Energy Conservation Program: Energy Conservation Standards for Consumer Gas-fired Instantaneous Water Heaters, 105188-105285 [2024-30369]
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Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations
DEPARTMENT OF ENERGY
10 CFR Part 430
[EERE–2017–BT–STD–0019]
RIN 1904–AF65
Energy Conservation Program: Energy
Conservation Standards for Consumer
Gas-fired Instantaneous Water Heaters
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 gas-fired instantaneous water
heaters, which are a type of consumer
water heater. EPCA also requires the
U.S. Department of Energy (‘‘DOE’’ or
the ‘‘Department’’) to periodically
review its existing standards to
determine whether more-stringent
standards would be technologically
feasible and economically justified, and
would result in significant energy
savings. In this final rule, DOE is
adopting amended energy conservation
standards for gas-fired instantaneous
water heaters. It has determined that the
amended energy conservation standards
for these products would result in
significant conservation of energy, and
are technologically feasible and
economically justified.
DATES: The effective date of this rule is
March 11, 2025. Compliance with the
amended standards established for gasfired instantaneous water heaters in this
final rule is required on and after
December 26, 2029.
ADDRESSES: The docket for this
rulemaking, which includes Federal
Register notices, public meeting
attendee lists and transcripts,
comments, and other supporting
documents/materials, is available for
review at www.regulations.gov. All
documents in the docket are listed in
the www.regulations.gov index.
However, not all documents listed in
the index may be publicly available,
such as information that is exempt from
public disclosure.
The docket web page can be found at
www.regulations.gov/docket/EERE2017-BT-STD-0019. The docket web
page contains instructions on how to
access all documents, including public
comments, in the docket.
For further information on how to
review the docket, contact the
Appliance and Equipment Standards
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SUMMARY:
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Program staff at (202) 287–1445 or by
email: ApplianceStandardsQuestions@
ee.doe.gov.
FOR FURTHER INFORMATION CONTACT: Ms.
Julia Hegarty, U.S. Department of
Energy, Office of Energy Efficiency and
Renewable Energy, Building
Technologies Office, EE–5B, 1000
Independence Avenue SW, Washington,
DC, 20585–0121. Telephone: (202) 586–
0729. Email:
ApplianceStandardsQuestions@
ee.doe.gov.
Mr. Uchechukwu ‘‘Emeka’’ Eze, U.S.
Department of Energy, Office of the
General Counsel, GC–33, 1000
Independence Avenue SW, Washington,
DC, 20585–0121. Telephone: (240) 961–
8879. Email: uchechukwu.eze@
hq.doe.gov.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Synopsis of the Final Rule
A. Benefits and Costs to Consumers
B. Impact on Manufacturers
C. National Benefits and Costs
D. Conclusion
II. Introduction
A. Authority
B. Background
1. Current Standards
2. History of Standards Rulemaking for
Gas-fired Instantaneous Water Heaters
III. General Discussion
A. General Comments
1. General Support
2. Support for Updated Analysis and
Standards at EL 2
3. General Opposition
4. Comments on Higher Standards Than
Proposed in the NOPR
B. Scope of Coverage
C. Test Procedure
D. Technological Feasibility
1. General
2. Maximum Technologically Feasible
Levels
E. Energy Savings
1. Determination of Savings
2. Significance of Savings
F. Economic Justification
1. Specific Criteria
a. Economic Impact on Manufacturers and
Consumers
b. Savings in Operating Costs Compared to
Increase in Price (LCC and PBP)
c. Energy Savings
d. Lessening of Utility or Performance of
Products
e. Impact of Any Lessening of Competition
f. Need for National Energy Conservation
g. Other Factors
2. Rebuttable Presumption
IV. Methodology and Discussion of Related
Comments
A. Market and Technology Assessment
1. Product Classes
2. Technology Options
B. Screening Analysis
1. Screened-Out Technologies
2. Remaining Technologies
C. Engineering Analysis
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1. Products With Current UEF-Based
Standards
a. Efficiency Levels
b. Design Options
c. Cost Analysis
d. Shipping Costs and Manufacturer
Selling Price
e. Cost-Efficiency Results
2. Products Without Current UEF-Based
Standards
a. Crosswalk to Equivalent-Stringency
UEF-Based Standards
b. Consideration of More Stringent
Standards
D. Markups Analysis
E. Energy Use Analysis
1. Building Sample
2. Hot Water Use Determination
3. Energy Use Determination
F. Life-Cycle Cost and Payback Period
Analysis
1. Product Cost
2. Installation Cost
a. Basic Installation Costs
b. Venting Costs
c. Condensate Management Costs
3. Annual Energy Consumption
4. Energy Prices
5. Maintenance and Repair Costs
6. Product Lifetime
7. Discount Rates
8. Energy Efficiency Distribution in the NoNew-Standards Case
9. Payback Period Analysis
10. Accounting for Product Switching
11. Analytical Results
G. Shipments Analysis
1. Impact of Repair vs. Replace
H. National Impact Analysis
1. Product Efficiency Trends
2. National Energy Savings
3. Net Present Value Analysis
I. Consumer Subgroup Analysis
1. Low-Income Households
2. Senior-Only Households
3. Small Business Subgroup
J. Manufacturer Impact Analysis
1. Overview
2. Government Regulatory Impact Model
and Key Inputs
a. Manufacturer Production Costs
b. Shipments Projections
c. Capital and Product Conversion Costs
d. Manufacturer Markup Scenarios
3. Discussion of MIA Comments
K. Emissions Analysis
1. Air Quality Regulations Incorporated in
DOE’s Analysis
L. Monetizing Emissions Impacts
1. Monetization of Greenhouse Gas
Emissions
a. Social Cost of Carbon
b. Social Cost of Methane and Nitrous
Oxide
2. Monetization of Other Emissions
Impacts
M. Utility Impact Analysis
N. Employment Impact Analysis
V. Analytical Results and Conclusions
A. Trial Standard Levels
B. Economic Justification and Energy
Savings
1. Economic Impacts on Individual
Consumers
a. Life-Cycle Cost and Payback Period
b. Consumer Subgroup Analysis
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Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations
c. Rebuttable Presumption Payback
2. Economic Impacts on Manufacturers
a. Industry Cash Flow Analysis Results
b. Direct Impacts on Employment
c. Impacts on Manufacturing Capacity
d. Impacts on Subgroups of Manufacturers
e. Cumulative Regulatory Burden
3. National Impact Analysis
a. National Energy Savings
b. Net Present Value of Consumer Costs
and Benefits
c. Indirect Impacts on Employment
4. Impact on Utility or Performance of
Products
5. Impact of Any Lessening of Competition
6. Need of the Nation To Conserve Energy
7. Other Factors
8. Summary of Economic Impacts
C. Conclusion
1. Benefits and Burdens of TSLs
Considered for Gas-fired Instantaneous
Water Heater Standards
2. Annualized Benefits and Costs of the
Adopted Standards
3. Compliance Dates
VI. Procedural Issues and Regulatory Review
A. Review Under Executive Orders 12866,
13563, and 14094
B. Review Under the Regulatory Flexibility
Act
C. Review Under the Paperwork Reduction
Act
D. Review Under the National
Environmental Policy Act of 1969
E. Review Under Executive Order 13132
F. Review Under Executive Order 12988
G. Review Under the Unfunded Mandates
Reform Act of 1995
H. Review Under the Treasury and General
Government Appropriations Act, 1999
I. Review Under Executive Order 12630
J. Review Under the Treasury and General
Government Appropriations Act, 2001
K. Review Under Executive Order 13211
L. Information Quality
M. Congressional Notification
VII. Approval of the Office of the Secretary
I. Synopsis of the Final Rule
The Energy Policy and Conservation
Act, Public Law 94–163, as amended
(‘‘EPCA’’),1 authorizes DOE to regulate
the energy efficiency of a number of
consumer products and certain
industrial equipment. (42 U.S.C. 6291–
6317, as codified) Title III, Part B of
EPCA 2 established the Energy
Conservation Program for Consumer
Products Other Than Automobiles. (42
U.S.C. 6291–6309) These products
include gas-fired instantaneous water
heaters, the subject of this document.
(42 U.S.C. 6292(a)(4))
Pursuant to EPCA, DOE is required to
review its existing energy conservation
standards for covered consumer
products no later than six years after
issuance of any final rule establishing or
amending a standard. (42 U.S.C.
6295(m)(1)) Pursuant to that statutory
provision, DOE must publish either a
notification of determination that
standards for the product do not need to
be amended, or a notice of proposed
rulemaking (‘‘NOPR’’) including new
proposed energy conservation standards
(proceeding to a final rule, as
appropriate). (Id.) Any new or amended
energy conservation standard must be
designed to achieve the maximum
improvement in energy efficiency that
DOE determines is technologically
feasible and economically justified. (42
U.S.C. 6295(o)(2)(A)) Furthermore, the
new or amended standard must result in
significant conservation of energy. (42
U.S.C. 6295(o)(3)(B)) DOE has
conducted this review of the energy
conservation standards for gas-fired
instantaneous water heaters under
EPCA’s six-year-lookback authority
described herein. Additionally, for gasfired instantaneous water heaters with 2
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or more gallons of storage volume and
gas-fired instantaneous water heaters
with less than or equal to 50,000 British
thermal units per hour (‘‘Btu/h’’) of
input, DOE is following the provisions
in EPCA to translate the current energy
factor (‘‘EF’’)-based standards to the
uniform energy factor (‘‘UEF’’) metric.
