years, using a transparent process, peer-reviewed methodologies, the 
best science available at the time of that process, and with input from 
the public. Specifically, in 2009, the IWG, which included DOE and 
other Executive Branch agencies and offices, was established to ensure 
that agencies were using the best available science and to promote 
consistency in the social cost of carbon (SC-CO2) values 
used across agencies. The IWG published SC-CO2 estimates in 
2010 that were developed from an ensemble of three widely cited 
integrated assessment models (IAMs) that estimate global climate 
damages using highly aggregated representations of climate processes 
and the global economy combined into a single modeling framework. The 
three IAMs were run using a common set of input assumptions in each 
model for future population, economic, and CO2 emissions 
growth, as well as equilibrium climate sensitivity--a measure of the 
globally averaged temperature response to increased atmospheric 
CO2 concentrations. These estimates were updated in 2013 
based on new versions of each IAM. In August 2016, the IWG published 
estimates of the social cost of methane (SC-CH4) and nitrous 
oxide (SC-N2O) using methodologies that are consistent with 
the methodology underlying the SC-CO2 estimates. The 
modeling approach that extends the IWG SC-CO2 methodology to 
non-CO2 GHGs has undergone multiple stages of peer review. 
The SC-CH4 and SC-N2O estimates were developed by 
Marten et al.\266\ and underwent a standard double-blind peer review 
process prior to journal publication. In 2015, as part of the response 
to public comments received to a 2013 solicitation for comments on the 
SC-CO2 estimates, the IWG announced a National Academies of 
Sciences, Engineering, and Medicine review of the SC-CO2 
estimates to offer advice on how to approach future updates to ensure 
that the estimates continue to reflect the best available science and 
methodologies. In January 2017, the National Academies released their 
final report, ``Valuing Climate Damages: Updating Estimation of the 
Social Cost of Carbon Dioxide,'' and recommended specific criteria for 
future updates to the SC-CO2 estimates, a modeling framework 
to satisfy the specified criteria, and both near-term updates and 
longer-term research needs pertaining to various components of the 
estimation process (National Academies, 2017).\267\ Shortly thereafter, 
in March 2017, President Trump issued Executive Order 13783, which 
disbanded the IWG, withdrew the previous TSDs, and directed agencies to 
ensure SC-CO2 estimates used in regulatory analyses are 
consistent with the guidance contained in OMB's Circular A-4, 
``including with respect to the consideration of domestic versus 
international impacts and the consideration of appropriate discount 
rates'' (E.O. 13783, section 5(c)). Benefit-cost analyses following 
E.O. 13783 used SC-GHG estimates that attempted to focus on the U.S.-
specific share of climate change damages as estimated by the models and 
were calculated using two discount rates recommended by Circular A-4, 3 
percent and 7 percent. All other methodological decisions and model 
versions used in SC-GHG calculations remained the same as those used by 
the IWG in 2010 and 2013, respectively.
---------------------------------------------------------------------------

    \266\ Marten, A.L., E.A. Kopits, C.W. Griffiths, S.C. Newbold, 
and A. Wolverton. Incremental CH4 and N2O 
mitigation benefits consistent with the U.S. Government's SC-
CO2 estimates. Climate Policy (2015) 15(2): pp. 272-298.
    \267\ National Academies of Sciences, Engineering, and Medicine. 
Valuing Climate Damages: Updating Estimation of the Social Cost of 
Carbon Dioxide. 2017. The National Academies Press: Washington, DC.
---------------------------------------------------------------------------

    On January 20, 2021, President Biden issued Executive Order 13990, 
which re-

[[Page 87614]]

established the IWG and directed it to ensure that the U.S. 
Government's estimates of the social cost of carbon and other 
greenhouse gases reflect the best available science and the 
recommendations of the National Academies (2017). The IWG was tasked 
with first reviewing the SC-GHG estimates currently used in Federal 
analyses and publishing interim estimates within 30 days of the E.O. 
that reflect the full impact of GHG emissions, including by taking 
global damages into account. The interim SC-GHG estimates published in 
February 2021 are used here to estimate the climate benefits for this 
rulemaking. The February 2021 SC-GHG TSD provides a complete discussion 
of the IWG's initial review conducted under E.O. 13990. In particular, 
the IWG found that the SC-GHG estimates used under E.O. 13783 fail to 
reflect the full impact of GHG emissions in multiple ways.
    First, the IWG found that the SC-GHG estimates used under E.O. 
13783 fail to fully capture many climate impacts that affect the 
welfare of U.S. citizens and residents, and those impacts are better 
reflected by global measures of the SC-GHG. Examples of omitted effects 
from the E.O. 13783 estimates include direct effects on U.S. citizens, 
assets, and investments located abroad, supply chains, U.S. military 
assets and interests abroad, and tourism, as well as spillover pathways 
such as economic and political destabilization and global migration 
that can lead to adverse impacts on U.S. national security, public 
health, and humanitarian concerns. In addition, assessing the benefits 
of U.S. GHG mitigation activities requires consideration of how those 
actions may affect mitigation activities by other countries, as those 
international mitigation actions will provide a benefit to U.S. 
citizens and residents by mitigating climate impacts that affect U.S. 
citizens and residents. A wide range of scientific and economic experts 
have emphasized the issue of reciprocity as support for considering 
global damages of GHG emissions. If the United States does not consider 
impacts on other countries, it is difficult to convince other countries 
to consider the impacts of their emissions on the United States. The 
only way to achieve an efficient allocation of resources for emissions 
reduction on a global basis--and so benefit the U.S. and its citizens--
is for all countries to base their policies on global estimates of 
damages. As a member of the IWG involved in the development of the 
February 2021 SC-GHG TSD, DOE agrees with this assessment, and, 
therefore, in this final rule DOE centers attention on a global measure 
of the SC-GHG. This approach is the same as that taken in DOE 
regulatory analyses from 2012 through 2016. A robust estimate of 
climate damages that accrue only to U.S. citizens and residents does 
not currently exist in the literature. As explained in the February 
2021 TSD, existing estimates are both incomplete and an underestimate 
of total damages that accrue to the citizens and residents of the U.S. 
because they do not fully capture the regional interactions and 
spillovers discussed above, nor do they include all of the important 
physical, ecological, and economic impacts of climate change recognized 
in the climate change literature. As noted in the February 2021 SC-GHG 
TSD, the IWG will continue to review developments in the literature, 
including more robust methodologies for estimating a U.S.-specific SC-
GHG value, and explore ways to better inform the public of the full 
range of carbon impacts. As a member of the IWG, DOE will continue to 
follow developments in the literature pertaining to this issue.
    Second, the IWG found that the use of the social rate of return on 
capital (7 percent under current OMB Circular A-4 guidance) to discount 
the future benefits of reducing GHG emissions inappropriately 
underestimates the impacts of climate change for the purposes of 
estimating the SC-GHG. Consistent with the findings of the National 
Academies (2017) and the economic literature, the IWG continued to 
conclude that the consumption rate of interest is the theoretically 
appropriate discount rate in an intergenerational context,\268\ and 
recommended that discount rate uncertainty and relevant aspects of 
intergenerational ethical considerations be accounted for in selecting 
future discount rates.
---------------------------------------------------------------------------

    \268\ Interagency Working Group on Social Cost of Carbon. Social 
Cost of Carbon for Regulatory Impact Analysis under Executive Order 
12866 (2010) United States Government (last accessed August 1, 2023) 
(available at: www.epa.gov/sites/default/files/2016-12/documents/scc_tsd_2010.pdf); Interagency Working Group on Social Cost of 
Carbon. Technical Update of the Social Cost of Carbon for Regulatory 
Impact Analysis Under Executive Order 12866 (2013) (78 FR 70586) 
(last accessed August 1, 2023) (available at: 
www.federalregister.gov/documents/2013/11/26/2013-28242/technical-support-document-technical-update-of-the-social-cost-of-carbon-for-regulatory-impact); Interagency Working Group on Social Cost of 
Greenhouse Gases, United States Government. Technical Support 
Document: Technical Update on the Social Cost of Carbon for 
Regulatory Impact Analysis-Under Executive Order 12866 (August 2016) 
(last accessed August 1, 2023) (available at: www.epa.gov/sites/default/files/2016-12/documents/sc_co2_tsd_august_2016.pdf); 
Interagency Working Group on Social Cost of Greenhouse Gases, United 
States Government. Addendum to Technical Support Document on Social 
Cost of Carbon for Regulatory Impact Analysis under Executive Order 
12866: Application of the Methodology to Estimate the Social Cost of 
Methane and the Social Cost of Nitrous Oxide. August 2016 (last 
accessed August 1, 2023) (available at: www.epa.gov/sites/default/files/2016-12/documents/addendum_to_sc-ghg_tsd_august_2016.pdf).
---------------------------------------------------------------------------

    Furthermore, the damage estimates developed for use in the SC-GHG 
are estimated in consumption-equivalent terms, and so an application of 
OMB Circular A-4's guidance for regulatory analysis would then use the 
consumption discount rate to calculate the SC-GHG. DOE agrees with this 
assessment and will continue to follow developments in the literature 
pertaining to this issue. DOE also notes that while OMB Circular A-4, 
as published in 2003, recommends using 3 percent and 7 percent discount 
rates as ``default'' values, Circular A-4 also reminds agencies that 
``different regulations may call for different emphases in the 
analysis, depending on the nature and complexity of the regulatory 
issues and the sensitivity of the benefit and cost estimates to the key 
assumptions.'' On discounting, Circular A-4 recognizes that ``special 
ethical considerations arise when comparing benefits and costs across 
generations,'' and Circular A-4 acknowledges that analyses may 
appropriately ``discount future costs and consumption benefits . . . at 
a lower rate than for intragenerational analysis.'' In the 2015 
``Response to Comments on the Social Cost of Carbon for Regulatory 
Impact Analysis,'' OMB, DOE, and the other IWG members recognized that 
``Circular A-4 is a living document'' and ``the use of 7 percent is not 
considered appropriate for intergenerational discounting. There is wide 
support for this view in the academic literature, and it is recognized 
in Circular A-4 itself.'' Thus, DOE concludes that a 7 percent discount 
rate is not appropriate to apply to value the social cost of greenhouse 
gases in the analysis presented in this analysis.
    To calculate the present and annualized values of climate benefits, 
DOE uses the same discount rate as the rate used to discount the value 
of damages from future GHG emissions, for internal consistency. That 
approach to discounting follows the same approach that the February 
2021 TSD recommends ``to ensure internal consistency--i.e., future 
damages from climate change using the SC-GHG at 2.5 percent should be 
discounted to the base year of the analysis using the same 2.5 percent 
rate.'' DOE has also consulted the National Academies' 2017 
recommendations on how SC-GHG

[[Page 87615]]

estimates can ``be combined in RIAs with other cost and benefits 
estimates that may use different discount rates.'' The National 
Academies reviewed several options, including ``presenting all discount 
rate combinations of other costs and benefits with [SC-GHG] 
estimates.''
    As a member of the IWG involved in the development of the February 
2021 SC-GHG TSD, DOE agrees with the above assessment and will continue 
to follow developments in the literature pertaining to this issue. 
While the IWG works to assess how best to incorporate the latest, peer-
reviewed science to develop an updated set of SC-GHG estimates, it set 
the interim estimates to be the most recent estimates developed by the 
IWG prior to the group being disbanded in 2017. The estimates rely on 
the same models and harmonized inputs and are calculated using a range 
of discount rates. As explained in the February 2021 SC-GHG TSD, the 
IWG has recommended that agencies revert to the same set of four values 
drawn from the SC-GHG distributions based on three discount rates as 
were used in regulatory analyses between 2010 and 2016 and were subject 
to public comment. For each discount rate, the IWG combined the 
distributions across models and socioeconomic emissions scenarios 
(applying equal weight to each) and then selected a set of four values 
recommended for use in benefit-cost analyses: an average value 
resulting from the model runs for each of three discount rates (2.5 
percent, 3 percent, and 5 percent), plus a fourth value, selected as 
the 95th percentile of estimates based on a 3-percent discount rate. 
The fourth value was included to provide information on potentially 
higher-than-expected economic impacts from climate change. As explained 
in the February 2021 SC-GHG TSD, and DOE agrees, this update reflects 
the immediate need to have an operational SC-GHG for use in regulatory 
benefit-cost analyses and other applications that was developed using a 
transparent process, peer-reviewed methodologies, and the science 
available at the time of that process. Those estimates were subject to 
public comment in the context of dozens of proposed rulemakings as well 
as in a dedicated public comment period in 2013.
    There are a number of limitations and uncertainties associated with 
the SC-GHG estimates. First, the current scientific and economic 
understanding of discounting approaches suggests discount rates 
appropriate for intergenerational analysis in the context of climate 
change are likely to be less than 3 percent, near 2 percent or 
lower.\269\ Second, the IAMs used to produce these interim estimates do 
not include all of the important physical, ecological, and economic 
impacts of climate change recognized in the climate change literature 
and the science underlying their ``damage functions'' (i.e., the core 
parts of the IAMs that map global mean temperature changes and other 
physical impacts of climate change into economic--both market and 
nonmarket--damages) lags behind the most recent research. For example, 
limitations include the incomplete treatment of catastrophic and non-
catastrophic impacts in the integrated assessment models, their 
incomplete treatment of adaptation and technological change, the 
incomplete way in which inter-regional and intersectoral linkages are 
modeled, uncertainty in the extrapolation of damages to high 
temperatures, and inadequate representation of the relationship between 
the discount rate and uncertainty in economic growth over long time 
horizons. Likewise, the socioeconomic and emissions scenarios used as 
inputs to the models do not reflect new information from the last 
decade of scenario generation or the full range of projections. The 
modeling limitations do not all work in the same direction in terms of 
their influence on the SC-CO2 estimates. However, as 
discussed in the February 2021 TSD, the IWG has recommended that, taken 
together, the limitations suggest that the interim SC-GHG estimates 
used in this final rule likely underestimate the damages from GHG 
emissions. DOE concurs with this assessment.
---------------------------------------------------------------------------

    \269\ Interagency Working Group on Social Cost of Greenhouse 
Gases (IWG) (2021) Technical Support Document: Social Cost of 
Carbon, Methane, and Nitrous Oxide Interim Estimates under Executive 
Order 13990. February. United States Government (available at: 
www.whitehouse.gov/briefing-room/blog/2021/02/26/a-return-to-science-evidence-based-estimates-of-the-benefits-of-reducing-climate-pollution/) (last accessed August 1, 2023).
---------------------------------------------------------------------------

    DOE's derivations of the SC-GHG (i.e., SC-CO2, SC-
N2O, and SC-CH4) values used for this final rule 
are discussed in the following sections, and the results of DOE's 
analyses estimating the benefits of the reductions in emissions of 
these GHGs are presented in section V.B of this document.
    A number of commenters expressed concern over DOE's estimates of 
the SC-GHG, as discussed in the paragraphs that follow.
    The Joint Market and Consumer Organizations argued that climate 
change considerations do not play a role under EPCA and that DOE should 
not use the IWG SC-GHGs analysis to calculate net regulatory benefits. 
The commenters claimed that climate change is mentioned nowhere in 
EPCA's detailed instructions to DOE on how to set and amend appliance 
efficiency standards. They suggest that DOE acted extra-statutorily by 
relying on Executive Order 13990 to account for greenhouse gas 
emissions in their net benefit analysis. (Joint Market and Consumer 
Organizations, No. 373 at p. 6) The commenters also question how DOE 
attempted to calculate the net benefits, claiming the SC-GHG is too 
speculative and subjective, and that it is too easily manipulated to be 
weighed in the same scales with the near-term consumer costs of the 
proposed standards. They claimed the IWG estimates are biased due to 
reliance on overheated climate models, inflated emission scenarios, and 
pessimistic adaptation assumptions. These commenters concluded that 
using biased SC-GHG estimates to estimate net benefits is arbitrary and 
capricious. (Id. at pp. 3, 7-10) They also claimed, even if the IWG's 
methodology were not biased in multiple ways, that DOE's finding that 
the furnace efficiency standards will deliver the estimated climate 
benefits would be unlikely. (Id. at p. 11)
    APGA asserted that flaws in the interim SC-GHG values could lead to 
miscalculations in monetary benefits from the proposed rule for NWGFs 
and MHGFs. APGA claimed that the process used by the IWG to develop the 
estimates was inconsistent with the Administrative Procedure Act, 
failed to fully consider recommendations from a related National 
Academies of Sciences, Engineering, and Medicine review, and did not 
follow current Office of Management and Budget bulletins and circulars, 
each of which is intended to ensure the underlying data used to develop 
the SC-GHGs are based on the best available science and economics. 
Accordingly, APGA asserted that failure to ensure that these procedural 
shortcomings are fully addressed before applying any SC-GHG estimates 
in a final rule will result in inappropriately calculated and, thus, 
misapplied values. APGA argued that DOE's speculative projections 
regarding emission reductions benefits should not be part of any final 
rule. (APGA, No. 387 at pp. 31-32)
    Spencer and Dayaratna stated that the SC-GHGs obscures regulatory 
costs. These commenters referenced studies exploring the sensitivity of 
assessment models to changes in assumptions, which they said could make 
such models prone to user manipulation. Additionally, Spencer and 
Dayaratna stated that accurately accounting for costs and benefits, 
even those that do

[[Page 87616]]

not impact DOE's final decision (such as the SC-GHGs), is important for 
providing transparency. The commenters also suggested that DOE's use of 
the SC-GHGs creates bias and is misleading. (Spencer and Dayaratna, No. 
390 at pp. 6-8)
    The Associations urged DOE to reconsider the use of the SC-GHGs 
estimates in this rulemaking based on three core concerns. First, these 
commenters argued that before DOE considers applying the SC-GHG 
estimates to the proposed rule (and, likewise, to any final rule 
resulting from this rulemaking), the SC-GHG estimates should be subject 
to a proper administrative process, including a full and fair public 
comment process, as well as a robust independent peer review. Second, 
these commenters argued that there are statutory limitations on using 
the SC-GHG estimates, and the Associations urged DOE to fully consider 
the applicable limits before applying those estimates. Third, the 
Associations urged DOE to carefully consider whether the ``major 
questions'' doctrine precludes the application of the SC-GHG estimates 
in the proposed rule, given the political and economic significance of 
the estimates. (The Associations, No. 392 at p. 2)
    In response, DOE first notes that it would reach the same 
conclusion presented in this final rule in the absence of the social 
cost of greenhouse gases. DOE notes that, as stated in section 
III.F.1.f of this document, DOE maintains that environmental and public 
health benefits associated with the more efficient use of energy, 
including those connected to global climate change, are important to 
take into account when considering the ``need for national energy . . . 
conservation,'' which is one of the factors that EPCA requires DOE to 
evaluate in determining whether a potential energy conservation 
standard is economically justified. (42 U.S.C. 6295(o)(2)(B)(i)(VI)); 
Zero Zone, Inc. v. United States DOE, 832 F.3d 654, 677 (7th Cir. 2016) 
(pointing to 42 U.S.C. 6295(o)(2)(B)(i)(VI) in concluding that ``[w]e 
have no doubt that Congress intended that DOE have the authority under 
the EPCA to consider the reduction in SCC.'') DOE has been analyzing 
the monetized emissions impacts from its rules, for over 10 years. In 
addition, Executive Order 13563, ``Improving Regulation and Regulatory 
Review,'' which was re-affirmed on January 20, 2021, states that each 
agency, among other things, must, to the extent permitted by law: 
``select, in choosing among alternative regulatory approaches, those 
approaches that maximize net benefits (including potential economic, 
environmental, public health and safety, and other advantages; 
distributive impacts; and equity).'' E.O. 13563, section 1(b). 
Furthermore, as noted previously, E.O. 13990, ``Protecting Public 
Health and the Environment and Restoring Science to Tackle the Climate 
Crisis,'' re-established the IWG and directed it to ensure that the 
U.S. Government's estimates of the social cost of carbon and other 
greenhouse gases reflect the best available science and the 
recommendations of the National Academies. As a member of the IWG 
involved in the development of the February 2021 SC-GHG TSD, DOE agrees 
that the interim SC-GHG estimates represent the most appropriate 
estimate of the SC-GHG until revised estimates have been developed 
reflecting the latest, peer-reviewed science. For these reasons, DOE 
includes monetized emissions reductions in its evaluation of potential 
standard levels. Finally, DOE notes that the ``major questions'' 
doctrine raised by the Associations applies only in ``extraordinary 
cases'' concerning Federal agencies claiming highly consequential 
regulatory authority beyond what Congress could reasonably be 
understood to have granted. West Virginia v. EPA, 142 S. Ct. 2587, 2609 
(2022); N.C. Coastal Fisheries Reform Grp. v. Capt. Gaston LLC, 2023 
U.S. App. LEXIS 20325, *6-8 (4th Cir., Aug. 7, 2023) (listing the 
hallmarks courts have recognized to invoke the major questions 
doctrine, such as a hesitancy ``to recognize new-found powers in old 
statutes against a backdrop of an agency failing to invoke them 
previously,'' ``when the asserted power raises federalism concerns,'' 
or ``when the asserted authority falls outside the agency's traditional 
expertise, . . . or is found in an `ancillary provision.' ''). DOE has 
clear authorization under EPCA to regulate the energy efficiency or 
energy use of a variety of consumer products, including the subject 
furnaces. Although DOE routinely conducts an analysis of the 
anticipated emissions impacts of potential energy conservation 
standards under consideration, see, e.g., Zero Zone, 832 F.3d at 677, 
DOE does not purport to regulate such emissions, and as stated 
elsewhere in this document, DOE's selection of standards would be the 
same without consideration of emissions. Where DOE applied the factors 
it was tasked to consider under EPCA and the rule is justified even 
absent use of the SC-GHG analysis, the major questions doctrine has no 
bearing.
    In contrast to the commenters on this topic discussed previously, 
The Climate Commenters stated that DOE appropriately applies the social 
cost estimates developed by the IWG on the SC-GHGs to its analysis of 
emissions reduction benefits generated by the proposed rule for NWGFs 
and MHGFs. These commenters stated that DOE should expand upon its 
rationale for adopting a global damages valuation and for the range of 
discount rates it applies to climate effects, as there are additional 
legal, economic, and policy reasons for such methodological decisions 
that can further bolster and support DOE's rationale for these choices. 
These commenters added that DOE should consider conducting sensitivity 
analysis using a sound domestic-only social cost estimate as a 
backstop, and the Department should explicitly conclude that the rule 
is cost-benefit justified even using a domestic-only valuation that may 
still undercount climate benefits. These commenters also urged DOE to 
consider providing additional sensitivity analysis using discount rates 
lower than two percent for climate impacts. (The Climate Commenters, 
No. 388 at pp. 1-3)
    In response, DOE maintains that the reasons for using global 
measures of the SC-GHG previously discussed are sufficient for the 
purposes of this rulemaking. DOE notes that further discussion of this 
topic is contained in the February 2021 SC-GHG TSD, and DOE agrees with 
the assessment therein. Regarding conducting sensitivity analysis using 
a domestic-only social cost estimate, climate change harms U.S. 
interests both domestically and abroad through (1) impacts within U.S. 
borders; (2) impacts outside U.S. borders that affect the welfare of 
U.S. citizens and residents; and (3) spillover impacts of climate 
actions elsewhere on U.S. interests. Focusing on climate impacts 
occurring solely within U.S. borders, as commenters suggest, would 
``underestimate'' benefits of greenhouse-gas mitigation for U.S. 
citizens and residents and ignore the reality that a Nation's interests 
extend beyond its borders. See Zero Zone, Inc. v. U.S. Dep't of Energy, 
832 F.3d 654, 678-79 (7th Cir. 2016) (upholding consideration of global 
impacts in climate analysis). DOE also agrees with the assessment in 
the February 2021 SC-GHG TSD that the only currently available 
quantitative characterization of domestic damages from GHG emissions is 
both incomplete and an underestimate of the share of total damages that 
accrue to the citizens and residents of the United States.

[[Page 87617]]

Therefore, it would be of questionable value to conduct the suggested 
sensitivity analysis at this time. DOE considered performing 
sensitivity analysis using discount rates lower than two percent for 
climate impacts, as suggested by the IWG, but it concluded that such 
analysis would not add meaningful information or impact the rationale 
in the context of this rulemaking.
    The Climate Commenters further stated that DOE should provide 
additional justification for combining climate effects discounted at an 
appropriate consumption-based discount rate, with other costs and 
benefits discounted at a capital-based rate (i.e., 7 percent). (The 
Climate Commenters, No. 388 at p. 2)
    In response, DOE notes that the reasons for using consumption-based 
discount rates for future climate effects were discussed previously and 
are further elaborated in the February 2021 SC-GHG TSD. Combining 
climate benefits with health benefits and consumer economic benefits is 
in keeping with the guidance of OMB Circular A-4 to count all 
significant costs and benefits. DOE is aware that there are different 
approaches to combining climate benefits with other cost and benefits 
estimates that may use different discount rates, and the approach 
applied in this document (as well as in numerous other past DOE 
rulemaking notices) is among those discussed in the National Academies 
2017 report (p. 182).\270\
---------------------------------------------------------------------------

    \270\ National Academies of Sciences, Engineering, and Medicine. 
Valuing Climate Damages: Updating Estimation of the Social Cost of 
Carbon Dioxide. 2017. The National Academies Press: Washington, DC. 
(Available at: https://nap.nationalacademies.org/catalog/24651/valuing-climate-damages-updating-estimation-of-the-social-cost-of) 
(last accessed August 1, 2023).
---------------------------------------------------------------------------

    Finally, The Climate Commenters recommend that DOE should clearly 
state that any criticisms of the social cost of greenhouse gases are 
moot in this rulemaking, because the proposed rule is easily cost-
justified without any climate benefits. (The Climate Commenters, No. 
388 at p. 3)
    In response, DOE acknowledges that its conclusions regarding 
economic justification and technological feasibility would be the same 
without including climate benefits. When those benefits are accounted 
for, the justification becomes stronger still.
    PHCC commented that it is a mistake to include the estimated social 
and health cost in the rulemaking because they are currently under 
litigation, which could affect the rule's viability. (PHCC, No. 403 at 
p. 5)
    In response, DOE notes that on April 5, 2023, the Fifth Circuit 
Court of Appeals (No. 22-30087) ruled that the plaintiffs lacked 
standing, dismissed the case for lack of jurisdiction, and vacated the 
February 11, 2022, preliminary injunction issued by the District Court 
in Louisiana v. Biden, No. 21-cv-1074-JDC-KK (W.D. La.). As reflected 
in this rule, DOE has reverted to its approach prior to the injunction 
and presents monetized greenhouse gas abatement benefits where 
appropriate and permissible under law.
    Furthermore, DOE bases its factors on the best available estimates 
for both climate and health benefits. The commenter did not provide any 
alternative data sources for DOE's consideration, and, therefore, DOE 
has maintained its current approach from the NOPR for this final rule.
a. Social Cost of Carbon
    The SC-CO2 values used for this final rule were based on 
the values developed for the IWG's February 2021 TSD, which are shown 
in Table IV.14 in five-year increments from 2020 to 2050. DOE notes 
that it has exercised its discretion in adopting the IWG's estimates, 
and as previously stated, DOE finds that the interim SC-GHG estimates 
represent the most appropriate estimate of the SC-GHG until revised 
estimates have been developed reflecting the latest, peer-reviewed 
science.
    The set of annual values that DOE used, which was adapted from 
estimates published by EPA,\271\ is presented in appendix 14A of the 
final rule TSD. These estimates are based on methods, assumptions, and 
parameters identical to the estimates published by the IWG (which were 
based on EPA modeling), and include values for 2051 to 2070. DOE 
expects additional climate benefits to accrue for products still 
operating after 2070, but a lack of available SC-CO2 
estimates for emissions years beyond 2070 prevents DOE from monetizing 
these potential benefits in this analysis.
---------------------------------------------------------------------------

    \271\ See EPA, Revised 2023 and Later Model Year Light-Duty 
Vehicle GHG Emissions Standards: Regulatory Impact Analysis, 
Washington, DC, December 2021. Available at nepis.epa.gov/Exe/ZyPDF.cgi?Dockey=P1013ORN.pdf (last accessed August 1, 2023).

                    Table IV.14--Annual SC-CO2 Values From 2021 Interagency Update, 2020-2050
                                           [2020$ per metric ton CO2]
----------------------------------------------------------------------------------------------------------------
                                                                    Discount rate and statistic
                                                 ---------------------------------------------------------------
                      Year                                                                            3% 95th
                                                    5% Average      3% Average     2.5% Average     percentile
----------------------------------------------------------------------------------------------------------------
2020............................................              14              51              76             152
2025............................................              17              56              83             169
2030............................................              19              62              89             187
2035............................................              22              67              96             206
2040............................................              25              73             103             225
2045............................................              28              79             110             242
2050............................................              32              85             116             260
----------------------------------------------------------------------------------------------------------------

    DOE multiplied the CO2 emissions reduction estimated for 
each year by the SC-CO2 value for that year in each of the 
four cases. DOE adjusted the values to 2022$ using the implicit price 
deflator for gross domestic product (GDP) from the Bureau of Economic 
Analysis. To calculate a present value of the stream of monetary 
values, DOE discounted the values in each of the four cases using the 
specific discount rate that had been used to obtain the SC-
CO2 values in each case. See chapter 13 of the final rule 
TSD for the annual emissions reduction and see also appendix 14A of the 
final rule TSD for the annual SC-CO2 values.

[[Page 87618]]

b. Social Cost of Methane and Nitrous Oxide
    The SC-CH4 and SC-N2O values used for this 
final rule were based on the values developed for the February 2021 
TSD. DOE notes that it has exercised its discretion in adopting the 
IWG's estimates, and as previously stated, DOE finds that the interim 
SC-GHG estimates represent the most appropriate estimate of the SC-GHG 
until revised estimates have been developed reflecting the latest, 
peer-reviewed science. Table IV.16 shows the updated sets of SC-
CH4 and SC-N2O estimates from the latest 
interagency update in five-year increments from 2020 to 2050. The full 
set of annual values used is presented in appendix 14A of the final 
rule TSD. To capture the uncertainties involved in regulatory impact 
analysis, DOE has determined it is appropriate to include all four sets 
of SC-CH4 and SC-N2O values, as recommended by 
the IWG. DOE derived values after 2050 using the approach described 
previously for the SC-CO2.

                                  Table IV.16--Annual SC-CH4 and SC-N2O Values From 2021 Interagency Update, 2020-2050
                                                                 [2020$ per metric ton]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                 SC-CH4                                        SC-N2O
                                                             -------------------------------------------------------------------------------------------
                                                                       Discount rate and statistic                   Discount rate and statistic
                            Year                             -------------------------------------------------------------------------------------------
                                                                  5%         3%        2.5%      3% 95th        5%         3%        2.5%      3% 95th
                                                               Average    Average    Average    percentile   Average    Average    Average    percentile
--------------------------------------------------------------------------------------------------------------------------------------------------------
2020........................................................        670      1,500      2,000        3,900      5,800     18,000     27,000       48,000
2025........................................................        800      1,700      2,200        4,500      6,800     21,000     30,000       54,000
2030........................................................        940      2,000      2,500        5,200      7,800     23,000     33,000       60,000
2035........................................................      1,100      2,200      2,800        6,000      9,000     25,000     36,000       67,000
2040........................................................      1,300      2,500      3,100        6,700     10,000     28,000     39,000       74,000
2045........................................................      1,500      2,800      3,500        7,500     12,000     30,000     42,000       81,000
2050........................................................      1,700      3,100      3,800        8,200     13,000     33,000     45,000       88,000
--------------------------------------------------------------------------------------------------------------------------------------------------------

    DOE multiplied the CH4 and N2O emissions 
reduction estimated for each year by the SC-CH4 and SC-
N2O estimates for that year in each of the cases. DOE 
adjusted the values to 2022$ using the implicit price deflator for 
gross domestic product (GDP) from the Bureau of Economic Analysis. To 
calculate a present value of the stream of monetary values, DOE 
discounted the values in each of the cases using the specific discount 
rate that had been used to obtain the SC-CH4 and SC-
N2O estimates in each case. See chapter 13 of the final rule 
TSD for the annual emissions reduction, and see also appendix 14A of 
the final rule TSD for the annual SC-CH4 and SC-
N2O values.
2. Monetization of Other Emissions Impacts
    For the final rule, DOE estimated the monetized value of 
NOX and SO2 emissions reductions from electricity 
generation using benefit-per-ton estimates for that sector from the 
EPA's Benefits Mapping and Analysis Program.\272\ DOE used EPA's values 
for PM2.5-related benefits associated with NOX 
and SO2 and for ozone-related benefits associated with 
NOX for 2025, 2030, and 2040, calculated with discount rates 
of 3 percent and 7 percent. DOE used linear interpolation to define 
values for the years not given in the 2025 to 2040 range; for years 
beyond 2040, the values are held constant. DOE combined the EPA 
regional benefit-per-ton estimates with regional information on 
electricity consumption and emissions from AEO2023 to define weighted-
average national values for NOX and SO2 (see 
appendix 14B of the final rule TSD).
---------------------------------------------------------------------------

    \272\ Estimating the Benefit per Ton of Reducing 
PM2.5 Precursors from 21 Sectors (available at: 
www.epa.gov/benmap/estimating-benefit-ton-reducing-pm25-precursors-21-sectors) (last accessed August 1, 2023).
---------------------------------------------------------------------------

    DOE also estimated the monetized value of NOX and 
SO2 emissions reductions from site use of natural gas in 
NWGFs and MHGFs using benefit-per-ton estimates from the EPA's Benefits 
Mapping and Analysis Program. Although none of the sectors covered by 
EPA refers specifically to residential and commercial buildings, the 
sector called ``area sources'' would be a reasonable proxy for 
residential and commercial buildings.\273\ The EPA document provides 
high and low estimates for 2025 and 2030 at 3- and 7-percent discount 
rates.\274\ DOE used the same linear interpolation and extrapolation as 
it did with the values for electricity generation.
---------------------------------------------------------------------------

    \273\ ``Area sources'' represents all emission sources for which 
States do not have exact (point) locations in their emissions 
inventories. Because exact locations would tend to be associated 
with larger sources, ``area sources'' would be fairly representative 
of small, dispersed sources like homes and businesses.
    \274\ ``Area sources'' are a category in the 2018 document from 
EPA, but are not used in the 2021 document cited previously. See: 
www.epa.gov/sites/default/files/2018-02/documents/sourceapportionmentbpttsd_2018.pdf (last accessed August 1, 2023).
---------------------------------------------------------------------------

    DOE multiplied the site emissions reduction (in tons) in each year 
by the associated $/ton values, and then discounted each series using 
discount rates of 3 percent and 7 percent as appropriate.
    GHHI stated that increasing furnace efficiency will have direct 
health benefits for American families, particularly in low-income and 
vulnerable communities. GHHI explained that fossil fuel burning 
furnaces release pollutants that can affect indoor air quality, 
including nitrogen oxides, carbon monoxide, PM2.5, and 
formaldehyde, all of which are associated with asthma, cardiovascular 
disease, birth defects, and even death. (GHHI, No. 371 at p. 1) In 
addition, GHHI stated that hazardous air conditions in dense cities 
have led to disproportionately higher rates of chronic conditions such 
as heart disease and respiratory disease in low-income and Black and 
Brown communities. (Id.)
    GHHI also commented that older unsafe systems can lead to carbon 
monoxide leaks. GHHI stated that 450 Americans are killed annually from 
these leaks, disproportionately effecting Hispanic and black 
populations. (GHHI, Public Meeting Webinar Transcript, No. 363 at pp. 
15-16) GHHI commented that low-income homes are twice as likely to use 
a gas stove or oven for heating, which results in higher indoor 
pollution and increased rick of fire-related death and injury. (Id.) 
According to GHHI, access to more-efficient furnaces may help to 
prevent these hazards, and that

[[Page 87619]]

increasing furnace standards will directly benefit low-income 
communities and people of color. (Id.)
    The Pennsylvania Groups stated that inefficient and faulty furnaces 
expose household members to unsafe levels of indoor air pollution. 
These commenters further stated that families living in homes with 
polluted air frequently experience more hospital visits, with causes 
ranging from cardiovascular disease, heart attacks, asthma attacks, and 
premature death, among others. Moreover, the Pennsylvania Groups 
stated, that individuals exposed to indoor air pollution have increased 
COVID-19 infection incidences, hospitalizations, and deaths. (The 
Pennsylvania Groups, No. 396 at p. 3)
    Climate and Health Coalition commented that although gas furnaces 
are vented outside, that does not prevent back drafting of these 
pollutants back into the home when indoor air pressure is reduced due 
to kitchen exhaust hoods or bathroom ventilation fans. Additionally, 
Climate and Health Coalition stated that venting pollutants outdoors 
can cause community-wide harm, particularly among low-income 
communities and communities of color who are already saddled with 
increased levels of ambient air pollution. (Climate and Health 
Coalition, No. 399 at p. 1)
    Climate and Health Coalition stated that gas heating appliances 
account for about two-thirds of household gas use and related 
emissions. The commenter added that nearly half of U.S. homes are 
heated with gas or propane furnaces. Additionally, Climate and Health 
Coalition commented that many homes use inefficient furnaces, which 
cause excess methane, carbon dioxide, and nitrogen dioxide emissions 
into the indoor and outdoor environment. (Climate and Health Coalition, 
No. 399 at p. 1) Climate and Health Coalition further mentioned that 
uncombusted methane gas, which can leak into homes, was found to 
contain varying levels of at least 21 different hazardous pollutants 
that are undetectable by smell. Additionally, Climate and Health 
Coalition stated that methane is a potent greenhouse gas that drives 
health harms related to climate change. (Climate and Health Coalition, 
No. 399 at p. 2)
    In response, DOE has not quantitatively assessed the health 
benefits of reducing in-home exposure to particulate matter, nitrogen 
dioxide, and other hazardous air pollutants. DOE acknowledges that in-
home emissions may carry different health risks than the risks assumed 
in the monetized health benefits calculations. Such in-home emissions 
may be associated with a variety of serious respiratory and 
cardiovascular conditions and other health risks. Not all the public 
health and environmental benefits from the reduction of greenhouse 
gases, NOX, and SO2 are captured in the values 
reflected in DOE's analysis, and there may be additional unquantified 
benefits from the reductions of those pollutants, as well as from the 
reduction of Hg, direct PM, and other co-pollutants. However, DOE 
assumes in its analysis that furnaces will be installed by licensed 
professionals and that all appropriate safety standards will be met, 
including indoor air pollutant exposure. DOE further assumes that a 
properly ventilated furnace will not result in any significant in-home 
emissions and, therefore, does not estimate any additional health 
benefits from reducing in-home emissions. Furnaces are not simple 
appliances that are purchased in stores and installed by average 
consumers. They require licensed gas plumbers and experienced 
contractors to properly size and install a system, especially in new 
construction. It is highly unlikely that an unlicensed individual, with 
little knowledge of gas plumbing, would install a furnace. However, DOE 
does account for site emissions that are vented outdoors and includes 
those emissions in its analysis.
    GHHI stated that the improved furnace efficiency standards would 
reduce use of dangerous heating methods. The commenter stated that low-
income, energy insecure homes are twice as likely to use a gas stove or 
oven as a supplemental method to generate heat when money is short. 
Furthermore, GHHI stated that these practices often lead to levels of 
indoor pollution that are above what is recommended by public health 
guidelines, and accordingly, are a main risk factor for pediatric 
asthma. The commenter continued that children under age 6 in homes that 
use a gas stove or oven for heat are 80 percent more likely to have 
asthma than children in other homes. Additionally, GHHI commented that 
families that use a gas stove or oven as supplementary heat are also at 
an increased risk of fire-related death and injury. (GHHI, No. 371 at 
p. 2)
    In response, DOE is not aware of any data supporting the claim that 
the amended standards would increase the use of gas stoves being used 
to supplement heating from a furnace, and accordingly, the Department 
has not included any emissions impact of supplemental heating in the 
analysis for this rule.

M. Utility Impact Analysis

    The utility impact analysis estimates the changes in installed 
electrical capacity and generation projected to result for each 
considered TSL. The analysis is based on published output from the NEMS 
associated with AEO2023. NEMS produces the AEO Reference case, as well 
as a number of side cases that estimate the economy-wide impacts of 
changes to energy supply and demand. For the current analysis, impacts 
are quantified by comparing the levels of electricity sector 
generation, installed capacity, fuel consumption, and emissions in the 
AEO2023 Reference case and various side cases. Details of the 
methodology are provided in the appendices to chapters 13 and 15 of the 
final rule TSD.
    The output of this analysis is a set of time-dependent coefficients 
that capture the change in electricity generation, primary fuel 
consumption, installed capacity, and power sector emissions due to a 
unit reduction in demand for a given end use. These coefficients are 
multiplied by the stream of electricity savings calculated in the NIA 
to provide estimates of selected utility impacts of potential new or 
amended energy conservation standards.
    The utility analysis also estimates the impact on gas utilities in 
terms of projected changes in natural gas deliveries to consumers for 
each TSL.
    APGA commented that DOE's procedures state: ``The analysis of 
utility impacts will include estimated marginal impacts on electric and 
gas utility costs and revenues.'' According to APGA, DOE contends that 
``rate decoupling'' insulates gas utilities' revenues from change 
resulting from the actions by the Department in this proceeding. APGA 
pointed out that rate decoupling is not a factor in most States and 
that few of its over 730 members employ rate decoupling. Furthermore, 
APGA argued that rate decoupling does not insulate retail customers 
from higher rates, as fixed costs are spread across reduced volumes due 
to fuel switching that would be caused by the elimination of non-
condensing furnaces. The commenter recommended that DOE should conduct 
better sensitivity analyses based on the fuel switching that its own 
analysis shows will occur, as well as the fuel switching that will 
occur if the DOE analysis is corrected as APGA has suggested. (APGA, 
No. 387 at p. 58)
    AGA similarly asserted that DOE's Process Rule requires the 
Department's utility impact analysis to ``include estimated marginal 
impacts on electric and gas utility costs and revenues.''

[[Page 87620]]

According to AGA, the analysis presented in the NOPR is insufficient. 
Consequently, AGA argued that DOE should conduct a complete impact 
analysis that quantifies and evaluates the marginal impacts to gas 
utility costs and revenues of a reduction in gas deliveries due to fuel 
switching driven by the proposed rule. In addition, AGA stated that DOE 
should evaluate whether the loss of demand for natural gas local 
distribution companies could lead to higher rates on remaining 
consumers in order to cover fixed distribution costs. (AGA, No. 405 at 
pp. 107-108)
    In response, DOE acknowledges that rate decoupling does not apply 
to all utilities, but for those utilities that are subject to rate 
decoupling, changes in natural gas deliveries will not impact revenues. 
Analysis of the impact of standards on rates is very difficult, given 
the diversity of regulatory structures in the U.S. and the many factors 
that go into setting utility rates. DOE notes that the Process Rule is 
non-binding and is intended to guide DOE in the consideration and 
promulgation of new or revised appliance energy conservation standards 
and test procedures. The analyses it describes are not necessarily 
those that are needed to meet EPCA's requirements for evaluating the 
economic justification of potential new or amended standards. (42 
U.S.C. 6295(o)(2)(B)(i)(I)-(VII)) Nevertheless, DOE includes an 
estimate of impacts on gas utility deliveries as part of the utility 
impact analysis in chapter 15 of the final rule TSD, in addition to 
estimates of impacts to installed capacity and generation for electric 
utilities. DOE notes that the impacts on gas deliveries does include 
the effects of product switching.

N. Employment Impact Analysis

    DOE considers employment impacts in the domestic economy as one 
factor in selecting a standard. Employment impacts from new or amended 
energy conservation standards include both direct and indirect impacts. 
Direct employment impacts are any changes in the number of employees of 
manufacturers of the products subject to standards. The MIA addresses 
those impacts. Indirect employment impacts are changes in national 
employment that occur due to the shift in expenditures and capital 
investment caused by the purchase and operation of more-efficient 
appliances. Indirect employment impacts from standards consist of the 
net jobs created or eliminated in the national economy, other than in 
the manufacturing sector being regulated, caused by: (1) reduced 
spending by consumers on energy, (2) reduced spending on new energy 
supply by the utility industry, (3) increased consumer spending on the 
products to which the new standards apply and other goods and services, 
and (4) the effects of those three factors throughout the economy.
    One method for assessing the possible effects on the demand for 
labor of such shifts in economic activity is to compare sector 
employment statistics developed by the Labor Department's Bureau of 
Labor Statistics (BLS). BLS regularly publishes its estimates of the 
number of jobs per million dollars of economic activity in different 
sectors of the economy, as well as the jobs created elsewhere in the 
economy by this same economic activity. Data from BLS indicate that 
expenditures in the utility sector generally create fewer jobs (both 
directly and indirectly) than expenditures in other sectors of the 
economy.\275\ There are many reasons for these differences, including 
wage differences and the fact that the utility sector is more capital-
intensive and less labor-intensive than other sectors. Energy 
conservation standards have the effect of reducing consumer utility 
bills. Because reduced consumer expenditures for energy likely lead to 
increased expenditures in other sectors of the economy, the general 
effect of efficiency standards is to shift economic activity from a 
less labor-intensive sector (i.e., the utility sector) to more labor-
intensive sectors (e.g., the retail and service sectors). Thus, the BLS 
data suggest that net national employment may increase due to shifts in 
economic activity resulting from energy conservation standards.
---------------------------------------------------------------------------

    \275\ See U.S. Department of Commerce-Bureau of Economic 
Analysis. Regional Multipliers: A User Handbook for the Regional 
Input-Output Modeling System (RIMS II) (1997) U.S. Government 
Printing Office: Washington, DC. (Available at: https://www.bea.gov/resources/methodologies/RIMSII-user-guide) (last accessed August 1, 
2023).
---------------------------------------------------------------------------

    DOE estimated indirect national employment impacts for the standard 
levels considered in this final rule using an input/output model of the 
U.S. economy called Impact of Sector Energy Technologies version 4 
(ImSET).\276\ ImSET is a special-purpose version of the ``U.S. 
Benchmark National Input-Output'' (I-O) model, which was designed to 
estimate the national employment and income effects of energy-saving 
technologies. The ImSET software includes a computer- based I-O model 
having structural coefficients that characterize economic flows among 
187 sectors most relevant to industrial, commercial, and residential 
building energy use.
---------------------------------------------------------------------------

    \276\ Livingston, O.V., S.R. Bender, M.J. Scott, and R.W. 
Schultz. ImSET 4.0: Impact of Sector Energy Technologies Model 
Description and User's Guide (2015), Pacific Northwest National 
Laboratory: Richland, WA. PNNL-24563.
---------------------------------------------------------------------------

    DOE notes that ImSET is not a general equilibrium forecasting 
model, and that there are uncertainties involved in projecting 
employment impacts, especially changes in the later years of the 
analysis. Because ImSET does not incorporate price changes, the 
employment effects predicted by ImSET may over-estimate actual job 
impacts over the long run for this rule. Therefore, DOE used ImSET only 
to generate results for near-term timeframes (2029-2034), where these 
uncertainties are reduced. For more details on the employment impact 
analysis, see chapter 16 of the final rule TSD.

V. Analytical Results and Conclusions

    The following section addresses the results from DOE's analyses 
with respect to the considered energy conservation standards for NWGFs 
and MHGFs. It addresses the TSLs examined by DOE, the projected impacts 
of each of these levels if adopted as energy conservation standards for 
NWGFs and MHGFs, and the standards levels that DOE is adopting in this 
final rule. Additional details regarding DOE's analyses are contained 
in the TSD supporting this final rule.

A. Trial Standard Levels

    In general, DOE typically evaluates potential amended standards for 
products and equipment at the product class level and by grouping 
select individual efficiency levels for each class into TSLs. Use of 
TSLs allows DOE to identify and consider industry-level manufacturer 
cost interactions between the product classes, to the extent that there 
are such interactions, and national-level market cross-elasticity from 
consumer purchasing decisions that may change when different standard 
levels are set. For the subject consumer furnaces, it is particularly 
important to look at the aggregated impacts as characterized by TSLs 
due to the changes in consumer purchasing decisions as a result of the 
increased product and installation costs that impact the shipments 
model. The changes to the shipments model will drive differential 
national impacts both on the consumer and manufacturer side that are 
more realistic of how the market may change in response to amended DOE 
standards.
    For this final rule, DOE analyzed the consumer impacts of four 
efficiency levels for NWGFs, four efficiency levels for MHGFs, and the 
national impacts of

[[Page 87621]]

nine TSLs for NWGFs and MHGFs. Table V.1 presents the TSLs and the 
corresponding efficiency levels that DOE has identified for potential 
amended energy conservation standards for NWGFs and MHGFs. It is noted 
that because the impact of a potential standard on different consumers 
can depend on the input capacity of the NWGF or MHGF, DOE considered 
certain TSLs (six cases) with an input capacity threshold, below which 
the amended standard would remain at the current efficiency level of 
80-percent AFUE. Because the impact of a potential standard on 
different consumers can depend on the region of the country, for one of 
these six cases, DOE considered a regional TSL such that the amended 
standard would remain at an efficiency level of 80-percent AFUE outside 
the Northern region. For other TSLs (three cases), DOE examined a 
national standard level for NWGFs and MHGFs not differentiated by input 
capacity. DOE presents the results for the TSLs in this document, while 
the results for all efficiency levels that DOE analyzed are in the 
final rule TSD.
    The following provides a brief overview of the TSLs considered. 
Each TSL consists of similar efficiency levels for both NWGFs and 
MHGFs. TSL 9 represents the maximum technologically feasible (``max-
tech'') energy efficiency for both NWGFs (98-percent AFUE) and MHGFs 
(96-percent AFUE) and represents the maximum energy savings possible 
among the specific efficiency levels analyzed by DOE (see section 
IV.C.1 of this final rule). TSL 8 consists of a national standard at an 
efficiency level of 95-percent AFUE for both NWGFs and MHGFs, which 
reflects a high degree of energy savings second only to the max-tech 
efficiency levels. TSL 7 consists of an efficiency level at 80-percent 
AFUE for small NWGFs and MHGFs at or below an input capacity of 55 
kBtu/h and an efficiency level at 95-percent AFUE for large NWGFs and 
MHGFs. The threshold of 55 kBtu/h generally separates the market into 
larger capacity furnaces typically installed in larger single-family 
detached homes versus smaller capacity furnaces more likely to be 
installed in multi-family buildings and other households with higher 
potential installation costs. TSL 6 consists of the next highest 
efficiency levels, which would set a national standard at 92-percent 
AFUE for both NWGFs and MHGFs, regardless of input capacity. Similar to 
TSL 7, TSL 5 is constructed with an input capacity threshold. TSL 5 
consists of an efficiency level at 80-percent AFUE for small NWGFs and 
MHGFs at or below an input capacity of 55 kBtu/h and an efficiency 
level at 92-percent AFUE for large NWGFs and MHGFs. TSL 4 consists of 
the efficiency levels that represent 95-percent AFUE for the Northern 
region for both NWGFs and MHGFs, but retains the baseline efficiency 
level (80-percent AFUE) for the rest of country. TSLs 3, 2, and 1 are 
similar to TSL 5, except with an increasingly higher input capacity 
threshold (and a correspondingly smaller fraction of the market subject 
to more-stringent standards). TSL 3 consists of the efficiency level 
that represents 80-percent AFUE for small NWGFs and MHGFs at or below 
an input capacity of 60 kBtu/h and the efficiency level that represents 
92-percent AFUE for large NWGFs and MHGFs. TSL 2 consists of the 
efficiency level that represents 80-percent AFUE for small NWGFs and 
MHGFs at or below an input capacity of 70 kBtu/h and the efficiency 
level that represents 92-percent AFUE for large NWGFs and MHGFs. TSL 1 
consists of the efficiency level that represents 80-percent AFUE for 
small NWGFs and MHGFs at or below an input capacity of 80 kBtu/h and 
the efficiency level that represents 92-percent AFUE for large NWGFs 
and MHGFs.