(42 U.S.C. 6295(e)(5))
In accordance with these and other
statutory provisions discussed in this
document, DOE analyzed the benefits
and burdens of four trial standard levels
(‘‘TSLs’’) for gas-fired instantaneous
water heaters with less than 2 gallons of
effective storage volume and rated
inputs greater than 50,000 Btu/h. The
TSLs and their associated benefits and
burdens are discussed in detail in
sections V.A through V.C of this
document. As discussed in section V.C
of this document, DOE has determined
that TSL 2 represents the maximum
improvement in energy efficiency that is
technologically feasible and
economically justified. The adopted
standards, which are expressed in UEF
are shown in table I.1. These standards
apply to products with effective storage
volumes less than 2 gallons and input
ratings greater than 50,000 Btu/h (as
listed in table I.1) and manufactured in,
or imported into, the United States
starting on December 26, 2029.
For all other gas-fired instantaneous
water heaters, DOE is adopting new
standards that do not constitute an
increase to stringency, but simply a
change in rating metric to the UEF
descriptor. These standards apply to all
remaining products listed in table I.1
and manufactured in, or imported into,
the United States starting on December
26, 2029.
TABLE I.1—ENERGY CONSERVATION STANDARDS FOR GAS-FIRED INSTANTANEOUS WATER HEATERS
Product class
Effective storage volume (Veff) * and input rating
Draw pattern
Gas-fired Instantaneous Water Heater ......
<2 gallons (‘‘gal’’) and ≤50,000 Btu/h ......................
Very Small ........
Low ...................
Medium .............
High ..................
Very Small ........
Low ...................
Medium .............
High ..................
Very Small ........
Low ...................
Medium .............
High ..................
<2 gal and >50,000 Btu/h ........................................
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≥2 gal and ≤200,000 Btu/h ......................................
UEF
0.64
0.64
0.64
0.64
0.89
0.91
0.91
0.93
0.2534¥(0.0018
0.5226¥(0.0022
0.5919¥(0.0020
0.6540¥(0.0017
×
×
×
×
Veff)
Veff)
Veff)
Veff)
* Veff is the Effective Storage Volume (in gallons), as determined pursuant to 10 CFR 429.17.
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
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reflect the last statutory amendments that impact
Parts A and A–1 of EPCA.
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2 For editorial reasons, upon codification in the
U.S. Code, Part B was redesignated Part A.
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Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations
The following sections of this
synopsis summarize the findings of the
analysis carried out for gas-fired
instantaneous water heaters with less
than 2 gallons of effective storage
volume and rated inputs greater than
50,000 Btu/h.
A. Benefits and Costs to Consumers 3
The average life-cycle cost (‘‘LCC’’)
savings are $112, and the simple
payback period (‘‘PBP’’),4 8.9 years, is
less than the 20-year average lifetime of
a gas-fired instantaneous water heater
(see section IV.F of this document).
DOE’s analysis of the impacts of the
adopted standards on consumers is
described in section IV.F of this
document.
B. Impact on Manufacturers
The industry net present value
(‘‘INPV’’) is the sum of the discounted
cash flows to the industry from the base
year through the end of the analysis
period (2024–2059). Using a real
discount rate of 9.6 percent, DOE
estimates that the INPV for
manufacturers of gas-fired instantaneous
water heaters in the case without
amended standards is $1,193.9 million
in 2023$. Under the adopted standards,
DOE estimates the change in INPV to
range from ¥2.8 percent to 3.4 percent,
which is approximately ¥$33.7 million
to $40.5 million. In order to bring
products into compliance with amended
standards, it is estimated that industry
will incur total conversion costs of
$20.4 million.
DOE’s analysis of the impacts of the
adopted standards on manufacturers is
described in section IV.J of this
document. The analytic results of the
manufacturer impact analysis (‘‘MIA’’)
are presented in section V.B.2 of this
document.
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C. National Benefits and Costs
DOE’s analyses indicate that the
adopted energy conservation standards
for gas-fired instantaneous water heaters
would save a significant amount of
energy. Relative to the case without
amended standards, the lifetime energy
savings for gas-fired instantaneous water
3 All monetary values in this document are
expressed in 2023 dollars unless indicated
otherwise. For purposes of discounting future
monetary values, the present year in the analysis
was 2024.
4 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.9 of this document). The
simple PBP, which is designed to compare specific
efficiency levels, is measured relative to the
baseline product (see section IV.C of this
document).
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heaters purchased during the 30-year
period that begins in the anticipated
year of compliance with the amended
standards (2030–2059), amount to 0.58
quadrillion British thermal units
(‘‘Btu’’), or quads.5 This represents a
savings of 1.9 percent relative to the
energy use of these products in the case
without amended standards (referred to
as the ‘‘no-new-standards case’’).
The cumulative net present value
(‘‘NPV’’) of total consumer benefits of
the standards for gas-fired instantaneous
water heaters ranges from $0.87 billion
(at a 7-percent discount rate) to $3.06
billion (at a 3-percent discount rate).
This NPV expresses the estimated total
value of future operating-cost savings
minus the estimated increased product
and installation costs for gas-fired
instantaneous water heaters purchased
during the period 2030–2059.
In addition, the adopted standards for
gas-fired instantaneous water heaters are
projected to yield significant
environmental benefits. DOE estimates
that the standards will result in
cumulative emission reductions (over
the same period as for energy savings)
of 32 million metric tons (‘‘Mt’’) 6 of
carbon dioxide (‘‘CO2’’), 0.12 thousand
tons of sulfur dioxide (‘‘SO2’’), 86
thousand tons of nitrogen oxides
(‘‘NOX’’), 398 thousand tons of methane
(‘‘CH4’’), 0.06 thousand tons of nitrous
oxide (‘‘N2O’’), and an increase of
0.0004 tons of mercury (‘‘Hg’’) due to a
small increase in electricity use at the
adopted standards.7
DOE estimates the value of climate
benefits from a reduction in greenhouse
gases (‘‘GHG’’) using 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’’).8 Together these represent the
social cost of GHG (‘‘SC–GHG’’). DOE
used an updated set of SC–GHG
estimates published in 2023 by the
Environmental Protection Agency
(‘‘EPA’’) (‘‘2023 SC–GHG’’), as well as
the interim SC–GHG values (in terms of
benefit per ton of GHG avoided)
developed by an Interagency Working
Group on the Social Cost of Greenhouse
Gases (‘‘IWG’’) in 2021 (‘‘2021 Interim
SC–GHG’’), which DOE used in the
notice of proposed rulemaking for this
rule before the updated values were
available.9 These values is discussed in
section IV.L of this document. The
climate benefits associated with the
average SC–GHG at a 2-percent nearterm Ramsey discount rate using the
2023 SC–GHG estimates are estimated to
be $7.1 billion, and the climate benefits
associated with the average 2021
Interim SC–GHG estimates at a 3percent discount rate are estimated to be
$1.7 billion. DOE notes, however, that
the adopted standards would be
economically justified even without
inclusion of the estimated monetized
benefits of reduced GHG emissions.
DOE estimated the monetary health
benefits of SO2 and NOX emissions
reductions using benefit per ton
estimates from the EPA’s Benefits
Mapping and Analysis Program,10 as
discussed in section IV.L of this
document. DOE did not monetize the
change in mercury emissions because
the quantity is very small. DOE
estimated the present value of the health
benefits would be $0.9 billion using a 7percent discount rate, and $2.7 billion
using a 3-percent discount rate.11 DOE
is currently only monetizing health
benefits from changes in ambient fine
particulate matter (‘‘PM2.5’’)
concentrations from two precursors
(SO2 and NOX), and from changes in
ambient ozone from one precursor
(NOX), but will continue to assess the
ability to monetize other effects such as
health benefits from reductions in direct
PM2.5 emissions.
Table I.2 summarizes the monetized
benefits and costs expected to result
from the amended standards for gas-
5 The quantity refers to full-fuel-cycle (‘‘FFC’’)
energy savings. FFC energy savings includes the
energy consumed in extracting, processing, and
transporting primary fuels (i.e., coal, natural gas,
petroleum fuels), and, thus, presents a more
complete picture of the impacts of energy efficiency
standards. For more information on the FFC metric,
see section IV.H.2 of this document.
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 reflects, to the extent
possible, laws and regulations adopted through
mid-November 2022, including the Inflation
Reduction Act. See section IV.K of this document
for further discussion of AEO2023 assumptions that
affect air pollutant emissions.