         Table V.1--Trial Standard Levels for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces
----------------------------------------------------------------------------------------------------------------
                                                                           AFUE (percent)
                        TSL                        -------------------------------------------------------------
                                                     Non-weatherized gas furnace      Mobile home gas furnace
----------------------------------------------------------------------------------------------------------------
1.................................................  92% (>80 kBtu/h).............  92% (>80 kBtu/h).
                                                    80% (<=80 kBtu/h)............  80% (<=80 kBtu/h).
2.................................................  92% (>70 kBtu/h).............  92% (>70 kBtu/h).
                                                    80% (<=70 kBtu/h)............  80% (<=70 kBtu/h).
3.................................................  92% (>60 kBtu/h).............  92% (>60 kBtu/h).
                                                    80% (<=60 kBtu/h)............  80% (<=60 kBtu/h).
4.................................................  95% (North)..................  95% (North).
                                                    80% (Rest of Country)........  80% (Rest of Country).
5.................................................  92% (>55 kBtu/h).............  92% (>55 kBtu/h).
                                                    80% (<=55 kBtu/h)............  80% (<=55 kBtu/h).
6.................................................  92%..........................  92%.
7.................................................  95% (>55 kBtu/h).............  95% (>55 kBtu/h).
                                                    80% (<=55 kBtu/h)............  80% (<=55 kBtu/h).
8.................................................  95%..........................  95%.
9.................................................  98%..........................  96%.
----------------------------------------------------------------------------------------------------------------

B. Economic Justification and Energy Savings

1. Economic Impacts on Individual Consumers
    DOE analyzed the economic impacts on NWGF and MHGF consumers by 
looking at the effects that potential new and amended standards at each 
TSL would have on the LCC and PBP. DOE also examined the impacts of 
potential standards on selected consumer subgroups. These analyses are 
discussed in the following sections.
a. Life-Cycle Cost and Payback Period
    In general, higher-efficiency products affect consumers in two 
ways: (1) purchase price increases and (2) annual operating costs 
decrease. In addition, for NWGFs, some consumers may choose to switch 
to an alternative heating system rather than purchase and install a 
NWGF if they judge the economics to be favorable. DOE estimated the 
extent of switching at each TSL using the consumer choice model 
discussed in section IV.F.10 of this document.
    Inputs used for calculating the LCC and PBP include total costs 
(i.e., product price plus installation costs), and operating costs 
(i.e., annual energy use, energy prices, energy price trends, repair 
costs, and maintenance costs). The LCC calculation also uses product 
lifetime and a discount rate. In cases

[[Page 87622]]

where consumers are predicted to switch, the inputs include the total 
installed costs, operating costs, and product lifetime for the chosen 
heating system. Chapter 8 of the final rule TSD provides detailed 
information on the LCC and PBP analyses.
    For NWGFs, the LCC and PBP results at each efficiency level include 
consumers that would purchase and install a NWGF at that level, and 
also consumers that would choose to switch to an alternative heating 
product rather than purchase and install a NWGF at that level. The 
impacts for consumers that switch depend on the product that they 
choose (heat pump or electric furnace) and the NWGF that they would 
purchase in the no-new-standards case. The extent of projected product/
fuel switching (in 2029) is shown in Tables V.2 and V.3 for each TSL 
for NWGFs and MHGFs, respectively. The degree of switching increases at 
higher-efficiency TSLs where the installed cost of a NWGF is very high 
for some consumers, making the alternative option competitive. As 
discussed in section IV.F.10 of this document, DOE also conducted 
sensitivity analyses using no-switching, high, and low switching 
estimates. See appendix 8J of the final rule TSD for more details. For 
the adopted standards (TSL 8), the total switching and repair vs. 
replace is 6.8 percent for NWGFs and 4.8 percent for MHGFs.

             Table V.2--Results of Fuel-Switching Analysis for Non-Weatherized Gas Furnaces in 2029
----------------------------------------------------------------------------------------------------------------
                                                               Trial standard level
        Consumer option         --------------------------------------------------------------------------------
                                    1        2        3        4        5        6        7        8        9
----------------------------------------------------------------------------------------------------------------
                                                                  % of consumers
                                --------------------------------------------------------------------------------
Purchase NWGF at Standard Level     99.4     99.2     98.5     98.4     98.1     93.2     98.1     93.2     89.2
Switch to Heat Pump *..........      0.1      0.2      0.7      0.8      1.0      4.1      1.0      4.2      7.3
Switch to Electric Furnace *...      0.1      0.1      0.2      0.1      0.2      0.8      0.2      0.8      1.2
Repair vs. Replacing...........      0.4      0.5      0.6      0.8      0.7      1.9      0.7      1.8      2.3
                                --------------------------------------------------------------------------------
    Total......................    100.0    100.0    100.0    100.0    100.0    100.0    100.0    100.0    100.0
----------------------------------------------------------------------------------------------------------------
* Includes switching from a gas water heater to an electric water heater.
Note: Components may not sum due to rounding.


               Table V.3--Results of Fuel-Switching Analysis for Mobile Home Gas Furnaces in 2029
----------------------------------------------------------------------------------------------------------------
                                                               Trial standard level
        Consumer option         --------------------------------------------------------------------------------
                                    1        2        3        4        5        6        7        8        9
----------------------------------------------------------------------------------------------------------------
                                                                  % of consumers
                                --------------------------------------------------------------------------------
Purchase MHGF at Standard Level    100.0     99.9     99.7     99.0     99.6     95.4     99.6     95.2     90.2
Switch to Heat Pump............      0.0      0.0      0.1      0.6      0.2      2.4      0.2      2.6      2.3
Switch to Electric Furnace.....      0.0      0.0      0.1      0.1      0.1      1.4      0.1      1.5      1.5
Repair vs. Replacing...........      0.0      0.0      0.1      0.4      0.1      0.7      0.1      0.7      6.0
                                --------------------------------------------------------------------------------
    Total......................    100.0    100.0    100.0    100.0    100.0    100.0    100.0    100.0    100.0
----------------------------------------------------------------------------------------------------------------
Note: Components may not sum due to rounding.

    Tables V.4 through V.7 show the LCC and PBP results for the TSLs 
considered for each product class. In the first of each pair of tables, 
the simple payback is measured relative to the baseline product. In the 
second table, the impacts are measured relative to the efficiency 
distribution in the in the no-new-standards case in the compliance year 
(see section IV.F.8 of this document). The LCC and PBP results for 
NWGFs include both residential and commercial users. The LCC and PBP 
results are shipment-weighted and averaged over all capacities and 
regions. Results for all efficiency levels are reported in chapter 8 of 
the final rule TSD. LCC Results for the alternative product switching 
scenarios are reported in appendix 8J of the final rule TSD.
    Because some consumers purchase products with higher efficiency in 
the no-new-standards case, the average savings are less than the 
difference between the average LCC of the baseline product and the 
average LCC at each TSL. The savings refer only to consumers who are 
affected by a standard at a given TSL. Those who already purchase a 
product with efficiency at or above a given TSL are not affected. 
Consumers for whom the LCC increases at a given TSL experience a net 
cost.

                     Table V.4--Average LCC and PBP Results for Non-Weatherized Gas Furnaces
----------------------------------------------------------------------------------------------------------------
                                                       Average costs (2022$)
                                        ---------------------------------------------------   Simple    Average
        TSL               AFUE (%)                                      Lifetime             payback    lifetime
                                          Installed    First year's    operating     LCC     (years)    (years)
                                             cost     operating cost      cost
----------------------------------------------------------------------------------------------------------------
1..................  92/80 *...........        3,733             578        9,300   13,033        6.4       21.5
2..................  92/80 *...........        3,786             571        9,173   12,959        6.6       21.5
3..................  92/80 *...........        3,810             568        9,114   12,924        6.7       21.5

[[Page 87623]]

 
4..................  95/80 **..........        3,832             566        9,075   12,907        7.0       21.5
5..................  92/80 *...........        3,835             566        9,077   12,912        7.0       21.5
6..................  92 [dagger].......        3,947             563        8,958   12,905        9.4       21.5
7..................  95/80 *...........        3,845             556        8,924   12,769        5.8       21.5
8..................  95 [dagger].......        3,962             552        8,788   12,750        7.6       21.5
9..................  98 (Max-Tech)             4,156             545        8,620   12,776       10.1       21.5
                      [dagger].
----------------------------------------------------------------------------------------------------------------
* The first number refers to the standard for large NWGFs; the second refers to the standard for small NWGFs.
  The input capacity threshold definitions for small NWGFs are as follows:
TSL 1: 80 kBtu/h
TSL 2: 70 kBtu/h
TSL 3: 60 kBtu/h
TSL 5: 55 kBtu/h
TSL 7: 55 kBtu/h.
** The first number refers to the efficiency level for the North; the second number refers to the efficiency
  level for the rest of country.
[dagger] Refers to national standards.
Note: The results for each TSL are calculated assuming that all consumers use products at that efficiency level.
  The PBP is measured relative to the baseline product.


      Table V.5--Average LCC Savings Relative to the No-New-Standards Case for Non-Weatherized Gas Furnaces
----------------------------------------------------------------------------------------------------------------
                                                                        Life-cycle cost savings
                                                      ----------------------------------------------------------
            TSL                      AFUE (%)            Average LCC savings      Percentage of consumers that
                                                               (2022$)               experience net cost (%)
----------------------------------------------------------------------------------------------------------------
1.........................  92/80 *..................                      577                               3.2
2.........................  92/80 *..................                      571                               4.7
3.........................  92/80 *..................                      580                               5.8
4.........................  95/80 **.................                      390                               5.6
5.........................  92/80 *..................                      551                               6.8
6.........................  92 [dagger]..............                      320                              19.2
7.........................  95/80 *..................                      479                               6.8
8.........................  95 [dagger]..............                      350                              18.7
9.........................  98 (Max-Tech) [dagger]...                      169                              62.3
----------------------------------------------------------------------------------------------------------------
* The first number refers to the standard for large NWGFs; the second refers to the standard for small NWGFs.
  The input capacity threshold definitions for small NWGFs are as follows:
TSL 1: 80 kBtu/h
TSL 2: 70 kBtu/h
TSL 3: 60 kBtu/h
TSL 5: 55 kBtu/h
TSL 7: 55 kBtu/h
** The first number refers to the efficiency level for the North; the second number refers to the efficiency
  level for the rest of country.
[dagger] Refers to national standards.
Note: The savings represent the average LCC for affected consumers.


                       Table V.6--Average LCC and PBP Results for Mobile Home Gas Furnaces
----------------------------------------------------------------------------------------------------------------
                                                       Average costs (2022$)
                                        ---------------------------------------------------   Simple    Average
        TSL               AFUE (%)                                      Lifetime             payback    lifetime
                                          Installed    First year's    operating     LCC     (years)    (years)
                                             cost     operating cost      cost
----------------------------------------------------------------------------------------------------------------
1..................  92/80 *...........        2,429             545        9,126   11,556        2.2       21.5
2..................  92/80 *...........        2,484             525        8,804   11,288        2.5       21.5
3..................  92/80 *...........        2,499             518        8,709   11,209        2.5       21.5
4..................  95/80 **..........        2,510             513        8,577   11,087        2.4       21.5
5..................  92/80 *...........        2,514             515        8,647   11,161        2.6       21.5
6..................  92 [dagger].......        2,564             511        8,547   11,111        3.6       21.5
7..................  95/80 *...........        2,528             505        8,492   11,020        2.4       21.5
8..................  95 [dagger].......        2,583             500        8,374   10,956        3.2       21.5
9..................  96 (Max-Tech)             2,592             517        8,312   10,904        4.8       21.5
                      [dagger].
----------------------------------------------------------------------------------------------------------------
* The first number refers to the standard for large MHGFs; the second refers to the standard for small MHGFs.
  The input capacity threshold definitions for small MHGFs are as follows:
TSL 1: 80 kBtu/h

[[Page 87624]]

 
TSL 2: 70 kBtu/h
TSL 3: 60 kBtu/h
TSL 5: 55 kBtu/h
TSL 7: 55 kBtu/h.
** The first number refers to the efficiency level for the North; the second number refers to the efficiency
  level for the rest of country.
[dagger] Refers to national standards.
Note: The results for each TSL are calculated assuming that all consumers use products at that efficiency level.
  The PBP is measured relative to the baseline product.


        Table V.7--Average LCC Savings Relative to the No-New-Standards Case for Mobile Home Gas Furnaces
----------------------------------------------------------------------------------------------------------------
                                                                        Life-cycle cost savings
                                                      ----------------------------------------------------------
            TSL                      AFUE (%)            Average LCC savings       Percentage of consumers that
                                                               (2022$)               experience net cost (%)
----------------------------------------------------------------------------------------------------------------
1.........................  92/80 *..................                      846                               0.6
2.........................  92/80 *..................                      805                               2.5
3.........................  92/80 *..................                      736                               3.7
4.........................  95/80 **.................                      908                               3.9
5.........................  92/80 *..................                      675                               5.0
6.........................  92 [dagger]..............                      532                              16.2
7.........................  95/80 *..................                      760                               5.0
8.........................  95 [dagger]..............                      616                              15.3
9.........................  96 (Max-Tech) [dagger]...                      529                              18.6
----------------------------------------------------------------------------------------------------------------
* The first number refers to the standard for large MHGFs; the second refers to the standard for small MHGFs.
  The input capacity threshold definitions for small MHGFs are as follows:
TSL 1: 80 kBtu/h
TSL 2: 70 kBtu/h
TSL 3: 60 kBtu/h
TSL 5: 55 kBtu/h
TSL 7: 55 kBtu/h
** The first number refers to the efficiency level for the North; the second number refers to the efficiency
  level for the rest of country.
[dagger] Refers to national standards.
Note: The savings represent the average LCC for affected consumers.

b. Consumer Subgroup Analysis
    In the consumer subgroup analysis, DOE estimated the impact of the 
considered TSLs on low-income households, senior-only households, and 
small businesses (for NWGF only). Tables V.8 and V.9 compare the 
average LCC savings and PBP at each efficiency level for the consumer 
subgroups, along with the average LCC savings for the entire consumer 
sample. Because the small NWGF and MHGF efficiency levels at TSLs 1, 2, 
3, 5, and 7 and the rest of country efficiency level at TSL 4 are at 
the baseline (i.e., the current standard), these tables only include 
results for large NWGFs and MHGFs or the Northern region for these 
TSLs. The percentage of low-income NWGF and MHGF consumers experiencing 
a net cost is smaller than the full LCC sample in all cases, largely 
due to the high proportion of renter households. The percentage of 
senior-only NWGF and MHGF households experiencing a net cost is either 
very similar to or smaller than the full LCC sample. Chapter 11 of the 
final rule TSD presents the complete LCC and PBP results for the 
subgroups.

                                     Table V.8--Comparison of LCC Savings and PBP for Consumer Subgroups and All Households for Non-Weatherized Gas Furnaces
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                    Average LCC savings (2022$)                 Simple payback period (years)          % of consumers experiencing net cost (%)
                                                           -------------------------------------------------------------------------------------------------------------------------------------
                            TSL                                Low-     Senior-     Small                   Low-     Senior-     Small                   Low-     Senior-     Small
                                                              income      only     business      All       income      only     business      All       Income      only     business     All
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1 *.......................................................        332        354        767        577         2.9        6.2        1.0        6.4         2.0        2.6        3.5        3.2
2 *.......................................................        384        394        457        571         2.6        5.8        2.2        6.6         2.6        3.6        8.2        4.7
3 *.......................................................        383        402        689        580         2.4        5.8        2.3        6.7         3.4        4.3        8.9        5.8
4 **......................................................        277        160        298        390         1.7        6.2        1.5        7.0         4.0        4.7        2.5        5.6
5 *.......................................................        392        387        630        551         2.5        6.0        2.2        7.0         4.8        5.7       10.4        6.8
6 [dagger]................................................        207        321        402        320         3.0        7.1        2.4        9.4        15.4       16.5       16.1       19.2
7 *.......................................................        372        250        626        479         2.0        5.0        1.9        5.8         5.7        5.5        8.7        6.8
8 [dagger]................................................        254        254        460        350         2.5        6.0        2.1        7.6        15.9       15.5       13.7       18.7
9 [dagger]................................................        153        412        269        169         3.4        7.6        3.1       10.1        39.7       54.0       58.0       62.3
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
* Refers to TSLs with separate standards for small and large NWGFs. The input capacity threshold definitions for small NWGFs are as follows:
TSL 1: 80 kBtu/h
TSL 2: 70 kBtu/h
TSL 3: 60 kBtu/h
TSL 5: 55 kBtu/h
TSL 7: 55 kBtu/h
** Regional standards.
[dagger] Refers to national standards.
Note: The savings represent the average LCC for affected consumers. The PBP is measured relative to the baseline product.


[[Page 87625]]


                   Table V.9--Comparison of LCC Savings and PBP for Consumer Subgroups and All Households for Mobile Home Gas Furnaces
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                        Average LCC savings (2022$)      Simple payback period (years)   % of consumers experiencing net
                                                    --------------------------------------------------------------------             cost (%)
                        TSL                                                                                             --------------------------------
                                                        Low-     Senior-       All        Low-     Senior-       All        Low-     Senior-
                                                       income      only                  income      only                  income      only       All
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 *................................................      1,175        697        846         1.2        2.0        2.2         0.1        0.4        0.6
2 *................................................       1055        865        805         1.4        2.0        2.5         1.0        3.2        2.5
3 *................................................        888        820        736         1.4        2.0        2.5         2.2        3.9        3.7
4 **...............................................        931        764        908         1.0        1.1        2.4         3.6        3.4        3.9
5 *................................................        699        702        675         1.5        2.2        2.6         4.6        6.7        5.0
6 [dagger].........................................        472        546        532         2.0        3.0        3.6        15.9       19.1       16.2
7 *................................................        775        648        760         1.3        2.1        2.4         4.7        6.9        5.0
8 [dagger].........................................        552        537        616         1.8        2.7        3.2        15.3       19.2       15.3
9 [dagger].........................................        476      1,493        529         2.7        3.7        4.8        18.0       21.7       18.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Refers to TSLs with separate standards for small and large MHGFs. The input capacity threshold definitions for small MHGFs are as follows:
TSL 1: 80 kBtu/h
TSL 2: 70 kBtu/h
TSL 3: 60 kBtu/h
TSL 5: 55 kBtu/h
TSL 7: 55 kBtu/h
** Regional standards.
[dagger] Refers to national standards.
Note: The savings represent the average LCC for affected consumers. The PBP is measured relative to the baseline product.

c. Rebuttable Presumption Payback
    As discussed in section III.F.2 of this document, EPCA establishes 
a rebuttable presumption that an energy conservation standard is 
economically justified if the increased purchase cost for a product 
that meets the standard is less than three times the value of the 
first-year energy savings resulting from the standard. In calculating a 
rebuttable presumption payback period for each of the considered TSLs, 
DOE used discrete values, and, as required by EPCA, based the energy 
use calculation on the DOE test procedures for residential furnaces and 
boilers. In contrast, the PBPs presented in section V.B.1.a of this 
document were calculated using distributions that reflect the range of 
energy use in the field.
    Table V.10 present the rebuttable-presumption payback periods for 
the considered TSLs for NWGFs and MHGFs. The payback periods for most 
NWGF and MHGF TSLs do not meet the rebuttable-presumption criterion. 
While DOE examined the rebuttable-presumption criterion, it determined 
whether the standard levels considered for this rule are economically 
justified through a more detailed analysis of the economic impacts of 
those levels, pursuant to 42 U.S.C. 6295(o)(2)(B)(i), that considers 
the full range of impacts to the consumer, manufacturer, Nation, and 
environment. The results of that analysis serve as the basis for DOE to 
definitively evaluate the economic justification for a potential 
standard level, thereby supporting or rebutting the results of any 
preliminary determination of economic justification.

   Table V.10--Rebuttable-Presumption Payback Periods (Years) for Non-
          Weatherized Gas Furnace and Mobile Home Gas Furnaces
------------------------------------------------------------------------
                                     Non-weatherized    Mobile home gas
                TSL                    gas furnaces         furnaces
------------------------------------------------------------------------
1 *...............................               2.64               1.52
2 *...............................               2.86               1.62
3 *...............................               2.94               1.68
4 **..............................               1.03               0.54
5 *...............................               3.06               1.69
6 [dagger]........................               3.20               1.80
7 *...............................               2.92               1.56
8 [dagger]........................               3.05               1.63
9 [dagger]........................               3.67               1.67
------------------------------------------------------------------------
* Refers to TSLs with separate standards for small and large NWGFs and
  MHGFs. The input capacity threshold definitions for small NWGFs and
  MHGFs are as follows:
TSL 1: 80 kBtu/h
TSL 2: 70 kBtu/h
TSL 3: 60 kBtu/h
TSL 5: 55 kBtu/h
TSL 7: 55 kBtu/h
** Regional standards.
[dagger] Refers to national standards.


[[Page 87626]]

2. Economic Impacts on Manufacturers
    DOE performed an MIA to estimate the impact of amended energy 
conservation standards on manufacturers of NWGFs and MHGFs. The next 
section describes the expected impacts on manufacturers at each 
considered TSL. Chapter 12 of the final rule TSD explains the analysis 
in further detail.
a. Industry Cash-Flow Analysis Results
    In this section, DOE provides GRIM results from the analysis, which 
examines changes in the industry that could result from a standard. 
Table V.11 presents the financial impacts of analyzed standards on NWGF 
and MHGF manufacturers represented by changes in INPV and free cash 
flow in the year before the standard would take effect, as well by the 
conversion costs that DOE estimates NWGF and MHGF manufacturers would 
incur at each TSL. To evaluate the range of cash-flow impacts on the 
NWGF and MHGF industry, DOE modeled two manufacturer markup scenarios 
that correspond to the range of anticipated market responses to amended 
standards. DOE modeled a preservation of gross margin percentage markup 
scenario and a tiered markup scenario. Each scenario results in a 
unique set of cash flows and corresponding industry values at each TSL.
    In the following discussion, the INPV results refer to the 
difference in INPV between the no-new-standards case and the standards 
cases, calculated by summing discounted cash flows from the reference 
year (2023) through the end of the analysis period (2058). Changes in 
INPV reflect the potential impacts on the value of the industry over 
the course of the analysis period as a result of implementing a 
particular TSL. The results also discuss the difference in cash flows 
between the no-new-standards case and the standards cases in the year 
before the compliance date for analyzed standards (2028). This 
difference in cash flow represents the size of the required conversion 
costs relative to the cash flow generated by the NWGF and MHGF industry 
in the absence of amended energy conservation standards.
    To assess the upper (less severe) bound of the range of potential 
impacts on NWGF and MHGF manufacturers, DOE modeled a preservation of 
gross margin percentage scenario. This scenario assumes industry would 
be able to maintain its average no-new-standards case gross margin 
percentage in the standard case, even as MPCs increase and companies 
make upfront investments to bring products into compliance with amended 
standards. DOE assumed gross margin percentages of 25.3 percent for 
NWGFs and 21.3 percent for MHGFs.\277\ Manufacturers noted in 
interviews that it is optimistic to assume that, as their production 
costs increase in response to an amended energy conservation standard, 
they will be able to maintain the same gross margin percentage. DOE has 
determined this scenario to be an upper bound to industry profitability 
under an energy conservation standard.
---------------------------------------------------------------------------

    \277\ The gross margin percentage values correspond to 
manufacturer markups of 1.34 for NWGFs and 1.27 for MHGFs.
---------------------------------------------------------------------------

    To assess the lower (more severe) bound of the range of potential 
impacts of AFUE standards on NWGF and MHGF manufacturers, DOE modeled a 
tiered scenario. DOE implemented the tiered scenario because multiple 
manufacturers stated in interviews that they offer multiple tiers of 
product lines that are differentiated, in part, by efficiency level. 
Manufacturers further noted that pricing tiers encompass additional 
differentiators, such as the combustion system (e.g., single-stage, 
two-stage, and modulating combustion systems). To account for this 
nuance, the tiered markup in the GRIM incorporates both efficiency and 
combustion system technology into the ``good, better, best'' 
manufacturer markup scenario.
    Several manufacturers suggested that amended standards would lead 
to a reduction in premium markups and would reduce the profitability of 
higher-efficiency products. During the manufacturer interviews, 
manufacturers provided information on the range of typical efficiency 
levels in those tiers and the change in profitability at each level. 
DOE used this information to estimate manufacturer markups for NWGFs 
and MHGFs under a tiered pricing strategy in the no-new-standards case. 
In the standards cases, DOE modeled the situation in which standards 
result in less product differentiation, compression of the markup 
tiers, and an overall reduction in profitability.
    Table V.11 presents the financial impacts of the analyzed standards 
on NWGF and MHGF manufacturers. These impacts are represented by 
changes in INPV summed over the analysis period and free cash flow in 
the year before the standard (2028), as well as by the conversion costs 
that DOE estimates NWGF and MHGF manufacturers would incur at each TSL. 
The range of results reflect the two manufacturer markup scenarios that 
were modeled.

                                         Table V.11--Manufacturer Impact Analysis Results for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                           Units             No-new-standards case              TSL 1                      TSL 2                      TSL 3                      TSL 4
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
INPV............................  2022$ millions........  1,371.8...................  1,263.7 to 1,351.3.......  1,226.3 to 1,345.3.......  1,207.2 to 1,337.0.......  1,088.7 to 1,342.5
Change in INPV..................  2022$ millions........  ..........................  (107.8) to (20.5)........  (145.3) to (26.5)........  (164.3) to (34.9)........  (282.8) to (29.4)
                                  %.....................  ..........................  (7.9) to (1.5)...........  (10.6) to (1.9)..........  (12.0) to (2.5)..........  (20.6) to (2.1)
Free Cash Flow (2028)...........  2022$ millions........  84.6......................  60.3.....................  53.8.....................  50.7.....................  38.4
Change in Free Cash Flow (2028).  %.....................  ..........................  (28.8)...................  (36.4)...................  (40.1)...................  (54.6)
Product Conversion Costs........  2022$ millions........  ..........................  28.8.....................  28.8.....................  28.8.....................  44.8
Capital Conversion Costs........  2022$ millions........  ..........................  31.6.....................  46.0.....................  52.9.....................  67.7
Total Investment Required.......  2022$ millions........  ..........................  60.4.....................  74.8.....................  81.7.....................  112.5
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                  Units.................  TSL 5.....................  TSL 6....................  TSL 7....................  TSL 8....................  TSL 9
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
INPV............................  2022$ millions........  1,199.6 to 1,341.4........  1,201.0 to 1,337.9.......  1,014.8 to 1,339.1.......  1,004.2 to 1,338.0.......  702.8 to 1,352.7
Change in INPV..................  2022$ millions........  (172.0) to (30.4).........  (170.5) to (34.0)........  (356.8) to (32.7)........  (367.3) to (33.8)........  (668.7) to (19.1)
                                  %.....................  (12.5) to (2.2)...........  (12.4) to (2.5)..........  (26.0) to (2.4)..........  (26.8) to (2.5)..........  (48.7) to (1.4)
Free Cash Flow (2028)...........  2022$ millions........  47.9......................  40.1.....................  28.0.....................  16.1.....................  (54.4)

[[Page 87627]]

 
Change in Free Cash Flow (2028).  %.....................  (43.4)....................  (52.6)...................  (66.9)...................  (81.0)...................  (164.3)
Product Conversion Costs........  2022$ millions........  28.8......................  28.8.....................  44.8.....................  44.8.....................  86.8
Capital Conversion Costs........  2022$ millions........  59.2......................  76.4.....................  90.8.....................  117.3....................  241.1
Total Investment Required.......  2022$ millions........  87.9......................  105.2....................  135.6....................  162.0....................  328.0
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Parentheses indicate negative values.

    The following cash flow results discussion refers to the AFUE 
efficiency levels and capacity threshold cutoffs detailed in section 
V.A of this document. Tables V.12 and V.13 present the percentage of 
NWGF and MHGF shipments in 2028 that are considered to be large or 
small, based on the input capacity threshold for each TSL. See section 
IV.G of this document for additional details on the shipments analysis.

 Table V.12--Shipments Breakdowns (2028) Representing Large and Small Non-Weatherized Gas Furnaces at Each Trial
                                                 Standard Level
----------------------------------------------------------------------------------------------------------------
                                                   Trial standard level and capacity threshold
                                --------------------------------------------------------------------------------
                                                             TSL 4             TSL 6             TSL 8    TSL 9
              Size                TSL 1    TSL 2    TSL 3      No     TSL 5      No     TSL 7      No       No
                                 80 kBtu/ 70 kBtu/ 60 kBtu/  cutoff  55 kBtu/  cutoff  55 kBtu/  cutoff   cutoff
                                  h (%)    h (%)    h (%)     (%)     h (%)     (%)     h (%)     (%)      (%)
----------------------------------------------------------------------------------------------------------------
Large..........................     45.4     69.5     81.1    100.0     92.5    100.0     92.5    100.0    100.0
Small..........................     54.6     30.5     18.9      0.0      7.5      0.0      7.5      0.0      0.0
----------------------------------------------------------------------------------------------------------------


   Table V.13--Shipments Breakdowns (2028) Representing Large and Small Mobile Home Gas Furnaces at Each Trial
                                                 Standard Level
----------------------------------------------------------------------------------------------------------------
                                                   Trial standard level and capacity threshold
                                --------------------------------------------------------------------------------
                                                             TSL 4             TSL 6             TSL 8    TSL 9
              Size                TSL 1    TSL 2    TSL 3      No     TSL 5      No     TSL 7      No       No
                                 80 kBtu/ 70 kBtu/ 60 kBtu/  cutoff  55 kBtu/  cutoff  55 kBtu/  cutoff   cutoff
                                  h (%)    h (%)    h (%)     (%)     h (%)     (%)     h (%)     (%)      (%)
----------------------------------------------------------------------------------------------------------------
Large..........................     18.9     61.1     76.0    100.0     89.4    100.0     89.4    100.0    100.0
Small..........................     81.1     38.9     24.0      0.0     10.6      0.0     10.6      0.0      0.0
----------------------------------------------------------------------------------------------------------------

    TSL 1, TSL 2, TSL 3, and TSL 5 all represent national standards set 
at 92-percent AFUE for large furnaces, while small furnaces remain at 
the current Federal minimum of 80-percent AFUE. However, the capacity 
threshold used to classify small furnaces is different at each TSL. 
Small NWGFs and MHGFs are defined as units having an input capacity of 
80 kBtu/h or less at TSL 1, 70 kBtu/h or less at TSL 2, 60 kBtu/h or 
less at TSL 3, and 55 kBtu/h or less at TSL 5. As the capacity 
threshold decreases from 80 kBtu/h at TSL 1 down to 55 kBtu/h at TSL 5, 
the number of furnace shipments classified as large gas-fired consumer 
furnaces--and subsequently the portion of shipments that must be 
condensing after the standard year--increases. Capital conversion costs 
increase as manufacturers add additional capacity to their secondary 
heat exchanger production lines. Manufacturers would also incur product 
conversion costs as they invest resources to develop cost-optimized 92-
percent AFUE models that are competitive at lower price points. 
Manufacturers are expected to incur $28.8 million in product conversion 
costs to develop such models at each of TSL 1, TSL 2, TSL 3, and TSL 5.
    In addition to conversion costs, a national standard of 92-percent 
AFUE for large NWGFs and MHGFs could lead to a slight compression of 
manufacturer markups. In its manufacturer markup scenarios, DOE 
includes a scenario which models the industry maintaining three tiers 
of markups, with efficiency as one differentiating attribute. In a 
market where the national standard is 92-percent AFUE, DOE 
characterizes these markups as ``good,'' ``better,'' and ``best,'' and 
they correspond to 92-percent AFUE, 95-percent AFUE, and max-tech 
levels (98-percent AFUE for NWGFs and 96-percent AFUE for MHGFs), 
respectively.
    TSL 1 represents a national standard set at 92-percent AFUE for 
large NWGFs and MHGFs, while small NWGFs and MHGFs remain at the 
current Federal minimum of 80-percent AFUE. At TSL 1, small furnaces 
are defined as NWGFs and MHGFs with input capacities of 80 kBtu/h or 
less. DOE estimates the change in INPV to range from -$107.8 million to 
-$20.5 million, or a change of -7.9 percent to -1.5 percent. At this 
level, industry free cash flow in 2028 (the year before the compliance 
date) is estimated to decrease to $60.3 million, or a decrease of 28.8 
percent compared to the no-new-standards case value of $84.6 million.

[[Page 87628]]

    Small furnaces with input capacities of 80 kBtu/h or less account 
for approximately 54.6 percent of NWGF shipments and 81.1 percent of 
MHGF shipments in 2028, a year before the standard goes into effect. In 
the no-new-standards case, approximately 60.6 percent of NWGF shipments 
and 33.3 percent of MHGF shipments are expected to be sold at 
condensing levels in the year before the standard goes into effect. At 
TSL 1, once the standard goes into effect, DOE expects 70.0 percent of 
NWGF shipments and 44.2 percent of MHGF shipments to be sold at 
condensing levels, requiring the industry to expand its production of 
secondary heat exchangers. Manufacturers will incur an estimated $31.6 
million in capital conversion costs as manufacturers increase secondary 
heat exchanger production line capacity. Manufacturers would also incur 
product conversion costs driven by the development necessary to create 
compliant, cost-competitive products. Total industry conversion costs 
are expected to reach $60.4 million at TSL 1.
    TSL 2 represents a national standard at 92-percent AFUE for large 
furnaces, while small furnaces remain at the current Federal minimum of 
80-percent AFUE. Small furnaces are defined as NWGFs and MHGFS with 
input capacities of 70 kBtu/h or less. At TSL 2, DOE estimates the 
change in INPV to range from -$145.3 million to -$26.5 million, or a 
change in INPV of -10.6 percent to -1.9 percent. At this level, free 
cash flow in 2028 is estimated to decrease to $53.8 million, or a 
decrease of 36.4 percent compared to the no-new-standards-case value of 
$84.6 million in the year 2028.
    Small furnaces with input capacities of 70 kBtu/h or less account 
for approximately 30.5 percent of NWGF shipments and 38.9 percent of 
MHGF shipments in the year before standards go into effect. At TSL 2, 
once the standard goes into effect, DOE expects 75.2 percent of NWGF 
shipments and 66.1 percent of MHGF shipments to be sold at condensing 
levels, requiring the industry to expand its production of secondary 
heat exchangers. Capital conversion costs increase from $31.6 million 
at TSL 1 to $46.0 million at TSL 2. Manufacturers would also incur 
product conversion costs driven by the development necessary to create 
compliant, cost-competitive products. Total industry conversion costs 
are expected to reach $74.8 million at TSL 2.
    TSL 3 represents a national standard at 92-percent AFUE for large 
furnaces, while small furnaces remain at the current Federal minimum of 
80-percent AFUE. Small furnaces are defined as NWGFs and MHGFs with 
input capacities of 60 kBtu/h or less. At TSL 3, DOE estimates the 
change in INPV to range from -$164.3 million to -$34.9 million, or a 
change in INPV of -12.0 percent to -2.5 percent. At this level, free 
cash flow is estimated to decrease to $50.7 million, or a decrease of 
40.1 percent compared to the no-new-standards case value of $84.6 
million in the year 2028.
    Small furnaces with input capacities of 60 kBtu/h or less account 
for approximately 18.9 percent of NWGF shipments and 24.0 percent of 
MHGF shipments in the year before standards take effect. At TSL 3, once 
standards go into effect, DOE expects 78.6 percent of NWGF shipments 
and 75.3 percent of MHGF shipments to be sold at condensing levels, 
requiring the industry to expand its production of secondary heat 
exchangers. Capital conversion costs would increase from $46.0 million 
at TSL 2 to $52.9 million at TSL 3 as manufacturers increase secondary 
heat exchanger production line capacity. Manufacturers would also incur 
product conversion costs driven by the development necessary to create 
compliant, cost-competitive products. Total industry conversion costs 
could reach $81.7 million at TSL 3.
    TSL 4 represents a regional standard set at 95-percent AFUE for 
products sold in the North and 80-percent AFUE for products sold in the 
rest of country. TSL 4 does not have a small furnace capacity 
threshold. At TSL 4, DOE estimates the change in INPV to range from -
$282.8 million to -$29.4 million, or a change in INPV of -20.6 percent 
to -2.1 percent. At this level, free cash flow is estimated to decrease 
to $38.4 million, or a decrease of 54.6 percent compared to the no-new-
standards case value of $84.6 million in the year 2028.
    In the year before the standard goes into effect, DOE expects that 
the North region will account for approximately 58.8 percent of 
consumer furnace shipments, with the remaining shipments attributable 
to the rest of country region. Once the standard goes into effect, 
consumer furnaces sold in the North must achieve 95-percent AFUE. At 
TSL 4, DOE expects 74.7 percent of NWGFs and 74.5 percent of MHGFs 
would be sold at condensing levels in 2029. Capital conversion costs 
are expected to reach $67.7 million as manufacturers increase secondary 
heat exchanger production line capacity. Product conversion costs reach 
$44.8 million, as manufacturers develop cost-optimized 95-percent AFUE 
furnaces that are competitive at reduced markups. Total industry 
conversion costs would be expected to reach $112.5 million at TSL 4.
    For products sold in the North that must achieve 95-percent AFUE, 
the industry faces a noticeable compression of markups. In the no-new-
standards case, 95-percent AFUE products garner a higher markup than 
baseline products. At TSL 4, 95-percent AFUE products become the 
minimum AFUE efficiency offering and would no longer command the same 
premium manufacturer markup in the North. However, at this level, 
manufacturers can still differentiate products and offer multiple 
markup tiers based on ``comfort'' features, such as two-stage or 
modulating combustion technology. DOE models the industry maintaining 
three manufacturer markup tiers (``good, better, best'') but at a 
compressed range of manufacturer markup values. This approach accounts 
for manufacturers' continued ability to differentiate products based on 
combustion system technology while recognizing that manufacturer 
markups (and profitability) for high-efficiency products in the North 
may be reduced due to the higher AFUE standard.
    TSL 5 represents a standard set at 92-percent AFUE for large 
furnaces, while small furnaces remain at the current Federal minimum of 
80-percent AFUE. Small furnaces are defined as NWGFs and MHGFs with 
input capacities of 55 kBtu/h or less. At TSL 5, DOE estimates the 
change in INPV to range from -$172.0 million to -$30.4 million, or a 
change in INPV of -12.5 percent to -2.2 percent. At this level, free 
cash flow is estimated to decrease to $47.9 million, or a decrease of 
43.4 percent compared to the no-new-standards case value of $84.6 
million in the year 2028.
    Small furnaces with input capacities of 55 kBtu/h or less account 
for approximately 7.5 percent of NWGFs and 10.6 percent of MHGFs in the 
year before the standard goes into effect. At TSL 5, 81.5 percent of 
NWGF shipments and 82.4 percent of MHGF shipments would be sold at 
condensing levels when the standard goes into effect, requiring the 
industry to expand its production of secondary heat exchangers. Capital 
conversion costs would increase from $52.9 million at TSL 3, the 
previous TSL with a separate standard level for small furnaces, to 
$59.2 million at TSL 5. Manufacturers will also incur product 
conversion costs driven by the development necessary to create 
compliant, cost-competitive products. DOE estimates total industry 
conversion costs could reach $87.9 million at TSL 5.

[[Page 87629]]

    TSL 6, TSL 8, and TSL 9 represent national standards for all 
covered NWGFs and MHGFs. At these TSLs, there is no separate standard 
level based on furnace input capacity. As the TSL increases from TSL 6 
to TSL 8 to TSL 9, the national standard increases, and DOE models a 
compression of markups in the tiered markup scenario. Compressed 
markups are a significant driver of negative impacts to INPV in the 
tiered markup scenario, particularly at TSL 9 for NWGFs, when neither 
efficiency nor combustion system technology (e.g., single-stage, two-
stage, or modulating combustion) is a means for product 
differentiation.
    TSL 6 represents a national 92-percent AFUE standard for all 
covered NWGFs and MHGFs. As previously noted, TSL 6 does not have a 
small furnace capacity threshold. At this level, DOE estimates the 
change in INPV to range from -$170.5 million to -$34.0 million, or a 
change in INPV of -12.4 percent to -2.5 percent. At this level, free 
cash flow is estimated to decrease to $40.1 million, or a decrease of 
52.6 percent compared to the no-new-standards case value of $84.6 
million in the year 2028.
    At TSL 6, all shipments of the covered product would be at a 
condensing level once the standard goes into effect. Manufacturer 
markups at TSL 6 are slightly reduced, but the industry is still able 
to maintain three tiers of markups. Manufacturers would incur product 
conversion costs of $28.8 million at TSL 6, as manufacturers develop 
92-percent AFUE furnaces that are competitive at reduced markups. 
Capital conversion costs would total $76.4 million, as manufacturers 
add production capacity to have secondary heat exchangers for all NWGF 
and MHGF shipments sold into the domestic market. Total conversion 
costs could reach $105.2 million for the industry.
    TSL 7 represents a 95-percent AFUE standard for large furnaces, 
while small furnaces remain at the current Federal minimum of 80-
percent AFUE. At TSL 7, small furnaces are defined as NWGFs and MHGFs 
with input capacities of 55 kBtu/h or less. DOE estimates the change in 
INPV to range from -$356.8 million to -$32.7 million, or a change in 
INPV of -26.0 percent to -2.4 percent. At this level, free cash flow is 
estimated to decrease to $28.0 million, or a decrease of 66.9 percent 
compared to the no-new-standards case value of $84.6 million in the 
year 2028.
    Small furnaces with input capacities of 55 kBtu/h or less account 
for approximately 7.5 percent of NWGF shipments and 10.6 percent of 
MHGF shipments before the standard goes into effect. At this level, 
81.5 percent of NWGF shipments and 82.4 percent of MHGF shipments would 
be sold at condensing levels when the standard goes into effect, 
requiring the industry to expand its production of secondary heat 
exchangers. Capital conversion costs would total $90.8 million, as 
manufacturers add production capacity to have secondary heat exchangers 
for the majority of NWGF and MHGF shipments sold into the domestic 
market. Manufacturers would also incur product conversion costs of an 
estimated $44.8 million, driven by the development necessary to create 
compliant, cost-competitive products. Total conversion costs could 
reach $135.6 million.
    For large NWGFs and MHGFs, industry faces a noticeable compression 
of markups due to their limited ability to differentiate products 
purely based on AFUE. However, as with TSL 4, manufacturers can still 
differentiate products subject to the 95-percent standard based on 
``comfort'' features, such as two-stage or modulating combustion 
technology. DOE models the industry as maintaining three markup tiers 
(``good, better, best'') but at a compressed range of tiers where max-
tech products do not command the same premium as they did in the no-
new-standards case. This approach accounts for manufacturers' continued 
ability to differentiate large NWGFs and MHGFs based on combustion 
systems while recognizing that markups (and profitability) for high-
efficiency products may be reduced for large furnaces due to the 95-
percent AFUE standard. While manufacturers would not experience a 
compression of markups for small capacity products, most shipments 
qualify as large furnaces at this capacity cutoff. The reduction in 
premium product offerings and deterioration of markups for the majority 
of furnace shipments, coupled with increased conversion costs, are 
expected to result in a negative change in INPV at TSL 7.
    TSL 8 represents a national 95-percent AFUE standard for all 
covered NWGFs and MHGFs. TSL 8 does not have a small capacity 
threshold. At TSL 8, DOE estimates the change in INPV to range from -
$367.3 million to -$33.8 million, or a change in INPV of -26.8 percent 
to -2.5 percent. At this level, free cash flow is estimated to decrease 
to $16.1 million, or a decrease of 81.0 percent compared to the no-new-
standards case value of $84.6 million in the year 2028.
    DOE estimates that approximately 41.6 percent of the annual NWGF 
shipments and approximately 19.5 percent of the annual MHGF shipments 
currently meet or exceed the efficiencies required at TSL 8. At TSL 8, 
all covered furnaces would be condensing after the standard goes into 
effect. DOE estimates capital conversion costs would increase to $117.3 
million at TSL 8, as manufacturers add production capacity to have 
secondary heat exchangers for all NWGF and MHGF shipments sold into the 
domestic market. Product conversion costs would total $44.8 million, as 
manufacturers develop a cost-optimized 95-percent AFUE for NWGF and 
MHGF models that are competitive at reduced markups. Total industry 
conversion costs could reach $162.0 million.
    With a national standard of 95-percent AFUE, industry faces a 
noticeable compression of markups due to their limited ability to 
differentiate products purely based on AFUE. As with TSL 4 and TSL 7, 
manufacturers can still differentiate products based on ``comfort'' 
features such as the combustion systems. At TSL 8, DOE models the 
industry as maintaining three markup tiers (``good, better, best'') but 
at a compressed range of manufacturer markup values where max-tech 
products do not command the same premium as they did in the no-new-
standards case. This approach accounts for manufacturers' continued 
ability to differentiate NWGFs and MHGFs based on combustion systems 
while recognizing that markups (and profitability) for high-efficiency 
products may be reduced due to the 95-percent AFUE standard. The 
compression of markups and a reduction in product offerings, coupled 
with increased conversion costs are expected to result in INPV losses 
at TSL 8.
    TSL 9 represents a national max-tech standard, where NWGF products 
must achieve 98-percent AFUE and MHGF products must achieve 96-percent 
AFUE. At TSL 9, DOE estimates the change in INPV to range from -$668.7 
million to -$19.1 million, or a change in INPV of -48.7 percent to -1.4 
percent. At this level, the large conversion costs result in a free 
cash flow dropping below zero in the years before the standard year. 
The negative free cash flow calculation indicates manufacturers may 
need to access cash reserves or outside capital to finance conversion 
efforts.
    At TSL 9, approximately 1.4 percent of NWGFs and 0.9 percent of 
MHGFs are sold at this level today. Manufacturers would incur $86.8 
million in product conversion costs as they develop cost-optimized, 
high-efficiency NWGF models that can

[[Page 87630]]

compete in a market where efficiency and combustion systems are no 
longer viable options for product differentiation and MHGF models that 
can compete in a market where efficiency is no longer a means for 
product differentiation. More than half of all NWGF and MHGF OEMs do 
not currently offer any models that meet the efficiency levels required 
by TSL 9. Manufacturers would also incur capital conversion costs of 
$241.1 million as manufacturers add the production capacity necessary 
to produce all NWGFs and MHGFs sold into the domestic market at 98-
percent and 96-percent AFUE, respectively. Total conversion costs would 
be expected to reach $328.0 million for the industry.
    Some manufacturers expressed great concern about the state of 
technology at max-tech. Specifically, those manufacturers noted 
uncertainty about the ability to deliver cost-effective products for 
their customers. They also cited high conversion costs and large 
investments in R&D to produce all products at this level. Many OEMs do 
not currently manufacture any models that meet these efficiency levels. 
These OEMs would likely have more technical challenges in designing new 
models that meet max-tech levels. Furthermore, NWGF manufacturers would 
lose efficiency and combustion systems as differentiators between 
baseline and premium product offerings. The extent of conversion costs, 
the compression of markups, and the reduced ability to differentiate 
products would likely alter the consumer furnace competitive landscape.
b. Direct Impacts on Employment
    To quantitatively assess the potential impacts of amended energy 
conservation standards on direct employment in the NWGF and MHGF 
industry, DOE used the GRIM to estimate the domestic labor expenditures 
and number of direct employees in the no-new-standards case and in each 
of the standards cases during the analysis period. DOE calculated these 
values using the most up-to-date statistical data from the U.S. Census 
Bureau's 2021 ASM,\278\ the U.S. Bureau of Labor Statistics' (``BLS'') 
employee compensation data,\279\ results of the engineering analysis, 
and manufacturer interviews.
---------------------------------------------------------------------------

    \278\ U.S. Census Bureau's Annual Survey of Manufactures: 2018-
2021 (available at www.census.gov/programs-surveys/asm/data/tables.html) (last accessed March 21, 2023).
    \279\ U.S. Bureau of Labor Statistics, Employer Costs for 
Employee Compensation (March 17, 2023) (available at: www.bls.gov/news.release/pdf/ecec.pdf) (last accessed March 21, 2023).
---------------------------------------------------------------------------

    Labor expenditures related to product manufacturing depend on the 
labor intensity of the product, the sales volume, and an assumption 
that wages remain fixed in real terms over time. The total labor 
expenditures in each year are calculated by multiplying the total MPCs 
by the labor percentage of MPCs. The total labor expenditures in the 
GRIM were then converted to domestic production employment levels by 
dividing production labor expenditures by the average fully burdened 
wage multiplied by the average number of hours worked per year per 
production worker. To do this, DOE relied on the ASM inputs: Production 
Workers Annual Wages, Production Workers Annual Hours, Production 
Workers for Pay Period, and Number of Employees. DOE also relied on the 
BLS employee compensation data to determine the fully burdened wage 
ratio. The fully burdened wage ratio factors in paid leave, 
supplemental pay, insurance, retirement and savings, and legally 
required benefits.
    The number of production employees is then multiplied by the U.S. 
labor percentage to convert total production employment to total 
domestic production employment. The U.S. labor percentage represents 
the industry fraction of domestic manufacturing production capacity for 
the covered product. This value is derived from manufacturer 
interviews, product database analysis, and publicly-available 
information. Consistent with the July 2022 NOPR, DOE estimates that 45 
percent of gas-fired consumer furnaces are produced domestically.
    The domestic production employees estimate covers production line 
workers, including line supervisors, who are directly involved in 
fabricating, processing, or assembling products within the OEM 
facility. Workers performing services that are closely associated with 
production operations, such as handling materials using forklifts, are 
also included as production labor.\280\ DOE's estimates only account 
for production workers who manufacture the specific products covered by 
this rulemaking.
---------------------------------------------------------------------------

    \280\ The comprehensive description of production and non-
production workers is available online at: www2.census.gov/programs-surveys/asm/technical-documentation/questionnaire/2021/instructions/MA_10000_Instructions.pdf, ``Definitions and Instructions for the 
Annual Survey of Manufacturers, MA-10000'' (pp. 13-14). (Last 
accessed June 1, 2023).
---------------------------------------------------------------------------

    Non-production workers account for the remainder of the direct 
employment figure. The non-production employees cover domestic workers 
who are not directly involved in the production process, such as sales, 
engineering, human resources, management, etc. Using the amount of 
domestic production workers calculated above, non-production domestic 
employees are extrapolated by multiplying the ratio of non-production 
workers in the industry compared to production employees. DOE assumes 
that this employee distribution ratio remains constant between the no-
new-standards case and standards cases.
    Using the GRIM, DOE estimates that in the absence of new energy 
conservation standards, there would be 1,470 domestic production and 
non-production workers for NWGFs and MHGFs in 2029. Table V.14 shows 
the range of the impacts of potential amended energy conservation 
standards on U.S. manufacturing employment in the NWGF and MHGF 
industry. The discussion below provides a qualitative evaluation of the 
range of potential impacts presented in the table.

  Table V.14--Potential Changes in the Total Number of Non-Weatherized Gas Furnace and Mobile Home Gas Furnace Production and Non-Production Workers in
                                                                          2029
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                  Trial standard level
                               -------------------------------------------------------------------------------------------------------------------------
                                 No-new- standards case           TSL 1                    TSL 2                   TSL 3                   TSL 4
--------------------------------------------------------------------------------------------------------------------------------------------------------
Direct Employment in 2029       1,470..................  435 to 1,514...........  453 to 1,532..........  451 to 1,530..........  487 to 1,566.
 (Production Workers + Non-
 Production Workers).
Potential Changes in Direct     .......................  (1,079) to 44..........  (1,079) to 62.........  (1,079) to 60.........  (1,079) to 96.
 Employment Workers in 2029 *.
                               -------------------------------------------------------------------------------------------------------------------------

[[Page 87631]]

 
                                TSL 5..................  TSL 6..................  TSL 7.................  TSL 8.................  TSL 9
--------------------------------------------------------------------------------------------------------------------------------------------------------
Direct employment in 2029       473 to 1,552...........  470 to 1,549...........  547 to 1,626..........  571 to 1,650..........  549 to 1,628.
 (Production Workers + Non-
 Production Workers).
Potential Changes in Direct     (1,079) to 82..........  (1,079) to 79..........  (1,079) to 156........  (1,079) to 180........  (1,079) to 158.
 Employment Workers in 2029 *.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* DOE presents a range of potential employment impacts. Numbers in parentheses indicate negative values.