8 Estimated climate-related benefits are provided
in compliance with Executive Order 12866.
9 Technical Support Document: Social Cost of
Carbon, Methane, and Nitrous Oxide Interim
Estimates Under Executive Order 13990 published
in February 2021 by the IWG. (‘‘February 2021 SC–
GHG TSD’’). www.whitehouse.gov/wp-content/
uploads/2021/02/TechnicalSupportDocument_
SocialCostofCarbonMethaneNitrousOxide.pdf.
https://www.epa.gov/system/files/documents/202312/eo12866_oil-and-gas-nsps-eg-climate-review2060-av16-final-rule-20231130.pdf; https://
www.epa.gov/system/files/documents/2023-12/epa_
scghg_2023_report_final.pdf (last accessed July 3,
2024).
10 U.S. EPA. Estimating the Benefit per Ton of
Reducing Directly-Emitted PM2.5, PM2.5 Precursors
and Ozone Precursors from 21 Sectors. Available at:
www.epa.gov/benmap/estimating-benefit-tonreducing-pm25-precursors-21-sectors.
11 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.
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Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations
fired instantaneous water heaters. There
are other important unquantified effects,
including certain unquantified climate
benefits, unquantified public health
benefits from the reduction of toxic air
pollutants and other emissions,
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unquantified energy security benefits,
and distributional effects, among others.
TABLE I.2—SUMMARY OF MONETIZED BENEFITS AND COSTS OF THE ADOPTED ENERGY CONSERVATION STANDARDS FOR
GAS-FIRED INSTANTANEOUS WATER HEATERS AT TSL 2 SHIPPED DURING THE PERIOD 2030–2059
[Veff < 2 gal, Rated Input > 50,000 Btu/h]
Billion 2023$
3% discount rate
Consumer Operating Cost Savings .....................................................................................................................................................
Climate Benefits * (2023 SC–GHG estimates) ....................................................................................................................................
Climate Benefits * (2021 interim SC–GHG estimates) ........................................................................................................................
Health Benefits ** .................................................................................................................................................................................
Total Benefits † (2023 SC–GHG estimates) ........................................................................................................................................
Total Benefits † (2021 interim SC–GHG estimates) ............................................................................................................................
Consumer Incremental Product Costs ‡ ..............................................................................................................................................
Net Benefits † (2023 SC–GHG estimates) ..........................................................................................................................................
Net Benefits † (2021 interim SC–GHG estimates) ..............................................................................................................................
Change in Producer Cashflow (INPV) ‡‡ .............................................................................................................................................
4.5
7.1
1.7
2.7
14.3
8.9
1.5
12.8
7.4
(0.03)–0.04
7% discount rate
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Consumer Operating Cost Savings .....................................................................................................................................................
Climate Benefits * (2023 SC–GHG estimates) ....................................................................................................................................
Climate Benefits * (2021 interim SC–GHG estimates) ........................................................................................................................
Health Benefits ** .................................................................................................................................................................................
Total Benefits † (2023 SC–GHG estimates) ........................................................................................................................................
Total Benefits † (2021 interim SC–GHG estimates) ............................................................................................................................
Consumer Incremental Product Costs ‡ ..............................................................................................................................................
Net Benefits † (2023 SC–GHG estimates) ..........................................................................................................................................
Net Benefits † (2021 interim SC–GHG estimates) ..............................................................................................................................
Change in Producer Cashflow (INPV) ‡‡ .............................................................................................................................................
1.7
7.1
1.7
0.9
9.6
4.2
0.8
8.9
3.4
(0.03)–0.04
Note: These results include consumer, climate, and health benefits that accrue after 2030 from the products shipped during the period 2030–
2059.
* Climate benefits are calculated using different estimates of the social cost of carbon (SC–CO2), methane (SC–CH4), and nitrous oxide (SC–
N2O). Climate benefits are estimated using two separate sets of estimates of the social cost for each greenhouse gas, an updated set published
in 2023 by the Environmental Protection Agency (EPA) (‘‘2023 SC–GHG’’) and the interim set of estimates used in the NOPR which were published in 2021 by the Interagency Working Group on the SC–GHG (IWG) (‘‘2021 Interim SC–GHG’’) (see section IV.L of this document). For
presentational purposes of this table, the climate benefits associated with the average SC–GHG at a 2 percent near-term Ramsey discount rate
are shown for the 2023 SC–GHG estimates, and the climate benefits associated with the average SC–GHG at a 3 percent discount rate are
shown for the 2021 interim SC–GHG estimates.
** Health benefits are calculated using benefit-per-ton values for 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. Table 5 of the EPA’s Estimating the Benefit per Ton of Reducing PM2.5 Precursors
from 21 Sectors TSD provides a summary of the health impact endpoints quantified in the analysis. See section IV.L of this document for more
details.
† Total and net benefits include those consumer, climate, and health benefits that can be quantified and monetized. For presentation purposes,
total and net benefits for both the 3-percent and 7-percent cases are presented using the average SC–GHG with 2-percent near-term Ramsey
discount rate for the 2023 estimate and the average SC–GHG with 3-percent discount rate for the 2021 interim SC–GHG estimate.
‡ Costs include incremental equipment costs as well as installation costs.
‡‡ Operating Cost Savings are calculated based on the life-cycle costs analysis and national impact analysis as discussed in detail below. See
sections IV.F and IV.H of this document. DOE’s national impacts analysis includes all impacts (both costs and benefits) along the distribution
chain beginning with the increased costs to the manufacturer to manufacture the product and ending with the increase in price experienced by
the consumer. DOE also separately conducts a detailed analysis on the impacts on manufacturers (i.e., manufacturer impact analysis, or ‘‘MIA’’).
See section IV.J of this document. In the detailed MIA, DOE models manufacturers’ pricing decisions based on assumptions regarding investments, conversion costs, cashflow, and margins. The MIA produces a range of impacts, which is the rule’s expected impact on the INPV. The
change in INPV is the present value of all changes in industry cash flow, including changes in production costs, capital expenditures, and manufacturer profit margins. Change in INPV is calculated using the industry weighted average cost of capital value of 9.6 percent that is estimated in
the MIA (see chapter 12 of the final rule technical support document (‘‘TSD’’) for a complete description of the industry weighted average cost of
capital). For gas-fired instantaneous water heaters, the change in INPV ranges from ¥$34 million to $41 million. DOE accounts for that range of
likely impacts in analyzing whether a TSL is economically justified. See section V.C of this document. DOE is presenting the range of impacts to
the INPV under two manufacturer markup scenarios: the Preservation of Gross Margin scenario, which is the manufacturer markup scenario
used in the calculation of Consumer Operating Cost Savings in this table; and the Preservation of Operating Profit scenario, where DOE assumed manufacturers would not be able to increase per-unit operating profit in proportion to increases in manufacturer production costs. DOE includes the range of estimated INPV in the above table, drawing on the MIA explained further in section IV.J of this document to provide additional context for assessing the estimated impacts of this final rule to society, including potential changes in production and consumption, which
is consistent with OMB’s Circular A–4 and E.O. 12866. If DOE were to include the INPV into the net benefit calculation (2023 SC–GHG estimates) for this final rule, the net benefits would be $12.8 billion at 3-percent discount rate and $8.9 billion at 7-percent discount rate. Parentheses indicate negative ( ) values.
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Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / 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.12
The national operating cost savings
are domestic private U.S. consumer
monetary savings that occur as a result
of purchasing the covered products and
are measured for the lifetime of gas-fired
instantaneous water heaters shipped
during the period 2030–2059. The
benefits associated with reduced
emissions achieved as a result of the
adopted standards are also calculated
based on the lifetime of gas-fired
instantaneous water heaters shipped
during the period 2030–2059. Total
benefits for both the 3-percent and 7percent cases are presented using the
average SC–GHG with a 2 percent nearterm Ramsey discount rate for the 2023
SC–GHG estimates and the average SC–
GHG with 3-percent discount rate for
the 2021 interim SC–GHG estimates.13
Table I.3 presents the total estimated
monetized benefits and costs associated
with the adopted standard, expressed in
terms of annualized values. The results
under the primary estimate are as
follows.
Using a 7-percent discount rate for
consumer benefits and costs and health
benefits from reduced NOX and SO2
emissions, and the 2-percent near-term
Ramsey discount rate case or the 3percent discount rate case for climate
benefits from reduced GHG emissions,
the estimated cost of the standards
adopted in this rule is $88 million per
year in increased equipment costs,
while the estimated annual benefits are
$187 million in reduced equipment
operating costs, $349 million in climate
benefits (using the 2023 SC–GHG
estimates) or $98 million in climate
benefits (using the 2021 interim SC–
GHG estimates), and $101 million in
health benefits. In this case, the net
benefit would amount to $549 million
per year (using the 2023 SC–GHG
estimates) or $297 million per year
(using the 2021 interim SC–GHG
estimates).
Using a 3-percent discount rate for
consumer benefits and costs and health
benefits from reduced NOX and SO2
emissions, and the 2-percent near-term
Ramsey discount rate case or the 3percent discount rate case for climate
benefits from reduced GHG emissions,
the estimated cost of the standards is
$87 million per year in increased
equipment costs, while the estimated
annual benefits are $268 million in
reduced operating costs, $349 million in
climate benefits (using the 2023 SC–
GHG estimates) or $98 million in
climate benefits (using the 2021 interim
SC–GHG estimates), and $158 million in
health benefits. In this case, the net
benefit would amount to $689 million
per year (using the 2023 SC–GHG
estimates) or $437 million per year
(using the 2021 interim SC–GHG
estimates).
TABLE I.3—ANNUALIZED BENEFITS AND COSTS OF THE ADOPTED ENERGY CONSERVATION STANDARDS FOR GAS-FIRED
INSTANTANEOUS WATER HEATERS AT TSL 2 SHIPPED DURING THE PERIOD 2030–2059
[Veff <2 gal, rated input >50,000 Btu/h]
Million 2023$/year
Primary
estimate
Low-netbenefits
estimate
High-netbenefits
estimate
3% discount rate
Consumer Operating Cost Savings .............................................................................................
Climate Benefits * (2023 SC–GHG estimates) ............................................................................
Climate Benefits * (2021 interim SC–GHG estimates) ................................................................
Health Benefits ** .........................................................................................................................
Total Benefits † (2023 SC–GHG estimates) ................................................................................
Total Benefits † (2021 interim SC–GHG estimates) ....................................................................
Consumer Incremental Product Costs ‡ ......................................................................................
Net Benefits † (2023 SC–GHG estimates) ..................................................................................
Net Benefits † (2021 interim SC–GHG estimates) ......................................................................
Change in Producer Cashflow (INPV) ‡‡ ....................................................................................
268
349
98
158
776
525
87
689
437
(3)–4
249
344
96
156
749
502
86
663
416
(3)–4
288
355
100
161
804
548
89
715
459
(3)–4
187
349
98
101
637
386
88
549
297
174
344
96
99
616
369
87
530
283
200
355
100
102
658
402
90
568
312
7% discount rate
ddrumheller on DSK120RN23PROD with RULES2
Consumer Operating Cost Savings .............................................................................................
Climate Benefits * (2023 SC–GHG estimates) ............................................................................
Climate Benefits * (2021 interim SC–GHG estimates) ................................................................
Health Benefits ** .........................................................................................................................
Total Benefits † (2023 SC–GHG estimates) ................................................................................
Total Benefits † (2021 interim SC–GHG estimates) ....................................................................
Consumer Incremental Product Costs ‡ ......................................................................................
Net Benefits † (2023 SC–GHG estimates) ..................................................................................
Net Benefits † (2021 interim SC–GHG estimates) ......................................................................
12 To convert the time-series of costs and benefits
into annualized values, DOE calculated a present
value in 2024, the year used for discounting the
NPV of total consumer costs and savings. For the
benefits, DOE calculated a present value associated
with each year’s shipments in the year in which the
shipments occur (e.g., 2020 or 2030), and then
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discounted the present value from each year to
2024. Using the present value, DOE then calculated
the fixed annual payment over a 30-year period,
starting in the compliance year, that yields the same
present value.
13 DOE notes that using consumption-based
discount rates (e.g., 2 or 3 percent) is appropriate
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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 capitalbased rate (i.e., 7 percent) is reasonable because of
the different nature of the types of benefits being
measured.
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105193
TABLE I.3—ANNUALIZED BENEFITS AND COSTS OF THE ADOPTED ENERGY CONSERVATION STANDARDS FOR GAS-FIRED
INSTANTANEOUS WATER HEATERS AT TSL 2 SHIPPED DURING THE PERIOD 2030–2059—Continued
[Veff <2 gal, rated input >50,000 Btu/h]
Million 2023$/year
Primary
estimate
Change in Producer Cashflow (INPV) ‡‡ ....................................................................................
(3)–4
Low-netbenefits
estimate
(3)–4
High-netbenefits
estimate
(3)–4
Note: These results include consumer, climate, and health benefits that accrue after 2059 from the products shipped during the period 2030–
2059. The Primary, Low Net Benefits, and High Net Benefits Estimates utilize projections of energy prices from the AEO2023 Reference case,
Low Economic Growth case, and High Economic Growth case, respectively. In addition, incremental equipment costs reflect a medium decline
rate in the Primary Estimate, a low decline rate in the Low Net Benefits Estimate, and a high decline rate in the High Net Benefits Estimate. The
methods used to derive projected price trends are explained in sections IV.F.1 and IV.H.3 of this document. Note that the Benefits and Costs
may not sum to the Net Benefits due to rounding.
* Climate benefits are calculated using different estimates of the global SC–GHG (see section IV.L of this document). Climate benefits are estimated using two separate sets of estimates of the social cost for each greenhouse gas, an updated set published in 2023 by the Environmental
Protection Agency (EPA) (‘‘2023 SC–GHG’’) and the interim set of estimates used in the NOPR which were published in 2021 by the Interagency
Working Group on the SC–GHG (IWG) (‘‘2021 Interim SC–GHG’’) (see section IV.L of this document). For presentational purposes of this table,
the climate benefits associated with the average SC–GHG at a 2 percent near-term Ramsey discount rate are shown for the 2023 SC–GHG estimates, and the climate benefits associated with the average SC–GHG at a 3 percent discount rate are shown for the 2021 interim SC–GHG estimates.
** Health benefits are calculated using benefit-per-ton values for 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. Table 5 of the EPA’s Estimating the Benefit per Ton of Reducing PM2.5 Precursors
from 21 Sectors TSD provides a summary of the health impact endpoints quantified in the analysis. See section IV.L of this document for more
details.
† Total benefits for both the 3-percent and 7-percent cases are presented using the average SC–GHG with 2-percent near-term Ramsey discount rate for the 2023 estimate and the average SC–GHG with 3-percent discount rate for the 2021 interim SC–GHG estimate.
‡ Costs include incremental equipment costs as well as installation costs.
‡‡ Operating Cost Savings are calculated based on the life-cycle costs analysis and national impact analysis as discussed in detail below. See
sections IV.F and IV.H of this document. DOE’s national impacts analysis includes all impacts (both costs and benefits) along the distribution
chain beginning with the increased costs to the manufacturer to manufacture the product and ending with the increase in price experienced by
the consumer. DOE also separately conducts a detailed analysis on the impacts on manufacturers (i.e., MIA). See section IV.J of this document.
In the detailed MIA, DOE models manufacturers’ pricing decisions based on assumptions regarding investments, conversion costs, cashflow, and
margins. The MIA produces a range of impacts, which is the rule’s expected impact on the INPV. The change in INPV is the present value of all
changes in industry cash flow, including changes in production costs, capital expenditures, and manufacturer profit margins. The annualized
change in INPV is calculated using the industry weighted average cost of capital value of 9.6 percent that is estimated in the MIA (see chapter
12 of the final rule TSD for a complete description of the industry weighted average cost of capital). For gas-fired instantaneous water heaters,
the annualized change in INPV ranges from ¥$3 million to $4 million. DOE accounts for that range of likely impacts in analyzing whether a TSL
is economically justified. See section V.C of this document. DOE is presenting the range of impacts to the INPV under two manufacturer markup
scenarios: the Preservation of Gross Margin scenario, which is the manufacturer markup scenario used in the calculation of Consumer Operating
Cost Savings in this table; and the Preservation of Operating Profit scenario, where DOE assumed manufacturers would not be able to increase
per-unit operating profit in proportion to increases in manufacturer production costs. DOE includes the range of estimated annualized change in
INPV in the above table, drawing on the MIA explained further in section IV.J of this document to provide additional context for assessing the estimated impacts of this final rule to society, including potential changes in production and consumption, which is consistent with OMB’s Circular
A–4 and E.O. 12866. If DOE were to include the INPV into the annualized net benefit calculation (2023 SC–GHG estimates) for this final rule,
the annualized net benefits would range from $686 million to $693 million at 3-percent discount rate and would range from $546 million to $553
million at 7-percent discount rate. Parentheses indicate negative ( ) values.
ddrumheller on DSK120RN23PROD 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. 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 reduction benefits, and a 2percent near-term Ramsey discount rate
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case or the 3-percent discount rate case
for GHG social costs, the estimated cost
of the standards for gas-fired
instantaneous water heaters is $88
million per year in increased product
costs, while the estimated annual
benefits are $187 million in reduced
product operating costs, $349 million in
climate benefits (using the 2023 SC–
GHG estimates) or $98 million in
climate benefits (using the 2021 interim
SC–GHG estimates), and $101 million in
health benefits. The net benefit amounts
to $549 million per year (using the 2023
SC–GHG estimates) or $297 million per
year (using the 2021 interim SC–GHG
estimates). DOE notes that the net
benefits are substantial even in the
absence of the climate benefits,14 and
14 The information on climate benefits is provided
in compliance with Executive Order 12866.