    The direct employment impacts shown in Table V.14 represent the 
potential domestic employment changes that could result following the 
compliance date of the amended standards for NWGFs and MHGFs. The upper 
end of the range estimates an increase in the number of domestic 
workers producing NWGFs and MHGFs after implementation of an amended 
energy conservation standard at each TSL. This upper bound assumes 
manufacturers would continue to produce the same scope of covered 
products within the United States and would require additional labor to 
produce more-efficient products. The lower bound of the range 
represents the estimated maximum decrease in the total number of U.S. 
domestic workers if all production moved to lower labor-cost countries 
or if domestic manufacturers left the market. Some large manufacturers 
are currently producing covered products in countries with lower labor 
costs, and an amended standard that necessitates large increases in 
labor content or large expenditures to re-tool facilities could cause 
manufacturers to re-evaluate domestic production siting options.
    Additional detail on the analysis of direct employment can be found 
in chapter 12 of the final rule TSD. Additionally, the employment 
impacts discussed in this section are independent of the employment 
impacts from the broader U.S. economy, which are documented in chapter 
15 of the final rule TSD.
c. Impacts on Manufacturing Capacity
    According to manufacturer feedback, production facilities are not 
currently equipped to supply the entire NWGF and MHGF market with 
condensing products. However, most manufacturers would be able to add 
capacity and adjust product designs in the five-year period between the 
announcement year of the standard and the compliance year of the 
standard. DOE interviewed manufacturers representing over 65 percent of 
industry shipments. None of the interviewed manufacturers expressed 
concern over the industry's ability to increase the capacity of 
production lines that meet required efficiency levels at TSL 1 through 
TSL 8 to meet consumer demand. At TSL 9, technical uncertainty was 
expressed by manufacturers that do not offer max-tech efficiency 
products today, as they were unsure of what production lines changes 
would be needed to meet an amended standard set at max-tech. However, 
because TSL 8 (the adopted level) would not require max-tech 
efficiencies, DOE does not expect manufacturers to face long-term 
capacity constraints due to the standard levels detailed in this final 
rule.
d. Impacts on Subgroups of Manufacturers
    Using average cost assumptions to develop an industry cash-flow 
estimate is not adequate for assessing differential impacts among 
subgroups of manufacturers. Small manufacturers, niche players, or 
manufacturers exhibiting a cost structure that differs substantially 
from the industry average could be affected disproportionately. DOE 
used the results of the industry characterization to group 
manufacturers exhibiting similar characteristics. Specifically, DOE 
identified small businesses as a manufacturer subgroup that it believes 
could be disproportionally impacted by energy conservation standards 
and would require a separate analysis in the MIA. DOE did not identify 
any other adversely impacted manufacturer subgroups for this rulemaking 
based on the results of the industry characterization.
    DOE analyzes the impacts on small businesses in a separate analysis 
in section VI.B of this final rule as part of the Regulatory 
Flexibility Analysis. In summary, the Small Business Administration 
(SBA) defines a ``small business'' as having 1,250 employees or less 
for North American Industry Classification System (``NAICS'') code 
333415, ``Air-Conditioning and Warm Air Heating Equipment and 
Commercial and Industrial Refrigeration Equipment Manufacturing.'' 
Based on this classification, DOE identified four domestic OEMs that 
certify NWGFs and/or MHGFs that qualify as a small business. For a 
discussion of the impacts on the small business manufacturer subgroup, 
see the Regulatory Flexibility Analysis in section VI.B of this final 
rule and chapter 12 of the final rule TSD.
e. Cumulative Regulatory Burden
    One aspect of assessing manufacturer burden involves examining the 
cumulative impact of multiple DOE standards and the product-specific 
regulatory actions of other Federal agencies that affect the 
manufacturers of a covered product or equipment. While any one 
regulation may not impose a significant burden on manufacturers, the 
combined effects of several recent or impending regulations may have 
serious consequences for some manufacturers, groups of manufacturers, 
or an entire industry. Assessing the impact of a single regulation may 
overlook this cumulative regulatory burden. In addition to energy 
conservation standards, other regulations can significantly affect 
manufacturers' financial operations. For these reasons, DOE conducts an 
analysis of cumulative regulatory burden as part of its rulemakings 
pertaining to appliance efficiency.
    For the cumulative regulatory burden analysis, DOE examines 
Federal, product-specific regulations that could affect NWGF and MHGF 
manufacturers that take effect approximately three years before or 
after the 2029 compliance date. Table V.15 presents the DOE energy 
conservation standards that would impact manufacturers of

[[Page 87632]]

NWGF and MHGF products in the 2026 to 2032 timeframe.

Table V.15--Compliance Dates and Expected Conversion Expenses of Federal Energy Conservation Standards Affecting
                           Gas-Fired Consumer Furnace Original Equipment Manufacturers
----------------------------------------------------------------------------------------------------------------
                                                        Number of
                                                          OEMs       Approx.       Industry          Industry
   Federal energy conservation standard     Number of   affected    standards  conversion costs     conversion
                                             OEMs *      by this   compliance     (millions)      costs/product
                                                         rule **      year                       revenue *** (%)
----------------------------------------------------------------------------------------------------------------
Consumer Clothes Dryers [dagger] 87 FR             15           1        2027    $149.7 (2020$)              1.8
 51734 (August 23, 2022).................
Residential Clothes Washers [dagger] 88            19           1        2027    $690.8 (2021$)              5.2
 FR 13520 (March 3, 2023)................
Refrigerators, Freezers, and Refrigerator-         49           1        2027  $1,323.6 (2021$)              3.8
 Freezers [dagger] 88 FR 12452 (February
 27, 2023)...............................
Room Air Conditioners 88 FR 34298 (May              8           2        2026     $24.8 (2021$)              0.4
 26, 2023)...............................
Miscellaneous Refrigeration Products               38           1        2029    $126.9 (2021$)              3.1
 [dagger] 88 FR 19382 (March 31, 2023)...
Dishwashers [dagger] 88 FR 32514 (May 19,          22           1        2027    $125.6 (2021$)              2.1
 2023)...................................
Consumer Water Heaters [dagger] 88 FR              22           3        2030    $228.1 (2022$)              1.3
 49058 (July 28, 2023)...................
Consumer Pool Heaters 88 FR 34624 (May             20           1        2028     $48.4 (2021$)              1.5
 30, 2023)...............................
Commercial Water Heating Equipment                 15           3        2026     $42.7 (2022$)              5.3
 [Dagger]................................
Consumer Boilers [dagger] 88 FR 55128              24           4        2030     $98.0 (2022$)              3.6
 (August 14, 2023).......................
Walk-in Coolers and Freezers [dagger] 88           79           4        2027     $89.0 (2022$)              0.8
 FR 60746 (September 5, 2023)............
Microwave Ovens 88 FR 39912 (June 20,              18           1        2026     $46.1 (2021$)              0.7
 2023)...................................
----------------------------------------------------------------------------------------------------------------
* This column presents the total number of OEMs identified in the energy conservation standard rule that is
  contributing to cumulative regulatory burden.
** This column presents the number of OEMs producing consumer furnaces that are also listed as OEMs in the
  identified energy conservation standard that is contributing to cumulative regulatory burden.
*** This column presents industry conversion costs as a percentage of product revenue during the conversion
  period. Industry conversion costs are the upfront investments manufacturers must make to sell compliant
  products/equipment. The revenue used for this calculation is the revenue from just the covered product/
  equipment associated with each row. The conversion period is the time frame over which conversion costs are
  made and lasts from the publication year of the final rule to the compliance year of the energy conservation
  standard. The conversion period typically ranges from three to five years, depending on the rulemaking.
[dagger] These rulemakings are at the NOPR stage, and all values are subject to change until finalized through
  publication of a final rule.
[Dagger] At the time of issuance of this consumer furnaces final rule, the commercial water heating equipment
  energy conservation standards final rule has been issued but not yet published in the Federal Register. Once
  published, the commercial water heating equipment final rule will be available at: www.regulations.gov/docket/EERE-2021-BT-STD-0027.

3. National Impact Analysis
    This section presents DOE's estimates of the national energy 
savings and the NPV of consumer benefits that would result from each of 
the TSLs considered as potential amended standards.
a. Significance of Energy Savings
    To estimate the energy savings attributable to potential amended 
standards for NWGFs and MHGFs, DOE compared their energy consumption 
under the no-new-standards case to their anticipated energy consumption 
under each TSL. The savings are measured over the entire lifetime of 
products purchased in the 30-year period that begins in the year of 
anticipated compliance with amended standards (2029-2058). Table V.16 
presents DOE's projections of the national energy savings for each TSL 
considered for NWGFs and MHGFs. The savings were calculated using the 
approach described in section IV.H.2 of this document.

     Table V.16--Cumulative National Energy Savings for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces; 30 Years of Shipments (2029-2058)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                       Trial standard level
              Energy savings                       Product class        --------------------------------------------------------------------------------
                                                                            1        2        3        4        5        6        7        8        9
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                             (quads)
                                                                        --------------------------------------------------------------------------------
Primary Energy...........................  NWGF........................     1.33     1.81     2.06     2.60     2.24     3.00     3.09     3.98     5.17
                                           MHGF........................     0.02     0.07     0.08     0.11     0.09     0.10     0.12     0.13     0.15
                                                                        --------------------------------------------------------------------------------
                                              Total....................     1.35     1.88     2.14     2.72     2.34     3.10     3.21     4.11     5.32
FFC Energy...............................  NWGF........................     1.49     2.04     2.33     2.97     2.54     3.51     3.50     4.62     6.10
                                           MHGF........................     0.03     0.08     0.09     0.13     0.10     0.12     0.14     0.15     0.17
                                                                        --------------------------------------------------------------------------------
                                              Total....................     1.52     2.11     2.42     3.10     2.65     3.63     3.63     4.77     6.26
--------------------------------------------------------------------------------------------------------------------------------------------------------

    For the adopted standards (TSL 8), the FFC energy savings of 4.77 
quads are the FFC natural gas savings minus the increase in FFC energy 
use associated with higher electricity use due primarily

[[Page 87633]]

to some consumers switching to electric heating.
    The results reflect the use of the reference product switching 
scenario and repair vs. replace trend for NWGFs and MHGFs (as described 
in sections IV.F.10 and IV.F.11 of this document). DOE also conducted a 
sensitivity analysis that considered scenarios with lower and higher 
rates of product switching, as compared to the default case. The 
results of these alternative cases are presented in appendix 10E of the 
final rule TSD.
    OMB Circular A-4 \281\ requires agencies to present analytical 
results, including separate schedules of the monetized benefits and 
costs that show the type and timing of benefits and costs. Circular A-4 
also directs agencies to consider the variability of key elements 
underlying the estimates of benefits and costs. For this rulemaking, 
DOE undertook a sensitivity analysis using 9 years, rather than 30 
years, of product shipments. The choice of a 9-year period is a proxy 
for the timeline in EPCA for the review of certain energy conservation 
standards and potential revision of and compliance with such revised 
standards.\282\ The review timeframe established in EPCA is generally 
not synchronized with the product lifetime, product manufacturing 
cycles, or other factors specific to NWGFs and MHGFs. Thus, such 
results are presented for informational purposes only and are not 
indicative of any change in DOE's analytical methodology. The NES 
sensitivity analysis results based on a 9-year analytical period are 
presented in for standards. The impacts are counted over the lifetime 
of NWGFs and MHGFs purchased in 2029-2037.
---------------------------------------------------------------------------

    \281\ U.S. Office of Management and Budget, Circular A-4: 
Regulatory Analysis (Sept. 17, 2003) (available at: 
obamawhitehouse.archives.gov/omb/circulars_a004_a-4/) (last accessed 
August 1, 2023).
    \282\ Section 325(m) of EPCA requires DOE to review its 
standards at least once every 6 years, and requires, for certain 
products, a 3-year period after any new standard is promulgated 
before compliance is required, except that in no case may any new 
standards be required within 6 years of the compliance date of the 
previous standards. While adding a 6-year review to the 3-year 
compliance period adds up to 9 years, DOE notes that it may 
undertake reviews at any time within the 6 year period and that the 
3-year compliance date may yield to the 6-year backstop. A 9-year 
analysis period may not be appropriate given the variability that 
occurs in the timing of standards reviews and the fact that for some 
products, the compliance period is 5 years rather than 3 years.

     Table V.17--Cumulative National Energy Savings for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces; 9 Years of Shipments (2029-2037)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                       Trial standard level
              Energy savings                       Product class        --------------------------------------------------------------------------------
                                                                            1        2        3        4        5        6        7        8        9
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                             (quads)
                                                                        --------------------------------------------------------------------------------
Primary Energy...........................  NWGF........................     0.35     0.50     0.57     0.69     0.62     0.85     0.87     1.14     1.56
                                           MHGF........................     0.01     0.02     0.03     0.04     0.03     0.04     0.04     0.05     0.05
                                                                        --------------------------------------------------------------------------------
                                              Total....................     0.36     0.52     0.60     0.73     0.65     0.89     0.91     1.19     1.62
FFC Energy...............................  NWGF........................     0.40     0.56     0.64     0.79     0.70     1.00     0.98     1.33     1.85
                                           MHGF........................     0.01     0.03     0.03     0.05     0.04     0.04     0.05     0.05     0.06
                                                                        --------------------------------------------------------------------------------
                                              Total....................     0.41     0.58     0.68     0.84     0.74     1.04     1.03     1.38     1.91
--------------------------------------------------------------------------------------------------------------------------------------------------------

b. Net Present Value of Consumer Costs and Benefits
    DOE estimated the cumulative NPV of the total costs and savings for 
consumers that would result from the TSLs considered for NWGFs and 
MHGFs. In accordance with OMB's guidelines on regulatory analysis,\283\ 
DOE calculated NPV using both a 7-percent and a 3-percent real discount 
rate. Table V.18 shows the consumer NPV results for standards with 
impacts counted over the lifetime of products purchased in 2029-2058.
---------------------------------------------------------------------------

    \283\ U.S. Office of Management and Budget, Circular A-4: 
Regulatory Analysis (Sept. 17, 2003) (available at: 
obamawhitehouse.archives.gov/omb/circulars_a004_a-4/) (last accessed 
August 1, 2023).

Table V.18--Cumulative Net Present Value of Consumer Benefits for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces; 30 Years of Shipments (2029-
                                                                          2058)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                       Trial standard level
              Energy savings                       Product class        --------------------------------------------------------------------------------
                                                                            1        2        3        4        5        6        7        8        9
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                         (billion 2022$)
                                                                        --------------------------------------------------------------------------------
7 percent................................  NWGF........................     1.25     1.85     2.14     2.76     2.43     2.90     3.70     4.41     3.60
                                           MHGF........................     0.06     0.19     0.24     0.35     0.27     0.29     0.36     0.40     0.44
                                                                        --------------------------------------------------------------------------------
                                              Total....................     1.31     2.04     2.38     3.11     2.70     3.20     4.06     4.81     4.04
3 percent................................  NWGF........................     4.31     6.21     7.20     9.05     8.18    11.06    11.76    15.28    16.03
                                           MHGF........................     0.17     0.50     0.63     0.92     0.71     0.78     0.94     1.06     1.17
                                                                        --------------------------------------------------------------------------------
                                              Total....................     4.48     6.71     7.83     9.97     8.88    11.84    12.70    16.34    17.21
--------------------------------------------------------------------------------------------------------------------------------------------------------

    These results reflect the use of the default product switching 
trend for NWGFs (as described in section IV.F.10 of this document). As 
previously discussed, DOE conducted a sensitivity analysis assuming 
higher and lower levels of product switching for NWGFs. The results of 
these alternative cases are

[[Page 87634]]

presented in appendix 10 E of the final rule TSD.
    The NPV results for standards based on the aforementioned 9-year 
analytical period are presented in Table V.19. The impacts are counted 
over the lifetime of products purchased in 2029-2037. As mentioned 
previously, such results are presented for informational purposes only 
and are not indicative of any change in DOE's analytical methodology or 
decision criteria.

     Table V.19--Cumulative Net Present Value of Consumer Benefits for Non-Weatherized Gas Furnace and Mobile Home Gas Furnace Standards; 9 Years of
                                                                  Shipments (2029-2037)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                       Trial standard level
              Energy savings                       Product class        --------------------------------------------------------------------------------
                                                                            1        2        3        4        5        6        7        8        9
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                         (billion 2022$)
                                                                        --------------------------------------------------------------------------------
7 percent................................  NWGF........................     0.57     0.90     1.06     1.48     1.19     1.43     1.99     2.41     2.01
                                           MHGF........................     0.04     0.11     0.15     0.21     0.16     0.18     0.22     0.24     0.27
                                                                        --------------------------------------------------------------------------------
                                              Total....................     0.61     1.01     1.21     1.69     1.36     1.62     2.20     2.65     2.28
3 percent................................  NWGF........................     1.46     2.21     2.62     3.49     2.94     3.93     4.60     5.97     6.37
                                           MHGF........................     0.08     0.24     0.30     0.44     0.34     0.38     0.45     0.50     0.56
                                                                        --------------------------------------------------------------------------------
                                              Total....................     1.53     2.45     2.92     3.92     3.28     4.31     5.05     6.47     6.92
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The previous results reflect the use of a default trend to estimate 
the change in price for NWGFs and MHGFs over the analysis period (see 
section IV.F.1 of this document). DOE also conducted a sensitivity 
analysis that considered one scenario with a lower rate of price 
decline than the reference case and one scenario with a higher rate of 
price decline than the reference case. The results of these alternative 
cases are presented in appendix 10C of the final rule TSD. In the high-
price-decline case, the NPV of consumer benefits is higher than in the 
default case. In the low-price-decline case, the NPV of consumer 
benefits is lower than in the default case.
c. Indirect Impacts on Employment
    It is estimated that amended energy conservation standards for 
NWGFs and MHGFs will reduce energy expenditures for consumers of those 
products, with the resulting net savings being redirected to other 
forms of economic activity. These expected shifts in spending and 
economic activity could affect the demand for labor. As described in 
section IV.N of this document, DOE used an input/output model of the 
U.S. economy to estimate indirect employment impacts of the TSLs that 
DOE considered. There are uncertainties involved in projecting 
employment impacts, especially changes in the later years of the 
analysis. Therefore, DOE generated results for near-term timeframes 
(2029-2034), where these uncertainties are reduced.
    The results suggest that the adopted standards are likely to have a 
negligible impact on the net demand for labor in the economy. The net 
change in jobs is so small that it would be imperceptible in national 
labor statistics and might be offset by other, unanticipated effects on 
employment. Chapter 16 of the final rule TSD presents detailed results 
regarding anticipated indirect employment impacts.
4. Impact on Utility or Performance of Products
    As discussed in section III.F.1.d of this document, DOE has 
concluded that the standards adopted in this final rule would not 
lessen the utility or performance of the NWGFs and MHGFs under 
consideration in this rulemaking. Manufacturers of these products 
currently offer units that meet or exceed the adopted standards.
5. Impact of Any Lessening of Competition
    DOE considered any lessening of competition that would be likely to 
result from new or amended standards. As discussed in section III.F.1.e 
of this document, EPCA directs the Attorney General of the United 
States (Attorney General) to determine the impact, if any, of any 
lessening of competition likely to result from a proposed standard and 
to transmit such determination in writing to the Secretary within 60 
days of the publication of a proposed rule, together with an analysis 
of the nature and extent of the impact. DOE has provided DOJ with 
copies of the proposed rule and the accompanying TSD for review. DOE 
considered DOJ's comments on the proposed rule in determining whether 
to proceed to a final rule. DOE is publishing and responds to DOJ's 
comments in this final rule.
6. Need of the Nation To Conserve Energy
    Enhanced energy efficiency, where economically justified, improves 
the Nation's energy security, strengthens the economy, and reduces the 
environmental impacts (costs) of energy production. Chapter 15 in the 
final rule TSD presents the estimated impacts on electricity generating 
capacity, relative to the no-new-standards case, for the TSLs that DOE 
considered in this rulemaking.
    Energy conservation resulting from potential energy conservation 
standards for NWGFs and MHGFs is expected to yield environmental 
benefits in the form of reduced emissions of certain air pollutants and 
greenhouse gases. Table V.20 provides DOE's estimate of cumulative 
emissions reductions expected to result from the TSLs considered in 
this rulemaking. The increase in emissions of SO2 and Hg is 
due to a fraction of NWGF consumers that are projected to switch from 
gas furnaces to electric heat pumps and electric furnaces in response 
to the potential standards. The emissions were calculated using the 
multipliers discussed in section IV.K of this document. DOE reports 
annual emissions reductions for each TSL in chapter 13 of the final 
rule TSD.

[[Page 87635]]



Table V.20--Cumulative Emissions Reduction for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces Shipped
                                                  in 2029-2058
----------------------------------------------------------------------------------------------------------------
                                                               Trial standard level
                                --------------------------------------------------------------------------------
                                    1        2        3        4        5        6        7        8        9
----------------------------------------------------------------------------------------------------------------
                                         Power Sector and Site Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)......       75      106      125      173      139      234      189      290      413
CH4 (thousand tons)............      1.5      2.0      2.3      2.9      2.5      3.1      3.4      4.2      5.2
N2O (thousand tons)............      0.1      0.2      0.2      0.2      0.2      0.2      0.3      0.3      0.3
NOX (thousand tons)............       67       95      112      157      124      218      169      268      385
SO2 (thousand tons)............      (0)      (1)      (1)      (4)      (2)     (10)      (2)     (10)     (19)
Hg (tons)......................   (0.00)   (0.01)   (0.01)   (0.03)   (0.02)   (0.08)   (0.02)   (0.08)   (0.15)
----------------------------------------------------------------------------------------------------------------
                                               Upstream Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)......       11       15       18       25       20       34       27       42       59
CH4 (thousand tons)............    1,080    1,528    1,801    2,519    2,005    3,473    2,725    4,282    6,139
N2O (thousand tons)............      0.0      0.0      0.0      0.0      0.0      0.1      0.0      0.1      0.1
NOX (thousand tons)............      167      237      279      389      310      534      422      660      944
SO2 (thousand tons)............     0.04     0.05     0.05     0.04     0.05   (0.01)     0.08     0.02   (0.04)
Hg (tons)......................   (0.00)   (0.00)   (0.00)   (0.00)   (0.00)   (0.00)   (0.00)   (0.00)   (0.00)
----------------------------------------------------------------------------------------------------------------
                                               Total FFC Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)......       86      121      142      197      158      268      215      332      472
CH4 (thousand tons)............    1,082    1,531    1,803    2,522    2,007    3,476    2,728    4,286    6,144
N2O (thousand tons)............      0.2      0.2      0.2      0.3      0.3      0.3      0.4      0.4      0.4
NOX (thousand tons)............      234      331      390      546      435      752      591      928     1329
SO2 (thousand tons)............      (0)      (1)      (1)      (4)      (2)     (10)      (2)     (10)     (19)
Hg (tons)......................   (0.00)   (0.01)   (0.01)   (0.03)   (0.02)   (0.08)   (0.02)   (0.08)   (0.15)
----------------------------------------------------------------------------------------------------------------
Note: Negative values (shown in parentheses) refer to an increase in emissions.

    As part of the analysis for this rulemaking, DOE estimated monetary 
benefits likely to result from the reduced emissions of CO2 
that DOE estimated for each of the considered TSLs for NWGFs and MHGFs. 
Section IV.L.1.a of this document discusses the SC-CO2 
values used.
    Table V.21 presents the present value of the CO2 
emissions reduction at each TSL.

    Table V.21--Present Value of CO2 Emissions Reduction for Non-Weatherized Gas Furnaces and Mobile Home Gas
                                          Furnaces Shipped in 2029-2058
----------------------------------------------------------------------------------------------------------------
                                                                      SC-CO2 case
                                     ---------------------------------------------------------------------------
                 TSL                                         Discount rate and statistics
                                     ---------------------------------------------------------------------------
                                         5%, Average       3%, Average      2.5%, Average    3%, 95th-percentile
----------------------------------------------------------------------------------------------------------------
                                                                    (million 2022$)
                                     ---------------------------------------------------------------------------
1...................................               676             3,059             4,860                 9,253
2...................................               965             4,357             6,917                13,181
3...................................             1,137             5,130             8,142                15,522
4...................................             1,543             6,989            11,104                21,139
5...................................             1,266             5,709             9,060                17,274
6...................................             2,165             9,735            15,433                29,464
7...................................             1,721             7,767            12,327                23,500
8...................................             2,684            12,076            19,149                36,550
9...................................             3,857            17,311            27,429                52,406
----------------------------------------------------------------------------------------------------------------

    As discussed in section IV.L.1.b of this document, DOE estimated 
monetary benefits likely to result from the reduced emissions of 
methane (CH4) and N2O that DOE estimated for each 
of the considered TSLs for furnaces. Table V.22 presents the value of 
the CH4 emissions reduction at each TSL, and Table V.23 
presents the value of the N2O emissions reduction at each 
TSL.

[[Page 87636]]



  Table V.22--Present Value of Methane Emissions Reduction for Non-Weatherized Gas Furnaces and Mobile Home Gas
                                          Furnaces Shipped in 2029-2058
----------------------------------------------------------------------------------------------------------------
                                                                      SC-CH4 case
                                     ---------------------------------------------------------------------------
                 TSL                                         Discount rate and statistics
                                     ---------------------------------------------------------------------------
                                         5%, Average       3%, Average      2.5%, Average    3%, 95th-percentile
----------------------------------------------------------------------------------------------------------------
                                                                    (million 2022$)
                                     ---------------------------------------------------------------------------
1...................................               403             1,284             1,817                 3,395
2...................................               576             1,829             2,588                 4,838
3...................................               681             2,160             3,054                 5,712
4...................................               935             2,976             4,213                 7,872
5...................................               760             2,408             3,405                 6,370
6...................................             1,333             4,199             5,930                11,108
7...................................             1,032             3,271             4,626                 8,652
8...................................             1,641             5,177             7,314                13,695
9...................................             2,378             7,473            10,549                19,771
----------------------------------------------------------------------------------------------------------------


 Table V.23--Present Value of Nitrous Oxide Emissions Reduction for Non-Weatherized Gas Furnaces and Mobile Home
                                        Gas Furnaces Shipped in 2029-2058
----------------------------------------------------------------------------------------------------------------
                                                                      SC-N2O case
                                     ---------------------------------------------------------------------------
                 TSL                                         Discount rate and statistics
                                     ---------------------------------------------------------------------------
                                         5%, Average       3%, Average      2.5%, Average    3%, 95th-percentile
----------------------------------------------------------------------------------------------------------------
                                                                    (million 2022$)
                                     ---------------------------------------------------------------------------
1...................................               0.5               2.0               3.2                   5.4
2...................................               0.7               2.8               4.4                   7.5
3...................................               0.7               3.1               4.9                   8.4
4...................................               0.8               3.6               5.7                   9.7
5...................................               0.8               3.4               5.3                   9.0
6...................................               0.8               3.3               5.2                   8.8
7...................................               1.1               4.7               7.4                  12.6
8...................................               1.1               4.9               7.7                  13.1
9...................................               1.3               5.5               8.7                  14.7
----------------------------------------------------------------------------------------------------------------

    DOE is well aware that scientific and economic knowledge about the 
contribution of CO2 and other GHG emissions to changes in 
the future global climate and the potential resulting damages to the 
world economy continues to evolve rapidly. Thus, any value placed on 
reduced GHG emissions in this rulemaking is subject to change. That 
said, because of omitted damages, DOE agrees with the IWG that these 
estimates most likely underestimate the climate benefits of greenhouse 
gas reductions. DOE, together with other Federal agencies, will 
continue to review various methodologies for estimating the monetary 
value of reductions in CO2 and other GHG emissions. This 
ongoing review will consider the comments on this subject that are part 
of the public record for this and other rulemakings, as well as other 
methodological assumptions and issues. DOE notes that the adopted 
standards are economically justified even without inclusion of 
monetized benefits of reduced GHG emissions.
    DOE also estimated the monetary value of the economic benefits 
associated with NOX emissions reductions anticipated to 
result from the considered TSLs for NWGFs and MHGFs. The dollar-per-ton 
values that DOE used are discussed in section IV.L of this document. 
Table V.24 shows the present value for NOX emissions 
reduction for each TSL calculated using 7-percent and 3-percent 
discount rates. This table presents results that use the low benefit-
per-ton values, which reflect DOE's primary estimate.