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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.15 For example, some
covered products and equipment have
most of their energy consumption occur
during periods of peak energy demand.
The impacts of these products on the
energy infrastructure can be more
pronounced than the impacts of
products with relatively constant
demand. Accordingly, DOE evaluates
the significance of energy savings on a
case-by-case basis.
15 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).
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As previously mentioned, the
standards are projected to result in
estimated national energy savings
(‘‘NES’’) of 0.58 quads full-fuel-cycle
(‘‘FFC’’), the equivalent of the primary
annual energy use of 4 million homes.
Based on these findings, DOE has
determined the energy savings from the
standard levels adopted in this final rule
are ‘‘significant’’ within the meaning of
42 U.S.C. 6295(o)(3)(B). A more detailed
discussion of the basis for these
conclusions is contained in the
remainder of this document and the
accompanying TSD.
II. Introduction
The following section briefly
discusses the statutory authority
underlying this final rule, as well as
some of the relevant historical
background related to the establishment
of standards for gas-fired instantaneous
water heaters, which, as discussed in
section III.B of this document, are a
subset of consumer water heaters. Gasfired instantaneous water heaters are
defined at 10 CFR 430.2 as a water
heater that uses gas as the main energy
source, has a nameplate input rating less
than 200,000 Btu/h, and contains no
more than one gallon of water per 4,000
Btu per hour of input.
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A. Authority
EPCA authorizes DOE to regulate the
energy efficiency of a number of
consumer products and certain
industrial equipment. (42 U.S.C. 6291–
6317, as codified) Title III, Part B of
EPCA 16 established the Energy
Conservation Program for Consumer
Products Other Than Automobiles. (42
U.S.C. 6291–6309) These products
include gas-fired instantaneous water
heaters, the subject of this document.
(42 U.S.C. 6292(a)(4))
The energy conservation program
under EPCA, consists essentially of four
parts: (1) testing, (2) labeling, (3) the
establishment of Federal energy
conservation standards, and (4)
certification and enforcement
procedures. Relevant provisions of
EPCA specifically include definitions
(42 U.S.C. 6291), test procedures (42
U.S.C. 6293), labeling provisions (42
U.S.C. 6294), energy conservation
standards (42 U.S.C. 6295), and the
authority to require information and
reports from manufacturers (42 U.S.C.
6296).
Federal energy efficiency
requirements for covered products
established under EPCA generally
16 As noted previously, for editorial reasons, upon
codification in the U.S. Code, Part B was
redesignated Part A.
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supersede State laws and regulations
concerning energy conservation testing,
labeling, and standards. (42 U.S.C.
6297(a)–(c)) DOE may, however, grant
waivers of Federal preemption in
limited circumstances for particular
State laws or regulations, in accordance
with the procedures and other
provisions set forth under EPCA. (42
U.S.C. 6297(d))
Subject to certain criteria and
conditions, DOE is required to develop
test procedures to measure the energy
efficiency, energy use, or estimated
annual operating cost of each covered
product. (42 U.S.C. 6295(o)(3)(A) and 42
U.S.C. 6295(r)) Manufacturers of
covered products must use the
prescribed DOE test procedure as the
basis for certifying to DOE that their
product complies with the applicable
energy conservation standards and as
the basis for any representations
regarding the energy use or energy
efficiency of the product. (42 U.S.C.
6295(s) and 42 U.S.C. 6293(c)).
Similarly, DOE must use these test
procedures to evaluate whether a basic
model complies with the applicable
energy conservation standard(s). (42
U.S.C. 6295(s)) The DOE test procedures
for gas-fired instantaneous water heaters
appear at title 10 of the Code of Federal
Regulations (‘‘CFR’’) part 430, subpart B,
appendix E (‘‘appendix E’’).
EPCA prescribed energy conservation
standards for gas-fired instantaneous
water heaters (42 U.S.C. 6295(e)(1)) and
directed DOE to conduct future
rulemakings to determine whether to
amend these standards. (42 U.S.C.
6295(e)(4)) Not later than six years after
the issuance of any final rule
establishing or amending a standard,
DOE must publish either a notice of
determination (‘‘NOPD’’) that standards
for the product do not need to be
amended, or a NOPR including new
proposed energy conservation standards
(proceeding to a final rule, as
appropriate). (42 U.S.C. 6295(m)(1))
DOE must make the analysis on which
a NOPD or NOPR is based publicly
available and provide an opportunity for
written comment. (42 U.S.C. 6295(m)(2))
Not later than two years after a NOPR
is issued, DOE must publish a final rule
amending the energy conservation
standard for the product. (42 U.S.C.
6295(m)(3)(A))
DOE must follow specific statutory
criteria for prescribing new or amended
standards for covered products,
including gas-fired instantaneous water
heaters. Any new or amended standard
for a covered product must be designed
to achieve the maximum improvement
in energy efficiency that the Secretary of
Energy (‘‘Secretary’’) determines is
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technologically feasible and
economically justified. (42 U.S.C.
6295(o)(2)(A)) Furthermore, DOE may
not adopt any standard that would not
result in the significant conservation of
energy. (42 U.S.C. 6295(o)(3)(B))
Moreover, DOE may not prescribe a
standard if: (1) for certain products,
including gas-fired instantaneous water
heaters, no test procedure has been
established for the product; or (2) DOE
determines by rule that the
establishment of such standard will not
result in significant conservation of
energy (or, for certain products, water),
or is not technologically feasible or
economically justified. (42 U.S.C.
6295(o)(3)(A)–(B)) In deciding whether a
proposed standard is economically
justified, DOE must determine whether
the benefits of the standard exceed its
burdens. (42 U.S.C. 6295(o)(2)(B)(i))
DOE must make this determination after
receiving comments on the proposed
standard, and by considering, to the
greatest extent practicable, the following
seven statutory factors:
(1) The economic impact of the
standard on manufacturers and
consumers of the products subject to the
standard;
(2) The savings in operating costs
throughout the estimated average life of
the covered products in the type (or
class) compared to any increase in the
price, initial charges, or maintenance
expenses for the covered products that
are likely to result from the standard;
(3) The total projected amount of
energy (or as applicable, water) savings
likely to result directly from the
standard;
(4) Any lessening of the utility or the
performance of the covered products
likely to result from the standard;
(5) The impact of any lessening of
competition, as determined in writing
by the Attorney General, that is likely to
result from the standard;
(6) The need for national energy and
water conservation; and
(7) Other factors the Secretary
considers relevant.
(42 U.S.C. 6295(o)(2)(B)(i)(I)–(VII))
Further, EPCA, as codified,
establishes a rebuttable presumption
that a standard is economically justified
if the Secretary finds that the additional
cost to the consumer of purchasing a
product complying with an energy
conservation standard level will be less
than three times the value of the energy
savings during the first year that the
consumer will receive as a result of the
standard, as calculated under the
applicable test procedure. (42 U.S.C.
6295(o)(2)(B)(iii))
EPCA, as codified, also contains what
is known as an ‘‘anti-backsliding’’
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provision, which prevents the Secretary
from prescribing any amended standard
that either increases the maximum
allowable energy use or decreases the
minimum required energy efficiency of
a covered product. (42 U.S.C.
6295(o)(1)) Also, the Secretary may not
prescribe an amended or new standard
if interested persons have established by
a preponderance of the evidence that
the standard is likely to result in the
unavailability in the United States in
any covered product type (or class) of
performance characteristics (including
reliability), features, sizes, capacities,
and volumes that are substantially the
same as those generally available in the
United States. (42 U.S.C. 6295(o)(4))
Additionally, EPCA specifies
requirements when promulgating an
energy conservation standard for a
covered product that has two or more
subcategories. A rule prescribing an
energy conservation standard for a type
(or class) of product must specify a
different standard level for a type or
class of products that has the same
function or intended use if DOE
determines that products within such
group (A) consume a different kind of
energy from that consumed by other
covered products within such type (or
class); or (B) have a capacity or other
performance-related feature which other
products within such type (or class) do
not have and such feature justifies a
higher or lower standard. (42 U.S.C.
6295(q)(1)) In determining whether a
performance-related feature justifies a
different standard for a group of
products, DOE considers such factors as
the utility to the consumer of such a
feature and other factors DOE deems
appropriate. Id. Any rule prescribing
such a standard must include an
explanation of the basis on which such
higher or lower level was established.
(42 U.S.C. 6295(q)(2))
Finally, pursuant to the amendments
to EPCA contained in the Energy
Independence and Security Act of 2007,
Public Law 110–140, any final rule for
new or amended energy conservation
standards promulgated after July 1,
2010, is required to address standby
mode and off mode energy use. (42
U.S.C. 6295(gg)(3)) Specifically, when
DOE adopts a standard for a covered
product after that date, it must, if
justified by the criteria for adoption of
standards under EPCA (42 U.S.C.
6295(o)), incorporate standby mode and
off mode energy use into a single
standard, or, if that is not feasible, adopt
a separate standard for such energy use
for that product. (42 U.S.C.
6295(gg)(3)(A)–(B))
DOE is publishing this final rule
pursuant to the six-year-lookback
review requirement in EPCA described
herein for gas-fired instantaneous water
heaters with less than 2 gallons of
effective storage volume and rated
inputs greater than 50,000 Btu/h. (42
U.S.C. 6295(m)) DOE is also publishing
this final rule pursuant to its authority
to establish uniform efficiency
105195
descriptors for covered water heaters (42
U.S.C. 6295(e)(5))
B. Background
1. Current Standards
As directed by EPCA (42 U.S.C.
6295(e)(4)), DOE conducted two cycles
of rulemakings to determine whether to
amend the statutory standards for
consumer water heaters found in 42
U.S.C. 6295(e)(1). The most recent
rulemaking from April 2010 resulted in
amended standards using the EF metric
originally prescribed by EPCA with a
requirement for compliance starting on
April 16, 2015. 75 FR 20112 (Apr. 16,
2010) (the ‘‘April 2010 Final Rule’’).
Later amendments to EPCA directed
DOE to establish a uniform efficiency
metric for consumer water heaters (see
42 U.S.C. 6295(e)(5)(B)).17 The Federal
test procedure was revised to use a new
metric, UEF, in a final rule published on
July 11, 2014 (the ‘‘July 2014 UEF TP
Final Rule’’). 79 FR 40542. In a final
rule published in the Federal Register
on December 29, 2016, the existing EFbased energy conservation standards
were then translated from EF to UEF
using a ‘‘conversion factor’’ method for
water heater basic models that were in
existence at the time. 81 FR 96204
(‘‘December 2016 Conversion Factor
Final Rule’’).
The resulting standards for gas-fired
instantaneous water heaters set forth in
DOE’s regulations at 10 CFR
430.32(d)(1) are shown in table II.1.
TABLE II.1—FEDERAL ENERGY EFFICIENCY STANDARDS FOR GAS-FIRED INSTANTANEOUS WATER HEATERS
Product class
Rated storage volume and input rating
Draw pattern *
Instantaneous Gas-fired Water Heater ...............................
<2 gal and >50,000 Btu/h ...................................
Very Small ........
Low ...................
Medium .............
High ..................
Uniform
energy factor
0.80
0.81
0.81
0.81
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* The draw pattern dictates the frequency and duration of hot water draws during the 24-hour simulated use test, and is an indicator of delivery
capacity of the water heater. Draw patterns are assigned based on the first hour rating (‘‘FHR’’), for non-flow-activated water heaters, or maximum GPM rating (‘‘Max GPM’’), for flow-activated water heaters. For the specific FHR and Max GPM ranges which correspond to each draw
pattern, see section 5.4.1 of appendix E to subpart B of 10 CFR part 430.
In the December 2016 Conversion
Factor Final Rule, DOE declined to
develop conversion factors and UEFbased standards for consumer water
heaters of certain sizes (by rated storage
volume or input rating) and of certain
types (i.e., oil-fired instantaneous water
heaters) where models did not exist on
the market at the time to inform the
analysis of the standards conversion. 81
FR 96204, 96210–96211. For consumer
water heaters that did not receive
converted UEF-based standards, DOE
provided its interpretation that the
original statutory standards—found at
42 U.S.C. 6295(e)(1) and expressed in
terms of the EF metric—still applied;
however, DOE would not enforce those
statutorily-prescribed standards until
such a time that conversion factors are
developed for these products and they
can be converted to UEF. Id. Thus, the
EF-based standards specified by EPCA
apply to any consumer water heaters
which do not have UEF-based standards
found at 10 CFR 430.32(d). The EFbased standards for gas-fired
instantaneous water heaters which do
not have UEF-based standards are set
17 The requirement for a consumer water heater
test procedure using UEF as a metric, as well as the
requirement for DOE to undertake a conversion
factor rulemaking to translate existing consumer
water heater standards denominated in terms of EF
to ones denominated in terms of UEF, were part of
the amendments to EPCA contained in the
American Energy Manufacturing Technical
Corrections Act (‘‘AEMTCA’’), Public Law 112–210
(Dec. 18, 2012).
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forth at 42 U.S.C. 6295(e)(1) and are
repeated in table II.2.
TABLE II.2—EF-BASED FEDERAL ENERGY CONSERVATION STANDARDS FOR GAS-FIRED CONSUMER WATER HEATERS
Product class
Energy factor *
Gas water heaters ..........................................................................................................................................................
0.62¥(0.0019 × Vr)
* Vr is the rated storage volume (in gallons), as determined pursuant to 10 CFR 429.17.
2. History of Standards Rulemaking for
Gas-Fired Instantaneous Water Heaters
On May 21, 2020, DOE initiated the
most recent rulemaking for consumer
water heaters, including gas-fired
instantaneous water heaters, by
publishing in the Federal Register a
request for information (‘‘May 2020
RFI’’), soliciting public comment on
various aspects of DOE’s planned
analyses to help DOE determine
whether to amend energy conservation
standards for consumer water heaters.
85 FR 30853 (May 21, 2020). DOE
subsequently published a notice
requesting feedback on its preliminary
analysis and technical support
document (‘‘preliminary TSD’’) on
March 1, 2022 (the ‘‘March 2022
Preliminary Analysis’’) with a 60-day
comment period. 87 FR 11327 (Mar. 1,
2022). The comment period was
extended by 14 days in a notice
published on May 4, 2022. 87 FR 26303.
On October 21, 2022, DOE received a
set of recommendations on amended
energy conservation standards for
consumer water heaters from a coalition
of seven public- and private-sector
organizations, including two water
heater manufacturers, three energy
efficiency organizations, one
environmental group, and one consumer
organization—collectively the Joint
Stakeholders—which, in part, addressed
standards for gas-fired instantaneous
water heaters. This coalition’s
submission has been referred to as the
‘‘Joint Stakeholder Recommendation.’’
(See Document No. 49 in Docket No.
EERE–2017–BT–STD–0019.)
On July 28, 2023, DOE published in
the Federal Register a notice of
proposed rulemaking (‘‘July 2023
NOPR’’) and technical support
document (‘‘NOPR TSD’’) with a 60-day
comment period that proposed new and
amended standards for consumer water
heaters, including gas-fired
instantaneous water heaters. 88 FR
49058 (Jul. 28, 2023). On September 13,
2023, DOE presented the proposed
standards and accompanying analysis at
a public meeting. The submissions DOE
received in response to the July 2023
NOPR pertaining to gas-fired
instantaneous water heaters are listed in
table II.3.
TABLE II.3—LIST OF COMMENTERS WITH WRITTEN SUBMISSIONS SPECIFIC TO GAS-FIRED INSTANTANEOUS WATER
HEATERS IN RESPONSE TO THE JULY 2023 NOPR
Commenter(s)
Abbreviation
Comment number
in the docket
Commenter type
Individual ................................................................................................................
NPGA, APGA, AGA, and Rinnai ...........................................................................
Hardy ..........................
NPGA, APGA, AGA,
and Rinnai.
CNGC .........................
JEA .............................
WMU ...........................
PGW ...........................
Southeast Gas ............
CEA ............................
ASGE ..........................
CHPK ..........................
Attorney General of
GA.
AWHI ..........................
Attorney General of
TN.
APCA ..........................
TPPF ..........................
Joint Regional Advocacy Groups.
0185 .....................
0441 .....................
Individual.
Trade Associations and Manufacturer.
Trade Association.
Utility.
Utility.
Utility.
Utility.
Consumer Advocate.
Trade Association.
Utility.
State Official/Agency.
Carolinas Natural Gas Coalition ............................................................................
Jackson Energy Authority ......................................................................................
Watertown Municipal Utilities ................................................................................
Philadelphia Gas Works ........................................................................................
Southeast Gas .......................................................................................................
Consumer Energy Alliance ....................................................................................
American Society of Gas Engineers .....................................................................
Chesapeake Utilities Corporation ..........................................................................
Georgia Office of the Attorney General ................................................................
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Advanced Water Heating Initiative ........................................................................
Tennessee Attorney General’s Office ...................................................................
American Pipeline Contractors Association ..........................................................
Texas Public Policy Foundation ............................................................................
Midwest Energy Efficiency Alliance, Northeast Energy Efficiency Partnerships,
Northwest Energy Efficiency Alliance, South-central Partnership for Energy
Efficiency as a Resource, Southeast Energy Efficiency Alliance, Southwest
Energy Efficiency Project.
American Council for an Energy-Efficient Economy, Natural Resources Defense
Council, Appliance Standards Awareness Project, Northwest Energy Efficiency Alliance, Consumer Federation of America, Rheem Manufacturing.
Office of Governor Brian P. Kemp ........................................................................
Bradford White Corporation ...................................................................................
Air-Conditioning, Heating, and Refrigeration Institute ...........................................
California Energy Commission ..............................................................................