Table V.24--Present Value of NOX Emissions Reduction for Non-Weatherized
     Gas Furnaces and Mobile Home Gas Furnaces Shipped in 2029-2058
------------------------------------------------------------------------
               TSL                 7% Discount rate    3% Discount rate
------------------------------------------------------------------------
                                              (million 2022$)
                                 ---------------------------------------
1...............................               2,195               6,868
2...............................               3,157               9,777
3...............................               3,735              11,520
4...............................               5,031              15,773
5...............................               4,164              12,822
6...............................               7,251              21,994
7...............................               5,651              17,432
8...............................               8,950              27,227

[[Page 87637]]

 
9...............................              12,980              39,089
------------------------------------------------------------------------
Note: Results are based on the low benefit-per-ton values.

    DOE also estimated the monetary value of the economic impacts 
associated with changes in SO2 emissions anticipated to 
result from the considered TSLs for NWGFs and MHGFs. The dollar-per-ton 
values that DOE used are discussed in section IV.L.2 of this document. 
Table V.25 presents the present value of SO2 emission 
changes for each TSL calculated using 7-percent and 3-percent discount 
rates. This table presents results that use the low benefit-per-ton 
values, which reflect DOE's primary estimate.

  Table V.25--Present Value of SO2 Emission Changes for Non-Weatherized
     Gas Furnaces and Mobile Home Gas Furnaces Shipped in 2029-2058
------------------------------------------------------------------------
               TSL                 7% Discount rate    3% Discount rate
------------------------------------------------------------------------
                                              (million 2022$)
                                 ---------------------------------------
1...............................                 (7)                (20)
2...............................                (15)                (44)
3...............................                (28)                (81)
4...............................                (76)               (226)
5...............................                (39)               (112)
6...............................               (214)               (608)
7...............................                (43)               (131)
8...............................               (214)               (616)
9...............................               (401)             (1,142)
------------------------------------------------------------------------
Note: Parentheses indicate negative (-) values.

    The benefits of reduced CO2, CH4, and 
N2O emissions are collectively referred to as ``climate 
benefits.'' The effects of SO2 and NOX emission 
changes are collectively referred to as ``health benefits.'' For the 
time series of estimated monetary values of reduced emissions, see 
chapter 14 of the final rule TSD.
7. Other Factors
    The Secretary of Energy, in determining whether a standard is 
economically justified, may consider any other factors that the 
Secretary deems to be relevant. (42 U.S.C. 6295(o)(2)(B)(i)(VII)) No 
other factors were considered in this analysis.
8. Summary of National Economic Impacts
    Table V.26 presents the NPV values that result from adding the 
monetized estimates of the potential economic, climate, and health net 
benefits resulting from GHG, NOX, and SO2 
emission changes to the NPV of consumer savings calculated for each TSL 
considered in this rulemaking. The consumer benefits are domestic U.S. 
monetary savings that occur as a result of purchasing the covered NWGFs 
and MHGFs, and are measured for the lifetime of products shipped in 
2029-2058. The climate benefits associated with reduced GHG emissions 
resulting from the adopted standards are global benefits and are also 
calculated based on the lifetime of consumer furnaces shipped in 2029-
2058. The climate benefits associated with four SC-GHG estimates are 
shown. DOE does not have a single central SC-GHG point estimate, and it 
emphasizes the importance and value of considering the benefits 
calculated using all four SC-GHG estimates.

     Table V.26--NPV of Consumer Benefits Combined With Monetized Climate and Health Benefits From Emissions
                                                   Reductions
----------------------------------------------------------------------------------------------------------------
            Category              TSL 1    TSL 2    TSL 3    TSL 4    TSL 5    TSL 6    TSL 7    TSL 8    TSL 9
----------------------------------------------------------------------------------------------------------------
                    3% discount rate for NPV of Consumer and Health Benefits (billion 2022$)
----------------------------------------------------------------------------------------------------------------
5% d.r., Average SC-GHG case...     12.4     18.0     21.1     28.0     23.6     36.7     32.8     47.3     61.4
3% d.r., Average SC-GHG case...     15.7     22.6     26.6     35.5     29.7     47.2     41.0     60.2     79.9
2.5% d.r., Average SC-GHG case.     18.0     26.0     30.5     40.8     34.1     54.6     47.0     69.4     93.1
3% d.r., 95th-percentile SC-GHG     24.0     34.5     40.5     54.5     45.2     73.8     62.2     93.2    127.3
 case..........................
----------------------------------------------------------------------------------------------------------------
                    7% discount rate for NPV of Consumer and Health Benefits (billion 2022$)
----------------------------------------------------------------------------------------------------------------
5% d.r., Average SC-GHG case...      4.6      6.7      7.9     10.5      8.8     13.7     12.4     17.9     22.9
3% d.r., Average SC-GHG case...      7.8     11.4     13.4     18.0     14.9     24.2     20.7     30.8     41.4
2.5% d.r., Average SC-GHG case.     10.2     14.7     17.3     23.4     19.3     31.6     26.6     40.0     54.6
3% d.r., 95th-percentile SC-GHG     16.2     23.2     27.3     37.1     30.5     50.8     41.8     63.8     88.8
 case..........................
----------------------------------------------------------------------------------------------------------------
Note: ``d.r.'' means discount rate.


[[Page 87638]]

C. Conclusion

    When considering new or amended energy conservation standards, the 
standards that DOE adopts for any type (or class) of covered product 
must be designed to achieve the maximum improvement in energy 
efficiency that the Secretary determines is technologically feasible 
and economically justified. (42 U.S.C. 6295(o)(2)(A)) In determining 
whether a standard is economically justified, the Secretary must 
determine whether the benefits of the standard exceed its burdens by, 
to the greatest extent practicable, considering the seven statutory 
factors discussed previously. (42 U.S.C. 6295(o)(2)(B)(i)) The new or 
amended standard must also result in significant conservation of 
energy. (42 U.S.C. 6295(o)(3)(B))
    In this final rule, DOE considered the impacts of amended standards 
for NWGFs and MHGFs at each TSL, beginning with the maximum 
technologically feasible level, to determine whether that level was 
economically justified. Where the max-tech level was not justified, DOE 
then considered the next most efficient level and undertook the same 
evaluation until it reached the highest efficiency level that is both 
technologically feasible and economically justified and saves a 
significant amount of energy.
    To aid the reader as DOE discusses the benefits and/or burdens of 
each TSL, tables in this section present a summary of the results of 
DOE's quantitative analysis for each TSL. In addition to the 
quantitative results presented in the tables, DOE also considers other 
burdens and benefits that affect economic justification. These include 
the impacts on identifiable subgroups of consumers who may be 
disproportionately affected by a national standard and impacts on 
employment.
    DOE also notes that the economics literature provides a wide-
ranging discussion of how consumers trade off upfront costs and energy 
savings in the absence of government intervention. Much of this 
literature attempts to explain why consumers appear to undervalue 
energy efficiency improvements. There is evidence that consumers 
undervalue future energy savings as a result of: (1) a lack of 
information; (2) a lack of sufficient salience of the long-term or 
aggregate benefits; (3) a lack of sufficient savings to warrant 
delaying or altering purchases; (4) excessive focus on the short term, 
in the form of inconsistent weighting of future energy cost savings 
relative to available returns on other investments; (5) computational 
or other difficulties associated with the evaluation of relevant 
tradeoffs; and (6) a divergence in incentives (for example, between 
renters and owners, or builders and purchasers). Having less than 
perfect foresight and a high degree of uncertainty about the future, 
consumers may trade off these types of investments at a higher than 
expected rate between current consumption and uncertain future energy 
cost savings.
    In DOE's current regulatory analysis, potential changes in the 
benefits and costs of a regulation due to changes in consumer purchase 
decisions are included in two ways. First, if consumers forgo the 
purchase of a product in the standards case, this decreases sales for 
product manufacturers, and the impact on manufacturers attributed to 
lost revenue is included in the MIA. Second, DOE accounts for energy 
savings attributable only to products actually used by consumers in the 
standards case; if a standard decreases the number of products 
purchased by consumers or increases consumer use of energy, such as 
through a rebound rate, this decreases the potential energy savings 
from an energy conservation standard. DOE provides estimates of 
shipments and changes in the volume of product purchases in chapter 9 
of the final rule TSD. However, DOE's current analysis does not 
explicitly control for heterogeneity in consumer preferences, 
preferences across subcategories of products or specific features, or 
consumer price sensitivity variation according to household 
income.\284\
---------------------------------------------------------------------------

    \284\ P.C. Reiss and M.W. White (2005), Household Electricity 
Demand, Revisited. The Review of Economic Studies, 72 (3), 853-883 
(available at: academic.oup.com/restud/article/72/3/853/1557538) 
(last accessed August 1, 2023).
---------------------------------------------------------------------------

1. Benefits and Burdens of TSLs Considered for Non-Weatherized Gas 
Furnaces and Mobile Home Gas Furnaces
    Tables V.27 and V.28 summarize the quantitative impacts estimated 
for each TSL for NWGFs and MHGFs. The national impacts are measured 
over the lifetime of NWGFs and MHGFs purchased in the 30-year period 
that begins in the anticipated year of compliance with amended 
standards (2029-2058). The energy savings and emissions reductions 
refer to full-fuel-cycle results. The efficiency levels contained in 
each TSL are described further in section V.A of this document.

   Table V.27--Summary of Analytical Results for Non-Weatherized Gas Furnace and Mobile Home Gas Furnace TSLs:
                                                National Impacts
----------------------------------------------------------------------------------------------------------------
            Category              TSL 1    TSL 2    TSL 3    TSL 4    TSL 5    TSL 6    TSL 7    TSL 8    TSL 9
----------------------------------------------------------------------------------------------------------------
                                 Cumulative FFC National Energy Savings (quads)
----------------------------------------------------------------------------------------------------------------
Quads..........................     1.52     2.11     2.42     3.10     2.65     3.63     3.63     4.77     6.26
----------------------------------------------------------------------------------------------------------------
                             Cumulative FFC Emissions Reduction (total FFC emission)
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)......       86      121      142      197      158      268      215      332      472
CH4 (thousand tons)............    1,082    1,531    1,803    2,522    2,007    3,476    2,728    4,286    6,144
N2O (thousand tons)............     0.16     0.22     0.24     0.28     0.26     0.26     0.36     0.38     0.43
NOX (thousand tons)............      234      331      390      546      435      752      591      928    1,329
SO2 (thousand tons)............      (0)      (1)      (1)      (4)      (2)     (10)      (2)     (10)     (19)
Hg (tons)......................   (0.00)   (0.01)   (0.01)   (0.03)   (0.02)   (0.08)   (0.02)   (0.08)   (0.15)
----------------------------------------------------------------------------------------------------------------
                      Present Value of Benefits and Costs (3% discount rate, billion 2022$)
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings      6.3      9.3     10.9     13.9     12.4     18.8     17.3     24.8     32.8
Climate Benefits *.............      4.3      6.2      7.3     10.0      8.1     13.9     11.0     17.3     24.8
Health Benefits **.............      6.8      9.7     11.4     15.5     12.7     21.4     17.3     26.6     37.9
Total Benefits [dagger]........     17.4     25.2     29.7     39.4     33.2     54.1     45.6     68.7     95.5
Consumer Incremental Product         1.8      2.5      3.1      3.9      3.5      7.0      4.6      8.5     15.6
 Costs [Dagger]................
Consumer Net Benefits..........      4.5      6.7      7.8     10.0      8.9     11.8     12.7     16.3     17.2
Total Net Benefits.............     15.7     22.6     26.6     35.5     29.7     47.2     41.0     60.2     79.9
----------------------------------------------------------------------------------------------------------------

[[Page 87639]]

 
                     Present Value of Benefits and Costs (7% discount rate, billions 2022$)
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings      2.3      3.4      4.1      5.1      4.6      7.0      6.4      9.3     12.5
Climate Benefits *.............      4.3      6.2      7.3     10.0      8.1     13.9     11.0     17.3     24.8
Health Benefits **.............      2.2      3.1      3.7      5.0      4.1      7.0      5.6      8.7     12.6
Total Benefits [dagger]........      8.8     12.7     15.1     20.1     16.8     28.0     23.1     35.3     49.8
Consumer Incremental Product         1.0      1.4      1.7      2.0      1.9      3.8      2.4      4.5      8.4
 Costs [Dagger]................
Consumer Net Benefits..........      1.3      2.0      2.4      3.1      2.7      3.2      4.1      4.8      4.0
Total Net Benefits.............      7.8     11.4     13.4     18.0     14.9     24.2     20.7     30.8     41.4
----------------------------------------------------------------------------------------------------------------
Note: This table presents the costs and benefits associated with consumer furnaces shipped in 2029-2058. These
  results include benefits to consumers which accrue after 2058 from the products shipped in 2029-2058.
  Parentheses indicate negative (-) values.
* Climate benefits are calculated using four different estimates of the social cost of carbon (SC-CO2), methane
  (SC-CH4), and nitrous oxide (SC-N2O) (model average at 2.5-percent, 3-percent, and 5-percent discount rates;
  95th-percentile at 3-percent discount rate). Together these represent the global social cost of greenhouse
  gases (SC-GHG). For presentational purposes of this table, the climate benefits associated with the average SC-
  GHG at a 3-percent discount rate are shown, but the Department does not have a single, central SC-GHG point
  estimate. DOE emphasizes the importance and value of considering the benefits calculated using all four sets
  of SC-GHG estimates. To monetize the benefits of reducing GHG emissions, this analysis uses the interim
  estimates presented in the Technical Support Document: Social Cost of Carbon, Methane, and Nitrous Oxide
  Interim Estimates Under Executive Order 13990 published in February 2021 by the IWG.
** Net health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only
  monetizing (for SO2 and NOX) PM2.5 precursor health benefits and (for NOX) ozone precursor health benefits,
  but will continue to assess the ability to monetize other effects such as health benefits from reductions in
  direct PM2.5 emissions. See section IV.L of this document for more details.
[dagger] Total and net benefits include those consumer, climate, and health benefits that can be monetized. For
  presentation purposes, total and net benefits for both the 3-percent and 7-percent cases are presented using
  the average SC-GHG with 3-percent discount rate.
[Dagger] Costs include incremental equipment costs as well as installation costs.


                          Table V.28--Summary of Analytical Results for Non-Weatherized Gas Furnace and Mobile Home Gas Furnace TSLs: Manufacturer and Consumer Impacts
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
            Category                   TSL 1             TSL 2             TSL 3             TSL 4             TSL 5              TSL 6             TSL 7            TSL 8            TSL 9
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                      Manufacturer Impacts
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Industry NPV (million 2022$)     1,264.0 to        1,226.7 to        1,207.5 to        1,089.0 to        1,199.9 to        1,201.3 to 1,337.9  1,015.1 to       1,004.6 to       703.1 to
 (No-new-standards case INPV =    1,351.3.          1,345.3.          1,337.0.          1,342.5.          1,341.4.                              1,339.1.         1,338.0.         1,352.7
 1,371.8).
Industry NPV (% change)........  (7.9) to (1.5)..  (10.6) to (1.9).  (12.0) to (2.5).  (20.6) to (2.1).  (12.5) to (2.2).  (12.4) to (2.5)...  (26.0) to (2.4)  (26.8) to (2.5)  (48.7) to (1.4)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              Consumer Average LCC Savings (2022$)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
NWGF...........................  577.............  571.............  580.............  390.............  551.............  320...............  479............  350............  169
MHGF...........................  846.............  805.............  736.............  908.............  675.............  532...............  760............  616............  529
Shipment-Weighted Average \*\..  583.............  580.............  587.............  406.............  557.............  327...............  487............  357............  176
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                   Consumer Simple PBP (years)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
NWGF...........................  6.4.............  6.6.............  6.7.............  7.0.............  7.0.............  9.4...............  5.8............  7.6............  10.1
MHGF...........................  2.2.............  2.5.............  2.5.............  2.4.............  2.6.............  3.6...............  2.4............  3.2............  4.8
Shipment-Weighted Average \*\..  6.4.............  6.5.............  6.6.............  6.9.............  7.0.............  9.2...............  5.7............  7.5............  10.0
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                       Percentage of Consumers That Experience a Net Cost
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
NWGF...........................  3.2.............  4.7.............  5.8.............  5.6.............  6.8.............  19.2..............  6.8............  18.7...........  62.3
MHGF...........................  0.6.............  2.5.............  3.7.............  3.9.............  5.0.............  16.2..............  5.0............  15.3...........  18.6
Shipment-Weighted Average \*\..  3.1.............  4.6.............  5.8.............  5.6.............  6.8.............  19.2..............  6.8............  18.7...........  61.4
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Parentheses indicate negative (-) values.
* Weighted by shares of each product class in total projected shipments in 2029.

    DOE first considered the standards at TSL 9, which represents the 
max-tech efficiency levels and which includes the highest efficiency 
commercially available for both non-weatherized gas furnaces and mobile 
furnaces (i.e., 98-percent AFUE for NWGFs and 96-percent AFUE for 
MHGFs). TSL 9 would save 6.26 quads of energy, an amount DOE considers 
significant. Under TSL 9, the NPV of consumer benefit would be $4.0 
billion using a discount rate of 7 percent, and $17.2 billion using a 
discount rate of 3 percent.
    The cumulative emissions reductions at TSL 9 are 472 Mt of 
CO2, 6.1 million tons of CH4, 0.4 thousand tons 
of N2O, and 1.3 million tons of NOX. Projected 
emissions show an increase of 19 thousand tons of SO2 and 
0.15 tons of Hg. The increase is due to projected switching from gas 
furnaces to electric heat pumps and electric furnaces by some consumers 
under standards at TSL 9. The estimated monetary value of the climate 
benefits from reduced GHG emissions (associated with the average SC-GHG 
at a 3-percent discount rate) at TSL 9 is $24.8 billion. The estimated 
monetary value of the net health benefits from changes to 
NOX and SO2 emissions at TSL 9 is $12.6 billion 
using a 7-percent discount rate and $37.9 billion using a 3-percent 
discount rate.
    Using a 7-percent discount rate for consumer benefits and costs, 
net health benefits from SO2 and NOX emission 
changes, and the 3-percent discount rate case for climate benefits from 
reduced GHG emissions, the estimated total NPV at TSL 9 is $41.4 
billion. Using a 3-percent discount rate for all benefits and

[[Page 87640]]

costs, the estimated total NPV at TSL 9 is $79.9 billion.
    At TSL 9, the average LCC impact on affected consumers is a savings 
of $169 for NWGFs and $529 for MHGFs. The simple payback period is 10.1 
years for NWGFs and 4.8 years for MHGFs. The fraction of consumers 
experiencing a net LCC cost is 62.3 percent for NWGFs and 18.3 percent 
for MHGFs. The fraction of low-income consumers experiencing a net LCC 
cost is 39.7 percent for NWGFs and 18.0 percent for MHGFs.
    At TSL 9, the projected changes in INPV range from a decrease of 
$668.7 million to a decrease of $19.1 million. If the more severe end 
of this range is realized, TSL 9 could result in a net loss of 48.7 
percent in INPV. Industry conversion costs could reach $328.0 million 
at this TSL.
    At TSL 9, manufacturers would need to significantly restructure 
their product offerings. Currently, less than half of consumer furnace 
manufacturers offer a product that meets the max-tech efficiencies. The 
models available at these efficiencies are not produced in high 
volumes. DOE estimates that approximately 1.4 percent of NWGF shipments 
and 0.9 percent of MHGF shipments are currently sold (2023) at the max-
tech levels, 98-percent AFUE and 96-percent AFUE, respectively. The 
NWGF industry would incur significant product conversion costs to 
develop cost-optimized NWGF models for a marketplace where efficiency 
and combustion system technology are no longer viable options for 
product differentiation. Similarly, the MHGF industry would incur 
significant product conversion costs to develop cost-optimized models 
for a marketplace where efficiency is no longer a means for product 
differentiation. As noted in section IV.J.2.d of this document, 
manufacturers currently maintain multiple tiers of product lines, which 
have varying levels of profitability. DOE models the industry operating 
with three manufacturer markup tiers (``good, better, best'') that are 
primarily differentiated on AFUE and combustion system technology 
(e.g., single-stage, two-stage, and modulating combustion systems). 
Generally, higher-efficiency models and those with more advanced 
combustion system technology command a higher manufacturer markup than 
lower efficiency models. At max-tech, NWGF and MHGF manufacturers would 
lose the ability to charge a premium markup based on AFUE, which would 
lead to an overall reduction in profitability. At the NWGF max-tech 
level, manufacturers would also lose the ability to differentiate 
products based on combustion system technology, as all models would 
need to integrate modulating combustion. Without these differentiators, 
manufacturers would have a more difficult time maintaining premium 
product lines that command higher manufacturer markups. The reduction 
in product differentiation leads to a reduction in profitability, which 
is a key driver of loss in INPV. Even as profitability of products is 
expected to decline, NWGF and MHGF manufacturers would need to invest 
in significant capital conversion costs to update manufacturing lines 
to produce max-tech designs at high volume. The reduced profitability 
due to limited product differentiation, large upfront investments to 
remain in the market, and negative impacts on INPV could alter the 
consumer furnaces competitive landscape. Manufacturers that have lower 
cash reserves, more difficulty raising capital, a greater portion of 
products that require redesign, or fewer technical resources would 
experience more business risk than their competitors in the industry.
    Based upon the above considerations, the Secretary concludes that 
at TSL 9 for NWGFs and MHGFs, the benefits of energy savings, positive 
NPV of consumer benefits, emission reductions, and the estimated 
monetary value of the net health benefits of emissions reductions would 
be outweighed by the economic burden on many consumers, especially low-
income consumers, as well as the impacts on manufacturers, including 
the large potential reduction in INPV. In reaching this decision, DOE 
notes that a large fraction of both NWGF and MHGF consumers (62.3 
percent and 18.6 percent, respectively), including low-income 
consumers, experience a net cost at TSL 9. This is due to the high 
incremental cost of NWGFs and MHGFs at the max-tech efficiency levels. 
This is particularly pronounced for NWGFs, where the incremental 
production cost above baseline is more than twice as large as the next 
highest efficiency level (see section IV.C.2 of this document). 
Consumers with existing furnaces above 90-percent AFUE but below 98-
percent AFUE are more likely to experience a net cost at TSL 9, given 
the relatively modest decrease in operating costs compared to the high 
incremental installed costs. DOE also notes the consumer impacts are 
similar across the range of sensitivity analyses performed, 
particularly with respect to the fraction of consumers who may switch 
to alternative space-heating products. A large fraction of NWGF and 
MHGF consumers in the sensitivity analyses experience a net cost at TSL 
9 as well. Therefore, DOE's conclusions would not change if based on 
any of the sensitivity scenarios. At max-tech, most manufacturers would 
need to make significant upfront investments to update product lines 
and manufacturing facilities. Additionally, the companies must make 
those investments to remain in a less-profitable market where there is 
less product differentiation to maintain premium pricing tiers and 
where consumers are more likely to repair their existing furnaces or 
switch to alternative heating technologies. As result, there is risk 
that some manufacturers would choose to leave the market and risk that 
the standard would drive industry consolidation that would not 
otherwise have occurred. Consequently, the Secretary has concluded that 
TSL 9 is not economically justified.
    DOE then considered the standards at TSL 8, which consists of 
intermediate condensing efficiency levels at 95-percent AFUE for both 
NWGFs and MHGFs across the Nation. TSL 8 would save 4.77 quads of 
energy, an amount DOE considers significant. Under TSL 8, the NPV of 
consumer benefit would be $4.8 billion using a discount rate of 7 
percent, and $16.3 billion using a discount rate of 3 percent.
    The cumulative emissions reductions at TSL 8 would be expected to 
be 332 Mt of CO2, 4.3 million tons of CH4, 0.4 
thousand tons of N2O, and 0.9 million tons of 
NOX. Projected emissions show an increase of 10 thousand 
tons of SO2 and 0.08 tons of Hg. The increase is due to 
projected switching from gas furnaces to electric heat pumps and 
electric furnaces by some consumers under standards at TSL 8. The 
estimated monetary value of the climate benefits from reduced GHG 
emissions (associated with the average SC-GHG at a 3-percent discount 
rate) at TSL 8 is $17.3 billion. The estimated monetary value of the 
net health benefits from changes to NOX and SO2 
emissions at TSL 8 is $8.7 billion using a 7-percent discount rate and 
$26.6 billion using a 3-percent discount rate.
    Using a 7-percent discount rate for consumer benefits and costs, 
net health benefits from SO2 and NOX emission 
changes, and the 3-percent discount rate case for climate benefits from 
reduced GHG emissions, the estimated total NPV at TSL 8 is $30.8 
billion. Using a 3-percent discount rate for all benefits and costs, 
the estimated total NPV at TSL 8 is $60.2 billion.
    At TSL 8, the average LCC impact on affected consumers is a savings 
of $350 for NWGFs and $616 for MHGFs. The simple payback period is 7.6 
years for NWGFs and 3.2 years for MHGFs. The