Pacific Gas and Electric Company; Southern California Edison; and San Diego
Gas & Electric Company; collectively, the California Investor-owned Utilities.
Huntsville Utilities ..................................................................................................
Rheem Manufacturing Company ...........................................................................
AGA, APGA, NPGA, Spire ....................................................................................
A.O. Smith Corporation .........................................................................................
Rinnai America Corporation ..................................................................................
Northwest Energy Efficiency Alliance ....................................................................
ONE Gas, Inc ........................................................................................................
Noritz America Corporation ...................................................................................
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0865
0872
0886
0887
0914
0976
1008
1026
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
.....................
1036 .....................
1149 .....................
Efficiency Organization.
State Official/Agency.
1152 .....................
1153 .....................
1154 .....................
Trade Association.
Academic Institute.
Efficiency Organizations.
Joint Stakeholders ......
1156 .....................
Coalition.
Governor of GA ..........
BWC ...........................
AHRI ...........................
CEC ............................
CA IOUs .....................
1157
1164
1167
1173
1175
State Official/Agency.
Manufacturer.
Trade Association.
State Official/Agency.
Utilities.
Huntsville Utilities .......
Rheem ........................
Gas Association Commenters.
A.O. Smith ..................
Rinnai .........................
NEEA ..........................
ONE Gas ....................
Noritz ..........................
1176 .....................
1177 .....................
1181 .....................
Utility Association.
Manufacturer.
Utility Association.
1182
1186
1199
1200
1202
Manufacturer.
Manufacturer.
Efficiency Organization.
Utility.
Efficiency Organization.
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TABLE II.3—LIST OF COMMENTERS WITH WRITTEN SUBMISSIONS SPECIFIC TO GAS-FIRED INSTANTANEOUS WATER
HEATERS IN RESPONSE TO THE JULY 2023 NOPR—Continued
Commenter(s)
Abbreviation
Comment number
in the docket
Robert Bosch LLC .................................................................................................
U.S. House of Representatives (Nine members, all from Georgia) ......................
Bosch ..........................
U.S. House of Representatives.
1204 .....................
1205 .....................
Subsequent to the July 2023 NOPR,
DOE determined it would continue to
consider comments prior to finalizing
standards for gas-fired instantaneous
water heaters, although standards for all
other consumer water heaters were
finalized in a rule published on May 6,
2024 (‘‘May 2024 Final Rule’’). 89 FR
37778. Most recently, DOE published a
notice of data availability in the Federal
Register on July 23, 2024 (‘‘July 2024
NODA’’). 89 FR 59692. The purpose of
the July 2024 NODA was to make
publicly available a full set of analytical
results specific to gas-fired
instantaneous water heaters, including
updates as compared to the analysis
conducted for the July 2023 NOPR after
considering the comments received.
DOE received comments in response to
the July 2024 NODA from the interested
parties listed in table II.4.
In response to the July 2024 NODA,
a larger coalition of stakeholders cosigned a joint comment recommending
standards for gas-fired instantaneous
Commenter type
Manufacturer.
Government Official/Agency.
water heaters. This coalition—
consisting of AHRI (a trade association
representing the views of multiple
manufacturers), three energy efficiency
organizations, one environmental group,
and one consumer organization—
submitted the previous Joint
Stakeholder Recommendation for
renewed consideration by DOE. Hence
the submission by this larger, more
recent coalition is still referred to as the
Joint Stakeholder Recommendation
throughout this final rule.
TABLE II.4—LIST OF COMMENTERS WITH WRITTEN SUBMISSIONS IN RESPONSE TO THE JULY 2024 NODA
Abbreviation
Sophie Charlotte DuBard-Weis ..............................................................
Lucy Anderson .......................................................................................
Anonymous .............................................................................................
American Gas Association (AGA), American Public Gas Association
(APGA), National Propane Gas Association (NPGA), and Rinnai
America Corporation.
Northwest Energy Efficiency Alliance ....................................................
Rinnai America Corporation ...................................................................
Rheem Manufacturing Company ...........................................................
Air-Conditioning, Heating, and Refrigeration Institute ............................
AHRI, ACEEE, ASAP, CFA, NRDC, and NEEA ....................................
American Gas Association (AGA), American Public Gas Association
(APGA), and National Propane Gas Association (NPGA).
A.O. Smith Corporation ..........................................................................
Bradford White Corporation ...................................................................
Pacific Gas and Electric Company; Southern California Edison; and
San Diego Gas & Electric Company; collectively, the California Investor-owned Utilities.
ASAP, ACEEE, CFA, NCLC, NRDC, NBI, and NEEA ..........................
U.S. House of Representatives (Three members, all from Georgia) ....
DuBard-Weis .................................
Anderson .......................................
Anonymous ....................................
Joint Requesters ...........................
1430
1431
1432
1433
NEEA .............................................
Rinnai ............................................
Rheem ...........................................
AHRI ..............................................
AHRI and the Joint Stakeholders ..
AGA et al .......................................
1434 .....................
1435, 1443 ...........
1436 .....................
1437 .....................
1438 .....................
1439 .....................
Efficiency Organization.
Manufacturer.
Manufacturer.
Trade Association.
Trade Association.
Utility Association.
A.O. Smith .....................................
BWC ..............................................
CA IOUs ........................................
1440 .....................
1441 .....................
1442 .....................
Manufacturer.
Manufacturer.
Utility.
Joint Advocates .............................
U.S. House of Representatives .....
1444 .....................
1445 .....................
Efficiency Organization.
Government Official/Agency.
A parenthetical reference at the end of
a comment quotation or paraphrase
provides the location of the item in the
public record.18 To the extent that
interested parties have provided written
comments that are substantively
consistent with any oral comments
provided during the September 13,
2023, public meeting, DOE cites the
written comments throughout this final
rule. DOE did not identify any oral
comments provided during the
September 13, 2023, public meeting that
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Comment number
in the docket
Commenter(s)
18 The
parenthetical reference provides a
reference for information located in the docket of
DOE’s rulemaking to develop energy conservation
standards for consumer water heaters. (Docket No.
EERE–2017–BT–STD–0019, which is maintained at:
www.regulations.gov). The references are arranged
as follows: (commenter name, comment docket ID
number at page of that document).
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are not substantively addressed by
written comments.
III. General Discussion
DOE developed this final rule after a
review of the market for the subject gasfired instantaneous water heaters. DOE
also considered comments, data, and
information from interested parties that
represent a variety of interests. This
final rule addresses issues raised by
these commenters.
A. General Comments
This section summarizes general
comments received from interested
parties regarding rulemaking timing and
process.
In response to the July 2024 NODA,
the Joint Requesters recommended that
DOE provide stakeholders with an
additional 30 days (i.e., for a total of 60
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.....................
.....................
.....................
Commenter type
Individual.
Individual.
Individual.
Utility Associations; Manufacturer.
days) to comment. The Joint Requesters
stated that the 30 days provided by DOE
does not allow stakeholders to
sufficiently analyze the NODA and the
related documents, which appear to
incorporate new data, use new
methodologies, and reach different
results from the July 2023 NOPR. The
Joint Requesters further commented that
their organizations had limited staff
availability during the comment period.
(Joint Requesters, No. 1433 at pp. 2–3)
DOE notes the limited scope of the
NODA and reiterates that the July 2024
NODA updated only specific aspects of
DOE’s analysis of potential amended
energy conservation standards for gasfired instantaneous water heaters. The
analysis from the July 2023 NOPR was
updated to reflect the latest available
versions of the data sources used.
Overall, the cost-benefit analysis
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methodology remains largely unchanged
between the July 2024 NODA and the
July 2023 NOPR (see 89 FR 59692,
59693). Furthermore, this analysis has
been subject to extensive stakeholder
input and feedback throughout the
course of this rulemaking. Commenters
were provided a full 60-day comment
period to review the July 2023 NOPR
analysis, and the July 2024 NODA
described in depth the specific areas
where DOE’s analysis was updated
while providing the rationale for each
update. As such, DOE believes a 30-day
comment period was appropriate for
stakeholders to review a limited set of
revisions to a previously published
analysis and provide meaningful
comments on the notice. (See Document
No. 1446 in Docket No. EERE–2017–BT–
STD–0019.)
AGA et al. stated that due to the use
of data designed for other natural gas
appliances and not gas-fired
instantaneous water heaters specifically,
DOE should restart the rulemaking
process for gas-fired instantaneous
water heaters, or at a minimum issue a
supplemental notice. (AGA et al., No.
1439 at p. 1)
In response, DOE notes that it
published the July 2024 NODA to
inform stakeholders of newly available
data and results with respect to
potential amended standards for gasfired instantaneous water heaters, a
limited update to the July 2023 NOPR
analysis.