[[Page 87641]]

fraction of consumers experiencing a net LCC cost is 18.7 percent for 
NWGFs and 15.3 percent for MHGFs. The fraction of low-income consumers 
experiencing a net LCC cost is 15.9 percent for NWGFs and 15.3 percent 
for MHGFs.
    At TSL 8, the projected changes in INPV range from a decrease of 
$367.3 million to a decrease of $33.8 million. If the more severe end 
of this range is realized, TSL 8 could result in a net loss of 26.8 
percent in INPV. Industry conversion costs would reach $162.0 million 
as manufacturers expand secondary heat exchanger capacity and redesign 
products to meet the standard.
    At TSL 8, manufacturers would incur conversion costs to develop 
cost-optimized model offerings at the new minimum 95-percent AFUE and 
to expand secondary heat exchanger production capacity. However, the 
conversion costs at TSL 8 are substantially lower than those at TSL 9. 
Ninety percent of manufacturers currently have a range of compliant 
offerings at TSL 8. DOE estimates that approximately 41.6 percent of 
the annual NWGF shipments and approximately 19.5 percent of the annual 
MHGF shipments are already at this level. Furthermore, manufacturers 
would not be making the upfront investments with same level of 
profitability risk noted at TSL 9. With a national standard of 95-
percent AFUE, both NWGF and MHGF manufacturers would maintain the 
ability to differentiate products based on efficiency and combustion 
system technology. With these options available, industry can continue 
to operate with three markup tiers (``good, better, best'') that enable 
greater industry profitability. However, the range of manufacturer 
markups are compressed, as max-tech products would not be expected to 
command the same premium as they did in the no-new-standards case.
    After considering the analysis and weighing the benefits and 
burdens, the Secretary has concluded that a standard set at TSL 8 for 
NWGFs and MHGFs would be economically justified. At this TSL, the 
average LCC savings for both NWGF and MHGF consumers are positive. An 
estimated 18.7 percent of NWGF consumers and 15.3 percent of MHGF 
consumers experience a net cost. The reduction in the percentage of 
consumers experiencing a net cost at TSL 8 compared to TSL 9 is largely 
due to the market share of consumers already with a furnace at 95-
percent AFUE (see section IV.F.8 of this document). These consumers are 
not impacted by a standard set at TSL 8. For the remaining consumers 
that are impacted, the lower incremental cost above baseline for a 95-
percent AFUE furnace compared to a max-tech furnace (see section IV.C.2 
of this document), particularly for NWGFs, results in fewer consumers 
experiencing a net cost as compared to TSL 9. DOE also notes the 
consumer impacts are similar across the range of sensitivity analyses 
performed, particularly with respect to the fraction of consumers who 
may switch to alternative space-heating products. A much smaller 
fraction of NWGF and MHGF consumers in the sensitivity analyses 
experience a net cost at TSL 8 as compared to TSL 9 as well. Therefore, 
DOE's conclusions would not change if based on any of the sensitivity 
scenarios. The FFC national energy savings at TSL 8 are significant, 
and the NPV of consumer benefits is positive using both a 3-percent and 
7-percent discount rate. Notably, the benefits to consumers vastly 
outweigh the cost to manufacturers. At TSL 8, the NPV of consumer 
benefits, even measured at the more conservative discount rate of 7 
percent, is 13 times higher than the maximum estimated manufacturers' 
loss in INPV. The shipment-weighted average LCC savings are 2 times 
higher than at TSL 9. The standard levels at TSL 8 are economically 
justified even without weighing the estimated monetary value of the net 
health benefits of emissions reductions. When those emissions 
reductions are included--representing $17.3 billion in climate benefits 
(associated with the average SC-GHG at a 3-percent discount rate), and 
$26.6 billion (using a 3-percent discount rate) or $8.7 billion (using 
a 7-percent discount rate) in net health benefits--the rationale 
becomes stronger still.
    DOE further notes that there have been regulations in Canada 
requiring condensing furnaces with at least 90-percent AFUE for over 
ten years and requiring at least 95-precent AFUE since July 2019 (see 
section II.B.3 of this final rule). The adopted standard levels for 
NWGFs at TSL 8 align with the Canadian regulations. As discussed in the 
2016 SNOPR (since withdrawn), some stakeholders noted that Canada has 
required condensing furnaces for years and stated that neither Natural 
Resources Canada nor its mortgage agency found any significant 
implementation issues. 81 FR 65720, 65779 (Sept. 23, 2016). While DOE 
realizes that climate and fuel prices differ between the U.S. and 
Canada and will yield different results in terms of costs and benefits 
of the standard, there are similarities in the equipment and venting 
materials used in both the U.S. and Canada with respect to NWGFs. 
Because the stock of buildings using NWGFs in Canada has many 
similarities to the stock using NWGFs in northern parts of the U.S., 
the Canadian experience in terms of installation of condensing furnaces 
has relevance to the U.S.
    DOE acknowledges that an estimated 15.9 percent of low-income NWGF 
and 15.3 percent of low-income MHGF consumers experience a net cost at 
TSL 8, whereas an estimated 5.7 percent of low-income NWGF and 4.7 
percent of low-income MHGF consumers experience a net cost at TSL 7. 
(TSL 7 is an AFUE standard at the same level as TSL 8 but for NWGFs and 
MHGFs greater than 55 kBtu/h only.) The majority of negatively impacted 
low-income consumers at TSL 8 have smaller capacity NWGFs or MHGFs 
below 55 kBtu/h and, therefore, would not be impacted by a standard set 
at TSL 7, since the standards for NWGFs and MHGFs below 55 kBtu/h would 
remain at 80-percent AFUE. However, compared to TSL 7, it is estimated 
that TSL 8 would result in additional FFC national energy savings of 
1.14 quads and additional net health benefits of $9.3 billion (using a 
3-percent discount rate) or $3.1 billion (using a 7-percent discount 
rate). The national consumer NPV similarly increases at TSL 8, compared 
to TSL 7, by $0.7 billion using a 7-percent discount rate and $3.6 
billion using a 3-percent discount rate. These additional savings and 
benefits at TSL 8 are significant. DOE considers these impacts to be, 
as a whole, economically justified at TSL 8.
    Accordingly, the Secretary has concluded that TSL 8 would offer the 
maximum improvement in efficiency that is technologically feasible and 
economically justified and would result in the significant conservation 
of energy. Although results are presented here in terms of TSLs, DOE 
analyzes and evaluates all possible ELs for each product class in its 
analysis. For both NWGFs and MHGFs, TSL 8 is comprised of the highest 
efficiency level below max-tech. For NWGFs and MHGFs, the max-tech 
efficiency level results in a large percentage of consumers that 
experience a net LCC cost, in addition to significant manufacturer 
impacts. The ELs one level below max-tech, representing the adopted 
standard levels, result in positive LCC savings for both classes, 
significantly reduce the number of consumers experiencing a net cost, 
and reduce the decrease in INPV and conversion costs to the point where 
DOE has concluded they are

[[Page 87642]]

economically justified, as discussed for TSL 8 in the preceding 
paragraphs.
    Therefore, based on the considerations discussed, DOE adopts the 
energy conservation standards for NWGFs and MHGFs at TSL 8. The adopted 
energy conservation standards for NWGFs and MHGFs, which are expressed 
as AFUE, are shown in Table V.29.

  Table V.29--Adopted Energy Conservation Standards for Non-Weatherized
                Gas Furnaces and Mobile Home Gas Furnaces
                       [Compliance starting 2029]
------------------------------------------------------------------------
                      Product class                       AFUE (percent)
------------------------------------------------------------------------
Non-Weatherized Gas Furnaces............................              95
Mobile Home Gas Furnaces................................              95
------------------------------------------------------------------------

2. Annualized Benefits and Costs of the Adopted Standards
    The benefits and costs of the adopted standards can also be 
expressed in terms of annualized values. The annualized net benefit is: 
(1) the annualized national economic value (expressed in 2022$) of the 
benefits from operating products that meet the adopted standards 
(consisting primarily of operating cost savings from using less energy, 
minus increases in product purchase costs), and (2) the annualized 
monetary value of the climate and net health benefits from emission 
reductions.
    Table V.30 shows the annualized values under TSL 8, expressed in 
2022$. The results under the primary estimate are as follows.
    Using a 7-percent discount rate for consumer benefits and costs and 
net health benefits from SO2 and NOX emission 
changes, and the 3-percent discount rate case for climate benefits from 
reduced GHG emissions, the estimated cost of the adopted standards is 
$511 million per year in increased equipment costs, while the estimated 
annual benefits would be $1,054 million in reduced equipment operating 
costs, $1,021 million in climate benefits, and $987 million in net 
health benefits (accounting for reduced NOX emissions and 
increased SO2 emissions). In this case, the net benefit 
amounts to $2,551 million per year.
    Using a 3-percent discount rate for all benefits and costs, the 
estimated cost of the adopted standards is $500 million per year in 
increased equipment costs, while the estimated annual benefits would be 
$1,467 million in reduced operating costs, $1,021 million in climate 
benefits, and $1,574 million in net health benefits (accounting for 
reduced NOX emissions and increased SO2 
emissions). In this case, the net benefit amounts to $3,561 million per 
year.

Table V.30--Annualized Monetized Benefits and Costs of Adopted Standards
      for Non-Weatherized Gas Furnaces and Mobile Home Gas Furnaces
                                 [TSL 8]
------------------------------------------------------------------------
                                             Million 2022$/year
                                  --------------------------------------
                                                  Low-net-    High-net-
                                     Primary      benefits     benefits
                                     estimate     estimate     estimate
------------------------------------------------------------------------
                            3% discount rate
------------------------------------------------------------------------
Consumer Operating Cost Savings..        1,467        1,528        1,440
Climate Benefits *...............        1,021        1,003        1,028
Net Health Benefits **...........        1,574        1,546        1,585
Total Monetized Benefits [dagger]        4,061        4,077        4,053
Consumer Incremental Product               500          520          489
 Costs [Dagger]..................
Net Monetized Benefits...........        3,561        3,557        3,564
Change in Producer Cashflow (INPV     (27)-(2)     (27)-(2)     (27)-(2)
 [Dagger][Dagger])...............
------------------------------------------------------------------------
                            7% discount rate
------------------------------------------------------------------------
Consumer Operating Cost Savings..        1,054        1,094        1,051
Climate Benefits * (3% discount          1,021        1,003        1,028
 rate)...........................
Health Benefits **...............          987          972          994
Total Monetized Benefits [dagger]        3,062        3,069        3,073
Consumer Incremental Product               511          528          501
 Costs [Dagger]..................
Net Monetized Benefits...........        2,551        2,541        2,572
Change in Producer Cashflow (INPV     (27)-(2)     (27)-(2)     (27)-(2)
 [Dagger][Dagger])...............
------------------------------------------------------------------------
Note: This table presents the costs and benefits associated with
  consumer furnaces shipped in 2029-2058. These results include benefits
  to consumers which accrue after 2058 from the products shipped in 2029-
  2058.
* Climate benefits are calculated using four different estimates of the
  global SC-GHG (see section IV.L of this document). For presentational
  purposes of this table, the climate benefits associated with the
  average SC-GHG at a 3-percent discount rate are shown, but the
  Department does not have a single, central SC-GHG point estimate. DOE
  emphasizes the importance and value of considering the benefits
  calculated using all four sets of SC-GHG estimates. To monetize the
  benefits of reducing GHG emissions, this analysis uses the interim
  estimates presented in the Technical Support Document: Social Cost of
  Carbon, Methane, and Nitrous Oxide Interim Estimates Under Executive
  Order 13990 published in February 2021 by the IWG.

[[Page 87643]]

 
** Health benefits are calculated using benefit-per-ton values for NOX
  and SO2. DOE is currently only monetizing (for SO2 and NOX) PM2.5
  precursor health benefits and disbenefits and (for NOX) ozone
  precursor health benefits, but will continue to assess the ability to
  monetize other effects such as health benefits from reductions in
  direct PM2.5 emissions. See section IV.L of this document for more
  details.
[dagger] Total benefits for both the 3-percent and 7-percent cases are
  presented using the average SC-GHG with 3-percent discount rate.
[Dagger] Costs include incremental equipment costs, as well as
  installation costs.
[Dagger][Dagger] Operating Cost Savings are calculated based on the LCC
  analysis and national impact analysis as discussed in detail below.
  See sections IV.F and IV.H of this document. DOE's national impact
  analysis includes all impacts (both costs and benefits) along the
  distribution chain beginning with the increased costs to the
  manufacturer to manufacture the product and ending with the increase
  in price experienced by the consumer. DOE also separately conducts a
  detailed analysis on the impacts on manufacturers (the MIA). See
  section IV.J of this document. In the detailed MIA, DOE models
  manufacturers' pricing decisions based on assumptions regarding
  investments, conversion costs, cashflow, and margins. The MIA produces
  a range of impacts, which is the rule's expected impact on the INPV.
  The change in INPV is the present value of all changes in industry
  cash flow, including changes in production costs, capital
  expenditures, and manufacturer profit margins. The annualized change
  in INPV is calculated using the industry weighted average cost of
  capital value of 6.4 percent that is estimated in the manufacturer
  impact analysis (see chapter 12 of the final rule TSD for a complete
  description of the industry weighted average cost of capital). For
  NWGFs and MHGFs, those values are -$27 million to -$2 million. DOE
  accounts for that range of likely impacts in analyzing whether a TSL
  is economically justified. See section V.C of this document. DOE is
  presenting the range of impacts to the INPV under two manufacturer
  markup scenarios: the Preservation of Gross Margin scenario, which is
  the manufacturer markup scenario used in the calculation of Consumer
  Operating Cost Savings in this table, and the Tiered scenario, where
  DOE assumed amended standards would result in a reduction of product
  differentiation and a compression of the markup tiers. DOE includes
  the range of estimated annualized change in INPV in the above table,
  drawing on the MIA explained further in section IV.J of this document,
  to provide additional context for assessing the estimated impacts of
  this final rule to society, including potential changes in production
  and consumption, which is consistent with OMB's Circular A-4 and E.O.
  12866. If DOE were to include the INPV into the annualized net benefit
  calculation for this final rule, the annualized net benefits would
  range from $3,534 million to $3,559 million at 3-percent discount rate
  and would range from $2,524 million to $2,549 million at 7-percent
  discount rate. Parentheses ( ) indicate negative values.

VI. Procedural Issues and Regulatory Review

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

    Executive Order (E.O.) 12866, ``Regulatory Planning and Review,'' 
58 FR 51735 (Oct. 4, 1993), as supplemented and reaffirmed by E.O. 
13563, ``Improving Regulation and Regulatory Review,'' 76 FR 3821 (Jan. 
21, 2011), and E.O. 14094, ``Modernizing Regulatory Review,'' 88 FR 
21879 (April 11, 2023), requires agencies, to the extent permitted by 
law, to: (1) propose or adopt a regulation only upon a reasoned 
determination that its benefits justify its costs (recognizing that 
some benefits and costs are difficult to quantify); (2) tailor 
regulations to impose the least burden on society, consistent with 
obtaining regulatory objectives, taking into account, among other 
things, and to the extent practicable, the costs of cumulative 
regulations; (3) select, in choosing among alternative regulatory 
approaches, those approaches that maximize net benefits (including 
potential economic, environmental, public health and safety, and other 
advantages; distributive impacts; and equity); (4) to the extent 
feasible, specify performance objectives, rather than specifying the 
behavior or manner of compliance that regulated entities must adopt; 
and (5) identify and assess available alternatives to direct 
regulation, including providing economic incentives to encourage the 
desired behavior, such as user fees or marketable permits, or providing 
information upon which choices can be made by the public. DOE 
emphasizes as well that E.O. 13563 requires agencies to use the best 
available techniques to quantify anticipated present and future 
benefits and costs as accurately as possible. In its guidance, the 
Office of Information and Regulatory Affairs (OIRA) in the Office of 
Management and Budget (OMB) has emphasized that such techniques may 
include identifying changing future compliance costs that might result 
from technological innovation or anticipated behavioral changes. For 
the reasons stated in this preamble, this final regulatory action is 
consistent with these principles.
    Section 6(a) of E.O. 12866 also requires agencies to submit 
``significant regulatory actions'' to OIRA for review. OIRA has 
determined that this final regulatory action constitutes a 
``significant regulatory action'' under section 3(f)(1) of E.O. 12866, 
as amended by E.O. 14094. Accordingly, pursuant to section 6(a)(3)(C) 
of E.O. 12866, DOE has provided to OIRA an assessment, including the 
underlying analysis, of benefits and costs anticipated from the final 
regulatory action, together with, to the extent feasible, a 
quantification of those costs; and an assessment, including the 
underlying analysis, of costs and benefits of potentially effective and 
reasonably feasible alternatives to the planned regulation, and an 
explanation why the planned regulatory action is preferable to the 
identified potential alternatives. These assessments are summarized in 
this preamble and further detail can be found in the technical support 
document for this rulemaking.

B. Review Under the Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires 
preparation of an initial regulatory flexibility analysis (IRFA) and a 
final regulatory flexibility analysis (FRFA) for any rule that by law 
must be proposed for public comment, unless the agency certifies that 
the rule, if promulgated, will not have a significant economic impact 
on a substantial number of small entities. As required by E.O. 13272, 
``Proper Consideration of Small Entities in Agency Rulemaking,'' 67 FR 
53461 (August 16, 2002), DOE published procedures and policies on 
February 19, 2003, to ensure that the potential impacts of its rules on 
small entities are properly considered during the rulemaking process. 
68 FR 7990. DOE has made its procedures and policies available on the 
Office of the General Counsel's website (www.energy.gov/gc/office-general-counsel). DOE has prepared the following FRFA for the products 
that are the subject of this rulemaking.
    For manufacturers of NWGFs and MHGFs, the SBA has set a size 
threshold, which defines those entities classified as ``small 
businesses'' for the purposes of the statute. DOE used the SBA's small 
business size standards to determine whether any small entities would 
be subject to the requirements of the rule. (See 13 CFR part 121.) The 
size standards are listed by North American Industry Classification 
System (NAICS) code and industry description and are available at 
www.sba.gov/document/support-table-size-standards. Manufacturing of 
NWGFs and MHGFs is classified under NAICS 333415, ``Air-Conditioning 
and Warm Air Heating Equipment and Commercial and Industrial 
Refrigeration Equipment Manufacturing.'' The SBA sets a threshold of 
1,250 employees or fewer for an entity to be considered as a small 
business for this category.
1. Need for, and Objectives of the Rule
    DOE is amending the energy conservation standards for NWGFs and 
MHGFs. EPCA specifically provides that DOE must conduct two rounds of 
energy

[[Page 87644]]

conservation standard rulemakings for NWGFs and MHGFs. (42 U.S.C. 
6295(f)(4)(B) and (C)) The statute also requires that not later than 
six years after issuance of any final rule establishing or amending a 
standard, DOE must publish either a notice of determination that 
standards for the product do not need to be amended, or a NOPR 
including new proposed energy conservation standards. (42 U.S.C. 
6295(m)(1)) This rulemaking is pursuant to the statutorily required 
second round of rulemaking for NWGFs and MHGFs and the statutorily 
required six-year-lookback review.
2. Significant Issues Raised in Response to the IRFA
    In response to the July 2022 NOPR, NGA of Georgia stated that DOE's 
proposal fails to capture the negative effects on small businesses that 
manufacture venting and accessories for non-condensing furnaces. (NGA 
of Georgia, No. 380 at p. 2) HARDI commented that the proposed 
standards also do not meet the requirements under the Regulatory 
Flexibility Act, as DOE only assessed the impact on four small 
manufacturers, but not on distributors, contractors, or manufacturers 
of furnace supplies. HARDI stated that there are a number of small 
businesses that serve as furnace suppliers. (HARDI, No. 384 at pp. 3-4)
    DOE conducted an IRFA in support of the July 2022 NOPR. The 
Regulatory Flexibility Act requires an agency to perform a regulatory 
flexibility analysis of small entity impacts only when a rule directly 
regulates the small entities. This final rule regulates manufacturers 
of consumer furnaces, and, as such, DOE's analysis is scoped to the 
original equipment manufacturers (OEMs) of the covered products 
directly affected by this rulemaking.
3. Description and Estimated Number of Small Entities Affected
    DOE reviewed this final rule under the provisions of the Regulatory 
Flexibility Act and the procedures and policies published on February 
19, 2003. 68 FR 7990. DOE conducted a market survey to identify 
potential small manufacturers of the covered products. DOE began its 
assessment by reviewing DOE's Compliance Certification Database 
(CCD),\285\ California Energy Commission's Modernized Appliance 
Efficiency Database System (MAEDbS),\286\ Air Conditioning, Heating, 
and Refrigeration Institute's (AHRI) Directory of Certified Product 
Performance database,\287\ individual retailer websites, and the 
withdrawn September 2016 SNOPR to identify manufacturers of the covered 
products. 81 FR 65720. DOE then consulted publicly-available data, such 
as manufacturer websites, manufacturer specifications and product 
literature, import/export logs (e.g., bills of lading from Panjiva 
\288\), and basic model numbers, to identify OEMs of the products 
covered by this rulemaking. DOE further relied on public data and 
subscription-based market research tools (e.g., Dun & Bradstreet 
reports) \289\ to determine company location, headcount, and annual 
revenue. DOE also asked industry representatives if they were aware of 
any other small manufacturers during manufacturer interviews. DOE 
screened out companies that do not offer products covered by this 
rulemaking, do not meet the SBA's definition of a ``small business,'' 
or are foreign-owned and operated.
---------------------------------------------------------------------------

    \285\ DOE's Compliance Certification Database is available at: 
www.regulations.doe.gov/certification-data/ (last accessed March 8, 
2023).
    \286\ California Energy Commission's MAEDbS (available at: 
cacertappliances.energy.ca.gov/Pages/Search/AdvancedSearch.aspx) 
(last accessed July 15, 2021).
    \287\ AHRI's Directory of Certified Product Performance 
(available at: www.ahridirectory.org/Search/SearchHome) (last 
accessed March 8, 2023).
    \288\ S&P Global. Panjiva Market Intelligence is available at: 
panjiva.com/import-export/United-States (last accessed March 24, 
2023).
    \289\ D&B Hoovers subscription login is available at: 
app.dnbhoovers.com/ (last accessed March 24, 2023).
---------------------------------------------------------------------------

    For the IRFA, DOE identified 15 OEMs selling NWGFs and/or MHGFs in 
the United States. Of those 15 OEMs, DOE tentatively determined that 
four companies qualified as small businesses and were not foreign-owned 
or operated. For this FRFA, DOE refreshed its database of model 
listings to include the most up-to-date information on NWGF and MHGF 
models currently available on the market. Through its review of the 
updated product database and other public sources, DOE determined that 
one MHGF OEM and that one small domestic NWGF OEM no longer offer 
products covered by this rulemaking. Additionally, DOE identified a new 
entrant to the NWGF market that qualifies as a ``small business.'' 
Therefore, for this FRFA, DOE identified 14 OEMs that sell NWGFs and/or 
MHGFs in the United States. Of the 14 OEMs identified, DOE determined 
that four companies qualify as small businesses and are not foreign-
owned or operated.
4. Description of Compliance Requirements
    Of the four small domestic OEMs identified, two manufacture NWGFs, 
one manufactures MHGFs, and one manufactures both NWGFs and MHGFs. DOE 
considered the impact of this rule on the four manufacturers.
    DOE adjusted the small business conversion cost estimates developed 
in the IRFA to 2022$ for this FRFA. As previously discussed, DOE also 
refreshed its database of model listings to include updated information 
on NWGF and MHGF models currently available on the market.
    One of the small NWGF manufacturers (``Company A'') sells a niche 
product in the NWGF market. The company offers three basic models of a 
through-the-wall furnace marketed for multi-family construction. The 
three models have identical dimensions and share many components. One 
model is rated at 80-percent AFUE, one model is rated at 93-percent 
AFUE, and the other model is rated at 95-percent AFUE. Given the 
product similarities and low volume of sales, DOE expects the 
manufacturer would likely discontinue the non-compliant models. DOE 
does not expect the small manufacturer would incur conversion costs due 
to the standard, as the company currently offers their niche product at 
95-percent AFUE.
    The other small NWGF manufacturer (``Company B'') introduced new 
products into the CCD after DOE conducted its NOPR analysis. Since the 
July 2022 NOPR, this small NWGF manufacturer now offers approximately 
10 basic models of both non-condensing and condensing NWGFs. The non-
condensing models are rated at 81-percent AFUE, and the condensing 
models are rated between 93-percent and 96-percent AFUE. The non-
condensing models and condensing models have identical dimensions and 
share many components. Given the product similarities, DOE expects this 
manufacturer would likely ramp up production of its compliant models 
and discontinue models that do not meet the adopted level. However, to 
avoid underestimating the potential investments, DOE used model counts 
to scale industry product conversion costs and market share estimates 
to scale industry capital conversion costs for this FRFA. As discussed 
in this final rule, capital conversion costs are one-time investments 
in property, plant, and equipment necessary to adapt or change existing 
production facilities such that new, compliant product designs can be 
fabricated and assembled. Product conversion costs are one-time 
investments in research, development, testing, marketing, and other 
non-capitalized costs necessary to make product designs comply with 
amended

[[Page 87645]]

energy conservation standards. The eight NWGF models that would require 
redesign or retirement is an estimated 1.0 percent of the 825 NWGF 
models with an AFUE below 95-percent in the product database developed 
for this rulemaking. DOE estimates that this small business could incur 
approximately $0.4 million in product conversion costs and $1.1 million 
in capital conversion costs as they work to develop a condensing NWGF 
product line. The total conversion costs of $1.6 million are 
approximately 0.3 percent of company revenues over the 5-year 
conversion period.\290\
---------------------------------------------------------------------------

    \290\ According to D&B Hoovers, this small business has an 
estimated annual revenue of $119.8 million. DOE calculated total 
conversion costs as a percent of revenue over the 5-year conversion 
period using the following calculation: ($0.4 million + $1.1 
million)/(5 years x $119.8 million).
---------------------------------------------------------------------------

    The small MHGF manufacturer, Mortex (``Company C''), sells non-
condensing furnaces into the manufactured housing replacement market. 
DOE identified this small business through its review of DOE's CCD and 
the withdrawn September 2016 SNOPR. Of the six MHGF OEMs identified, 
Mortex is the only MHGF company that does not currently offer any 
condensing products. DOE analyzed the conversion costs for Mortex 
separately from other MHGF manufacturers since Mortex would need to 
make a different set of investments than the rest of the MHGF industry.
    To offer condensing MHGFs, Mortex would need to either source 
secondary heat exchangers from a vendor or set up its own manufacturing 
line to produce secondary heat exchangers. Setting up in-house 
production is the significantly more capital-intensive option. For this 
FRFA, DOE estimated the investments required for the company to set up 
in-house production. Based on DOE's engineering analysis, the main 
driver of additional capital conversion costs would be the production 
of secondary heat exchangers. Including equipment, tooling, and 
conveyer, DOE estimates upfront capital investments of $5.3 million to 
set up manufacturing of condensing MHGFs. Additionally, the design and 
product development (e.g., engineering resources, testing costs) of 
condensing products could run as high as $1.4 million. If the company 
has less than 15 percent market share in the MHGF market, as suggested 
by the percentage of industry model offerings, the cost recovery period 
for this investment would be in excess of 10 years. Unlike other MHGF 
manufacturers, which can leverage their investments in secondary heat 
exchanger production across other heating products, DOE is not aware of 
any other heating product from Mortex that could make use of the 
secondary heat exchanger production capacity. The total conversion 
costs of $6.7 million are approximately 2.2 percent of company revenues 
over the 5-year conversion period and are considered significant.\291\
---------------------------------------------------------------------------

    \291\ According to D&B Hoovers, this small business has an 
estimated annual revenue of $60.4 million. DOE calculated total 
conversion costs as a percent of revenue over the 5-year conversion 
period using the following calculation: ($1.4 million + $5.3 
million)/(5 years x $60.4 million).
---------------------------------------------------------------------------

    Given the high upfront investment and long cost recovery period, 
the small manufacturer would likely seek options other than investing 
in secondary heat exchanger production capabilities. The company could 
source the secondary heat exchanger, which would reduce the need for 
capital conversion costs but would also increase the per-unit cost of 
the final product. DOE estimates that the secondary heat exchanger 
accounts for approximately 14 percent of the total manufacturer 
production cost, on average. Sourcing the heat exchanger could put the 
company at a pricing disadvantage relative to manufacturers that 
produce their heat exchangers in-house. Depending on the business' 
ability to compete on factors other than price, its willingness to 
invest technical resources toward designing a condensing product, and 
the role of MHGFs in the company's business strategy, the small 
manufacturer could also choose to leave the MHGF business.
    The remaining small manufacturer of NWGFs and MHGFs (``Company D'') 
is one of the five MHGF companies that offer condensing products. Of 
these five companies with condensing MHGFs, one manufacturer only 
offers products at or above the adopted standard and would, therefore, 
likely incur no conversion costs. The remaining four manufacturers, 
which includes the small manufacturer of NWGFs and MHGFs, have some 
products that do not meet the standard. All MHGF conversion costs that 
are not directly attributed to Mortex would be borne by these four 
manufacturers. The small domestic business has six MHGF models that 
would require redesign or retirement, which is an estimated 14.6 
percent of the 41 MHGF models with an AFUE below 95 percent in the 
product database developed for this rulemaking.
    DOE estimated industry conversion costs of $3.1 million for the 
MHGF standard when excluding the conversion costs attributable to 
Mortex.\292\ For the purposes of this FRFA, DOE assumes the $3.1 
million in conversion costs are evenly allocated across the four 
companies that may incur MHGF conversion costs. The MHGF-related 
conversion costs are approximately $0.8 million per company. DOE has 
determined this even allocation of capital and product conversion costs 
avoids under-estimating the investment requirements on the small, 
domestic manufacturer, given that this manufacturer has a small market 
share. For the small manufacturer, total conversion costs are 
approximately 0.1 percent of company revenue over the 5-year conversion 
period.\293\
---------------------------------------------------------------------------

    \292\ Excluding the conversion costs attributable to Mortex, DOE 
estimates industry MHGF capital conversion costs of $2.6 million and 
industry MHGF product conversion costs of $0.5 million, for a total 
of $3.1 million, at the adopted level (TSL 8).
    \293\ According to D&B Hoovers, this small business has an 
estimated annual revenue of $240.6 million. DOE calculated total 
conversion costs as a percent of revenue over the 5-year conversion 
period using the following calculation: ($0.1 million + $0.6 
million)/(5 years x $240.6 million).
---------------------------------------------------------------------------

    As noted earlier, this small domestic manufacturer also produces 
NWGFs. The company offers four NWGF models, out of over 1,300 NWGFs in 
the product database developed for this rulemaking. All four of their 
NWGF offerings are at or above the adopted standard and would not 
likely incur conversion costs due to the standard. Therefore, the small 
manufacturer that produces both MHGFs and NWGFs is expected to only 
incur conversion costs relating to their MHGF products at TSL 8, the 
adopted standard level.

[[Page 87646]]



                                  Table VI.1--Estimated Small Business Impacts
                                                     [TSL 8]
----------------------------------------------------------------------------------------------------------------
                                    Product         Capital                                     Conversion costs
                                  conversion      conversion    Annual revenue    Conversion        as a % of
            Company                costs ($        costs ($      ($ millions)   period revenue     conversion
                                   millions)       millions)                     ($ millions)    period revenue
----------------------------------------------------------------------------------------------------------------
Company A.....................             0.0             0.0            77.0           385.0               0.0
Company B.....................             0.4             1.1           119.8           599.0               0.3
Company C.....................             1.4             0.0            60.4           302.0               0.5
Company D.....................             0.1             0.6           240.6         1,202.8               0.1
----------------------------------------------------------------------------------------------------------------

5. Significant Alternatives Considered and Steps Taken To Minimize 
Significant Economic Impacts on Small Entities
    The discussion in the previous section analyzes impacts on small 
businesses that would result from the adopted standards, represented by 
TSL 8. In reviewing alternatives to the adopted standards, DOE examined 
a range of different efficiency levels and their respective impacts to 
both manufacturers and consumers. At TSL 9, the conversion costs were 
higher for small businesses and for industry overall. At TSLs 1, 2, 3, 
4, 5, 6, and 7, the impacts on small manufacturers would have been 
potentially lower. However, those changes would have would come at the 
expense of reduced consumer benefits and a reduction in energy savings. 
In general, the consumer benefits were an order of magnitude greater 
than the cost to industry generally, and multiple orders of magnitude 
greater than the conversion costs to small manufacturers. DOE has 
determined that establishing standards at the adopted level, TSL 8, 
balances the benefits of energy savings with the potential burdens 
placed on manufacturers of covered products, including small business 
manufacturers.
    DOE has determined that establishing standards at TSL 8 would 
deliver the highest energy savings while mitigating the potential 
burdens placed on NWGF and MHGF manufacturers, including small business 
manufacturers. Accordingly, DOE is not adopting one of the other TSLs 
considered in the analysis, or the other policy alternatives examined 
as part of the regulatory impact analysis and included in chapter 17 of 
the final rule TSD.
    Additional compliance flexibilities may be available through other 
means. EPCA provides that a manufacturer whose annual gross revenue 
from all of its operations does not exceed $8 million may apply for an 
exemption from all or part of an energy conservation standard for a 
period not longer than 24 months after the effective date of a final 
rule establishing the standard. (42 U.S.C. 6295(t)) Additionally, 
manufacturers subject to DOE's energy conservation standards may apply 
to DOE's Office of Hearings and Appeals for exception relief under 
certain circumstances. Manufacturers should refer to 10 CFR part 430, 
subpart E, and 10 CFR part 1003 for additional details.

C. Review Under the Paperwork Reduction Act

    Manufacturers of NWGFs and MHGFs must certify to DOE that their 
products comply with any applicable energy conservation standards in 
terms of AFUE.
    In certifying compliance, manufacturers must test their products 
according to the DOE test procedures for NWGFs and MHGFs, including any 
amendments adopted for those test procedures. DOE has established 
regulations for the certification and recordkeeping requirements for 
all covered consumer products and commercial equipment, including NWGFs 
and MHGFs. (See generally 10 CFR part 429) These requirements were also 
discussed in some detail in the July 2022 NOPR. 87 FR 40590, 40702 
(July 7, 2022). The collection-of-information requirement for the 
certification and recordkeeping is subject to review and approval by 
OMB under the Paperwork Reduction Act (PRA). This requirement has been 
approved by OMB under OMB control number 1910-1400. Public reporting 
burden for the certification is estimated to average 35 hours per 
response, including the time for reviewing instructions, searching 
existing data sources, gathering and maintaining the data needed, and 
completing and reviewing the collection of information.
    DOE is not amending the existing reporting requirements or 
establishing new DOE reporting requirements. If determined to be 
necessary, DOE may consider associated reporting and certification 
requirements in a future rulemaking. Therefore, DOE has concluded that 
the amended energy conservation standards for NWGFs and MHGFs will not 
impose additional costs for manufacturers related to reporting and 
certification.
    Notwithstanding any other provision of the law, no person is 
required to respond to, nor shall any person be subject to a penalty 
for failure to comply with, a collection of information subject to the 
requirements of the PRA, unless that collection of information displays 
a currently valid OMB control number.

D. Review Under the National Environmental Policy Act of 1969

    Pursuant to the National Environmental Policy Act of 1969 (NEPA), 
DOE has analyzed this action in accordance with NEPA and DOE's NEPA 
implementing regulations (10 CFR part 1021). DOE has determined that 
this rule qualifies for categorical exclusion under 10 CFR part 1021, 
subpart D, appendix B, categorical exclusion B5.1, because it is a 
rulemaking that establishes energy conservation standards for consumer 
products or industrial equipment, none of the exceptions identified in 
categorical exclusion B5.1(b) apply, no extraordinary circumstances 
exist that require further environmental analysis, and it otherwise 
meets the requirements for application of a categorical exclusion. See 
10 CFR 1021.410. Therefore, DOE has determined that promulgation of 
this rule is not a major Federal action significantly affecting the 
quality of the human environment within the meaning of NEPA, and does 
not require an environmental assessment or an environmental impact 
statement.

E. Review Under Executive Order 13132

    E.O. 13132, ``Federalism,'' 64 FR 43255 (August 10, 1999), imposes 
certain requirements on Federal agencies formulating and implementing 
policies or regulations that preempt State law or that have federalism 
implications. The Executive order requires agencies to examine the 
constitutional and statutory authority supporting any action that would 
limit the policymaking discretion of the

[[Page 87647]]

States and to carefully assess the necessity for such actions. The 
Executive order also requires agencies to have an accountable process 
to ensure meaningful and timely input by State and local officials in 
the development of regulatory policies that have federalism 
implications. On March 14, 2000, DOE published a statement of policy 
describing the intergovernmental consultation process it will follow in 
the development of such regulations. 65 FR 13735. DOE has examined this 
rule and has determined that it would not have a substantial direct 
effect on the States, on the relationship between the National 
Government and the States, or on the distribution of power and 
responsibilities among the various levels of government. EPCA governs 
and prescribes Federal preemption of State regulations as to energy 
conservation for the products that are the subject of this final rule. 
States can petition DOE for exemption from such preemption to the 
extent, and based on criteria, set forth in EPCA. (42 U.S.C. 6297(d)) 
Therefore, no further action is required by Executive Order 13132.

F. Review Under Executive Order 12988

    Regarding the review of existing regulations and the promulgation 
of new regulations, section 3(a) of E.O. 12988, ``Civil Justice 
Reform,'' 61 FR 4729 (Feb. 7, 1996), imposes on Federal agencies the 
general duty to adhere to the following requirements: (1) eliminate 
drafting errors and ambiguity; (2) write regulations to minimize 
litigation; (3) provide a clear legal standard for affected conduct 
rather than a general standard, and (4) promote simplification and 
burden reduction. Regarding the review required by section 3(a), 
section 3(b) of E.O. 12988 specifically requires that Executive 
agencies make every reasonable effort to ensure that the regulation: 
(1) clearly specifies the preemptive effect, if any; (2) clearly 
specifies any effect on existing Federal law or regulation; (3) 
provides a clear legal standard for affected conduct while promoting 
simplification and burden reduction; (4) specifies the retroactive 
effect, if any; (5) adequately defines key terms, and (6) addresses 
other important issues affecting clarity and general draftsmanship 
under any guidelines issued by the Attorney General. Section 3(c) of 
E.O. 12988 requires Executive agencies to review regulations in light 
of applicable standards in sections 3(a) and 3(b) to determine whether 
they are met or it is unreasonable to meet one or more of them. DOE has 
completed the required review and determined that, to the extent 
permitted by law, this final rule meets the relevant standards of E.O. 
12988.

G. Review Under the Unfunded Mandates Reform Act of 1995

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires each Federal agency to assess the effects of Federal 
regulatory actions on State, local, and Tribal governments and the 
private sector. Public Law 104-4, sec. 201 (codified at 2 U.S.C. 1531). 
For a regulatory action likely to result in a rule that may cause the 
expenditure by State, local, and Tribal governments, in the aggregate, 
or by the private sector of $100 million or more in any one year 
(adjusted annually for inflation), section 202 of UMRA requires a 
Federal agency to publish a written statement that estimates the 
resulting costs, benefits, and other effects on the national economy. 
(2 U.S.C. 1532(a), (b)) The UMRA also requires a Federal agency to 
develop an effective process to permit timely input by elected officers 
of State, local, and Tribal governments on a ``significant 
intergovernmental mandate,'' and requires an agency plan for giving 
notice and opportunity for timely input to potentially affected small 
governments before establishing any requirements that might 
significantly or uniquely affect them. On March 18, 1997, DOE published 
a statement of policy on its process for intergovernmental consultation 
under UMRA. 62 FR 12820. DOE's policy statement is also available at 
www.energy.gov/sites/prod/files/gcprod/documents/umra_97.pdf.
    DOE has concluded that this final rule may require expenditures of 
$100 million or more in any one year by the private sector. Such 
expenditures may include (1) investment in research and development and 
in capital expenditures by NWGF and MHGF manufacturers in the years 
between the final rule and the compliance date for the new standards 
and (2) incremental additional expenditures by consumers to purchase 
higher-efficiency NWGFs and MHGFs starting at the compliance date for 
the applicable standard.
    Section 202 of UMRA authorizes a Federal agency to respond to the 
content requirements of UMRA in any other statement or analysis that 
accompanies the final rule. (2 U.S.C. 1532(c)) The content requirements 
of section 202(b) of UMRA relevant to a private sector mandate 
substantially overlap the economic analysis requirements that apply 
under section 325(o) of EPCA and Executive Order 12866. The 
SUPPLEMENTARY INFORMATION section of this document and the TSD for this 
final rule respond to those requirements.
    Under section 205 of UMRA, DOE is obligated to identify and 
consider a reasonable number of regulatory alternatives before 
promulgating a rule for which a written statement under section 202 is 
required. (2 U.S.C. 1535(a)) DOE is required to select from those 
alternatives the most cost-effective and least burdensome alternative 
that achieves the objectives of the rule, unless DOE publishes an 
explanation for doing otherwise, or the selection of such an 
alternative is inconsistent with law. As required by EPCA, this final 
rule establishes amended energy conservation standards for NWGFs and 
MHGFs that are designed to achieve the maximum improvement in energy 
efficiency that DOE has determined to be both technologically feasible 
and economically justified, as required by 42 U.S.C. 6295(o)(2)(A) and 
6295(o)(3)(B). A full discussion of the alternatives considered by DOE 
is presented in chapter 17 of the TSD for this final rule.

H. Review Under the Treasury and General Government Appropriations Act, 
1999

    Section 654 of the Treasury and General Government Appropriations 
Act, 1999 (Pub. L. 105-277) requires Federal agencies to issue a Family 
Policymaking Assessment for any rule that may affect family well-being. 
This rule would not have any impact on the autonomy or integrity of the 
family as an institution. Accordingly, DOE has concluded that it is not 
necessary to prepare a Family Policymaking Assessment.

I. Review Under Executive Order 12630

    Pursuant to E.O. 12630, ``Governmental Actions and Interference 
with Constitutionally Protected Property Rights,'' 53 FR 8859 (March 
18, 1988), DOE has determined that this rule would not result in any 
takings that might require compensation under the Fifth Amendment to 
the U.S. Constitution.

J. Review Under the Treasury and General Government Appropriations Act, 
2001

    Section 515 of the Treasury and General Government Appropriations 
Act, 2001 (44 U.S.C. 3516, note) provides for Federal agencies to 
review most disseminations of information to the public under 
information quality guidelines established by each agency pursuant to 
general guidelines issued by OMB. OMB's guidelines were published at 67 
FR 8452 (Feb. 22, 2002), and DOE's guidelines were published at 67 FR 
62446 (Oct. 7, 2002). Pursuant to OMB Memorandum M-19-15,

[[Page 87648]]

``Improving Implementation of the Information Quality Act'' (April 24, 
2019), DOE published updated guidelines which are available at: 
www.energy.gov/sites/prod/files/2019/12/f70/DOE%20Final%20Updated%20IQA%20Guidelines%20Dec%202019.pdf. DOE has 
reviewed this final rule under the OMB and DOE guidelines and has 
concluded that it is consistent with applicable policies in those 
guidelines.

K. Review Under Executive Order 13211

    E.O. 13211, ``Actions Concerning Regulations That Significantly 
Affect Energy Supply, Distribution, or Use,'' 66 FR 28355 (May 22, 
2001), requires Federal agencies to prepare and submit to OIRA at OMB, 
a Statement of Energy Effects for any significant energy action. A 
``significant energy action'' is defined as any action by an agency 
that promulgates or is expected to lead to promulgation of a final 
rule, and that: (1) is a significant regulatory action under Executive 
Order 12866, or any successor order; and (2) is likely to have a 
significant adverse effect on the supply, distribution, or use of 
energy, or (3) is designated by the Administrator of OIRA as a 
significant energy action. For any significant energy action, the 
agency must give a detailed statement of any adverse effects on energy 
supply, distribution, or use should the proposal be implemented, and of 
reasonable alternatives to the action and their expected benefits on 
energy supply, distribution, and use.
    DOE has concluded that this regulatory action, which sets forth 
amended energy conservation standards for NWGFs and MHGFs, is not a 
significant energy action because the standards are not likely to have 
a significant adverse effect on the supply, distribution, or use of 
energy, nor has it been designated as such by the Administrator at 
OIRA. Accordingly, DOE has not prepared a Statement of Energy Effects 
on this final rule.

L. Review Under the Information Quality Bulletin for Peer Review

    On December 16, 2004, OMB, in consultation with the Office of 
Science and Technology Policy (OSTP), issued its Final Information 
Quality Bulletin for Peer Review (``the Bulletin''). 70 FR 2664 (Jan. 
14, 2005). The Bulletin establishes that certain scientific information 
shall be peer reviewed by qualified specialists before it is 
disseminated by the Federal Government, including influential 
scientific information related to agency regulatory actions. The 
purpose of the Bulletin is to enhance the quality and credibility of 
the Government's scientific information. Under the Bulletin, the energy 
conservation standards rulemaking analyses are ``influential scientific 
information,'' which the Bulletin defines as ``scientific information 
the agency reasonably can determine will have, or does have, a clear 
and substantial impact on important public policies or private sector 
decisions.'' 70 FR 2664, 2667 (Jan. 14, 2005).
    In response to OMB's Bulletin, DOE conducted formal peer reviews of 
the energy conservation standards development process and the analyses 
that are typically used and prepared a report describing that peer 
review.\294\ Generation of this report involved a rigorous, formal, and 
documented evaluation using objective criteria and qualified and 
independent reviewers to make a judgment as to the technical/
scientific/business merit, the actual or anticipated results, and the 
productivity and management effectiveness of programs and/or projects. 
Because available data, models, and technological understanding have 
changed since 2007, DOE has engaged with the National Academy of 
Sciences to review DOE's analytical methodologies to ascertain whether 
modifications are needed to improve DOE's analyses. DOE is in the 
process of evaluating the resulting December 2021 report.\295\
---------------------------------------------------------------------------

    \294\ The 2007 ``Energy Conservation Standards Rulemaking Peer 
Review Report'' is available at the following website: energy.gov/eere/buildings/downloads/energy-conservation-standards-rulemaking-peer-review-report-0 (last accessed Feb. 16, 2022).
    \295\ The December 2021 NAS report is available at 
www.nationalacademies.org/our-work/review-of-methods-for-setting-building-and-equipment-performance-standards (last accessed August 
14, 2023).
---------------------------------------------------------------------------

M. Congressional Notification

    As required by 5 U.S.C. 801, DOE will report to Congress on the 
promulgation of this rule prior to its effective date. The report will 
state that it has been determined that the rule falls within the scope 
of 5 U.S.C. 804(2).

VII. Approval of the Office of the Secretary

    The Secretary of Energy has approved publication of this final 
rule.

List of Subjects in 10 CFR Part 430

    Administrative practice and procedure, Confidential business 
information, Energy conservation, Household appliances, Imports, 
Intergovernmental relations, Small businesses.

Signing Authority

    This document of the Department of Energy was signed on September 
28, 2023, by Jeffrey Marootian, Principal Deputy Assistant Secretary 
for Energy Efficiency and Renewable Energy, pursuant to delegated 
authority from the Secretary of Energy. That document with the original 
signature and date is maintained by DOE. For administrative purposes 
only, and in compliance with requirements of the Office of the Federal 
Register, the undersigned DOE Federal Register Liaison Officer has been 
authorized to sign and submit the document in electronic format for 
publication, as an official document of the Department of Energy. This 
administrative process in no way alters the legal effect of this 
document upon publication in the Federal Register.

    Signed in Washington, DC, on November 14, 2023.
Treena V. Garrett,
Federal Register Liaison Officer, U.S. Department of Energy.

    For the reasons stated in the preamble, DOE amends part 430 of 
chapter II, of title 10 of the Code of Federal Regulations, as set 
forth below:

PART 430--ENERGY CONSERVATION PROGRAM FOR CONSUMER PRODUCTS

0
1. The authority citation for part 430 continues to read as follows:

    Authority:  42 U.S.C. 6291-6309; 28 U.S.C. 2461 note.


0
2. Amend Sec.  430.32 by:
0
a. Revising paragraph (e)(1)(ii);
0
b. Redesignating paragraph (e)(1)(iii) as paragraph (e)(1)(iv); and
0
c. Adding a new paragraph (e)(1)(iii).
    The revision and addition read as follows:


Sec.  430.32  Energy and water conservation standards and their 
compliance dates.

* * * * *
    (e) * * *
    (1) * * *
    (ii) The AFUE for non-weatherized gas furnaces (not including 
mobile home gas furnaces) manufactured on or after November 19, 2015, 
but before December 18, 2028; mobile home gas furnaces manufactured on 
or after November 19, 2015, but before December 18, 2028; non-
weatherized oil-fired furnaces (not including mobile home furnaces) 
manufactured on or after May 1, 2013, mobile home oil-fired furnaces 
manufactured on or after September 1, 1990; weatherized gas-fired 
furnaces manufactured on or after January 1, 2015; weatherized oil-
fired furnaces manufactured on or after

[[Page 87649]]

January 1, 1992; and electric furnaces manufactured on or after January 
1, 1992; shall not be less than the following:

------------------------------------------------------------------------
                                                          AFUE (percent)
                      Product class                             \1\
------------------------------------------------------------------------
(A) Non-weatherized gas furnaces (not including mobile              80.0
 home furnaces).........................................
(B) Mobile home gas furnaces............................            80.0
(C) Non-weatherized oil-fired furnaces (not including               83.0
 mobile home furnaces)..................................
(D) Mobile home oil-fired furnaces......................            75.0
(E) Weatherized gas furnaces............................            81.0
(F) Weatherized oil-fired furnaces......................            78.0
(G) Electric furnaces...................................            78.0
------------------------------------------------------------------------
\1\ Annual Fuel Utilization Efficiency, as determined in Sec.
  430.23(n)(2).

    (iii) The AFUE for non-weatherized gas (not including mobile home 
gas furnaces) manufactured on and after December 18, 2028; and mobile 
home gas furnaces manufactured on and after December 18, 2028, shall 
not be less than the following:

------------------------------------------------------------------------
                                                          AFUE (percent)
                      Product class                             \1\
------------------------------------------------------------------------
(A) Non-weatherized gas furnaces (not including mobile              95.0
 home gas furnaces).....................................
(B) Mobile home gas furnaces............................            95.0
------------------------------------------------------------------------
\1\ Annual Fuel Utilization Efficiency, as determined in Sec.
  430.23(n)(2).

* * * * *

    Note: The following appendix will not appear in the Code of 
Federal Regulations.

Appendix A--Letter From the Department of Justice to the Department of 
Energy

U.S. Department of Justice

Antitrust Division
RFK Main Justice Building
950 Pennsylvania Avenue NW
Washington, DC 20530-0001
September 6, 2022

Ami Grace-Tardy
Assistant General Counsel for Legislation, Regulation and Energy 
Efficiency
U.S. Department of Energy
Washington, DC 20585
[email protected]

Dear Assistant General Counsel Grace-Tardy:

    I am responding to your July 7, 2022, letter seeking the views 
of the Attorney General about the potential impact on competition of 
proposed energy conservation standards for consumer furnaces, 
specifically for non-weatherized gas furnaces (``NWGFs'') and 
mobile-home gas furnaces (``MHGFs'').
    Your request was submitted under Section 325(o)(2)(B)(i)(V) of 
the Energy Policy and Conservation Act, as amended (EPCA), 42 U.S.C. 
6295(o)(2)(B)(i)(V) and 42 U.S.C. 6316(a), which requires the 
Attorney General to make a determination of the impact of any 
lessening of competition that is likely to result from the 
imposition of proposed energy conservation standards. The Attorney 
General's responsibility for responding to requests from other 
departments about the effect of a program on competition has been 
delegated to the Assistant Attorney General for the Antitrust 
Division in 28 CFR 0.40(g). The Assistant Attorney General for the 
Antitrust Division has authorized me, as the Policy Director for the 
Antitrust Division, to provide the Antitrust Division's views 
regarding the potential impact on competition of proposed energy 
conservation standards on his behalf.
    In conducting its analysis, the Antitrust Division examines 
whether a proposed standard may lessen competition, for example, by 
substantially limiting consumer choice or increasing industry 
concentration. A lessening of competition could result in higher 
prices to manufacturers and consumers. We have reviewed the proposed 
standards contained in the Notice of Proposed Rulemaking (87 FR 
40591, July 7, 2022). We have also interviewed industry 
participants, reviewed public comments and information provided by 
industry participants, reviewed comments submitted to DOJ, have 
spoken with DOE staff, and have listened to the Webinar of the 
Public Meeting held on August 3, 2022.
    Based on our review of the information currently available, we 
do not believe that the proposed energy conservation standards for 
consumer furnaces are likely to substantially lessen competition in 
any particular product or geographic market. In the course of our 
review, we were told that the MHGF market may be more highly 
concentrated than DOE's analysis suggests. Given the necessarily 
short time-frame for our review, we are not in a position to confirm 
the level of concentration increase that may be caused by the rule, 
but encourage DOE to closely examine and consider potential 
competitive issues that commenters may raise with respect to this 
rulemaking.

Sincerely,

/s/

David G.B. Lawrence,

Director of Policy.

[FR Doc. 2023-25514 Filed 12-15-23; 8:45 am]
BILLING CODE 6450-01-P

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