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1. General Support
In response to the July 2023 NOPR,
DOE received 2,880 19 general
comments (those which provided
general remarks on the impact of the
rulemaking) 20 with a significant
number of commenters expressing
support of the proposed standards—
including those proposed for gas-fired
instantaneous water heaters—and
acknowledging the significant energy
savings that would result from the
adoption of the proposed standards.21
AWHI expressed support for more
stringent standards for gas-fired
instantaneous water heaters. (AWHI,
No. 1036 at pp. 3–4) The Joint
Stakeholders stated that the proposed
19 The number of comments reflects the number
of individual party submissions. Specifically, form
letters with multiple submissions count each
submission individually.
20 Commenters who are directly referenced in this
final rule and appear in table II.3 are not counted
in these statistics because these submitters typically
expressed detailed views that could not be
generalized as either clear support or clear
opposition for all aspects of the proposal.
21 One comment in support of the proposed
standards, including the proposal for gas-fired
instantaneous water heaters, had 8,357 signatories.
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standards for gas-fired instantaneous
water heaters are consistent with their
recommendations. (Joint Stakeholders,
No. 1156 at p. 2) NEEA, the Joint
Regional Advocacy Groups (citing the
estimated FFC and monetary savings),
and Bosch supported the proposed
standards for gas-fired instantaneous
water heaters. (NEEA, No. 1199 at p. 9;
Joint Regional Advocacy Groups, No.
1154 at p. 1; Bosch, No. 1204 at p. 2)
Bosch commented that condensing gasfired instantaneous water heaters are
readily available and widely accepted in
the market, and can create significant
energy savings and emissions
reductions. Bosch stated that nearly
every gas-fired instantaneous water
heater manufacturer sells a condensinglevel product and, therefore, the
required technology is well-understood
and minimal research and development
efforts would be required to achieve the
proposed efficiency levels. (Bosch, No.
1204 at p. 2)
CEC and A.O. Smith also supported
DOE’s proposed standards for gas-fired
instantaneous water heaters because
they would result in significant savings,
lower monthly energy bills for
homeowners, and also provide
emissions benefits. CEC urged DOE to
finalize the proposed standards as soon
as possible. (CEC, No. 1173 at p. 12;
A.O. Smith, No. 1182 at p. 14)
Two individual commenters
expressed support for the proposed
rulemaking on the basis that clean
energy is necessary for securing a
peaceful and prosperous future and for
the economic benefits that will result
from the proposed rulemaking. (DuBardWeis, No. 1430 at p. 1; Anderson, No.
1431 at p. 1) An anonymous commenter
also expressed support for the proposed
rulemaking on the basis of reducing
emissions related to water heaters for
the benefit of the planet. (Anonymous,
No. 1432 at p. 2)
2. Support for Updated Analysis and
Standards at EL 2
In response to the July 2024 NODA,
DOE received the following comments
in support of the updated analytical
results and potential amended standards
at efficiency level (‘‘EL’’) 2.
NEEA, AHRI, AHRI and the Joint
Stakeholders, the Joint Advocates,
Rheem, and BWC expressed support for
the standards proposed at EL 2 for gasfired instantaneous water heaters in the
July 2023 NOPR, with NEEA, AHRI,
AHRI and the Joint Stakeholders, the
Joint Advocates, and BWC noting the
significant national energy savings and
LCC savings for consumers. NEEA, The
Joint Advocates, and BWC stated that
the proposed standard aligns with the
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Joint Stakeholder Recommendations
made in 2022. AHRI and the Joint
Stakeholders expressed concern that
DOE had not yet adopted these
standards and commented that the
proposed levels would, enable a broad
set of consumer options while meeting
EPCA’s directives of achieving
significant national energy savings as
well as cost effectiveness and
technological feasibility for consumers
who install these products. The Joint
Advocates supported DOE’s proposal to
adopt EL 2 for gas-fired instantaneous
water heaters because EL 2 represents
an intermediate condensing level and
reflects the Joint Stakeholder
recommendations. The Joint Advocates
further commented that DOE’s updated
analysis in the NODA reinforces the
economic and energy benefits of
adopting EL 2 for gas-fired
instantaneous water heaters and, while
similar to those in the July 2023 NOPR,
the updates in the July 2024 NODA
improve the analysis. (NEEA, No. 1434
at p. 1; Rheem, No. 1436 at p. 1; AHRI,
No. 1437 at p. 2; AHRI and the Joint
Stakeholders, No. 1438 at p. 1; BWC,
No. 1441 at p. 1; Joint Advocates, No.
1444, at pp. 1–2)
NEEA commented that the July 2024
NODA effectively updates the analysis
for gas-fired instantaneous water heaters
to thoroughly represent the market and
better account for manufacturer impacts
of updating standards for gas-fired
instantaneous water heaters by updating
from Energy Information
Administration’s Residential Energy
Consumption Survey (‘‘RECS’’) 2015 to
RECS 2020 data, accounting for the use
of concentric pipe venting for both
condensing and non-condensing gasfired instantaneous water heaters, and
updating the analysis to include outdoor
installations of gas-fired instantaneous
water heaters that don’t require venting
or that require short through-the-wall
vents. NEEA commented that according
to DOE’s analysis, impacts on
manufacturers from a condensing-level
standard would be modest and
potentially beneficial to domestic
production. NEEA recommended that
DOE quickly issue a final rule for gasfired instantaneous water heaters, as
NEEA agreed with DOE that
condensing-level standards at EL 2
would be cost effective and deliver
significant energy savings while having
minimal negative impacts. (NEEA, No.
1434 at pp. 1–3)
Rheem recommended that DOE
amend standards for gas-fired
instantaneous water heaters to EL 2,
stating that DOE’s analysis remains
justified. (Rheem, No. 1436 at p. 1) BWC
urged DOE to establish minimum energy
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conservation standards for gas-fired
instantaneous water heaters at EL 2 as
originally proposed in the July 2023
NOPR and in accordance with the Joint
Stakeholder Recommendation. BWC
stated that establishing standards
consistent with the Joint Stakeholder
Recommendation would result in
national energy savings of 0.8 quads and
provide individual consumers average
savings of $31 per year.22 (BWC, No.
1441 at p. 1)
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3. General Opposition
In response to the July 2023 NOPR,
DOE received comments from several
stakeholders raising concern over the
impact of the proposed standards.
An individual commenter requested
careful consideration of the impacts of
the proposed levels for gas-fired
instantaneous water heaters on the
economy. The individual commenter
noted that they work at a propane
company whose installation and
servicing of tankless 23 water heaters is
a large part of its income, asserting that
the proposals, if adopted, could be
detrimental to the economy. (Hardy, No.
185 at p. 1)
Commenters from the U.S. House of
Representatives indicated that the
popularity of non-condensing gas-fired
instantaneous water heaters among
homeowners and small business owners
across the United States reflects the
efficiency and affordability of the
products. Additionally, the Commenters
from the U.S. House of Representatives
stated that restricting consumer access
to gas-fired instantaneous water heaters
by adopting higher standards would
reduce consumer choice and increase
product prices. (U.S. House of
Representatives, No. 1205 at p. 1) Then,
in response to the July 2024 NODA, the
Commenters from the U.S. House of
Representatives stated that gas-fired
instantaneous water heaters are
projected to reach 11 percent of the U.S.
market by 2028 and that sales of noncondensing tankless water heaters from
2005 to 2022 have saved 339 million
MMBtus (0.34 quads) and 37.7 billion
pounds (17 million metric tons) of
carbon emissions. Commenters from the
U.S. House of Representatives also
22 BWC cited analytical results provided in the
original Joint Stakeholder Recommendation
(Document No. 49 in this docket), which relied on
DOE’s results from the March 2022 Preliminary
Analysis (see Joint Stakeholder, No. 49 at p. 5).
DOE’s most up-to-date analysis provided in this
final rule indicates a potential for 0.58 quads of
national energy savings, with an average consumer
LCC savings of $112.
23 ‘‘Tankless’’ models are instantaneous water
heaters with very little storage volume. These
designs comprise the majority of consumer gas-fired
instantaneous water heaters on the market today.
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stated that the July 2023 NOPR would
eliminate the non-condensing gas-fired
instantaneous water heaters while
leaving costlier or higher emission
profile products on the market. (U.S.
House of Representatives, No. 1445 at p.
1)
Regarding stakeholders’ comments
that the standards proposed in the July
2023 NOPR would discourage adoption
of gas-fired instantaneous water heaters,
DOE notes that it expects the share of
gas-fired instantaneous water heaters to
continue to increase as a percentage of
the overall U.S. market in both the nonew-standards case and standards cases.
See section IV.F.10 for a discussion
regarding why adoption of other types
of water heaters in response to amended
standards for gas-fired instantaneous
water heaters is highly unlikely.
Additionally, DOE notes that only onethird of gas-fired instantaneous water
heaters shipped in 2024 were noncondensing models, with a market share
that is projected to decrease even in the
absence of amended standards. See
section IV.G of this document and
chapter 9 of the final rule TSD for
additional information on DOE’s
shipments analysis.
In addition to emphasizing several of
the points it made in response to the
July 2023 NOPR, Rinnai claimed that,
although the July 2024 NODA appears
to make some adjustments for data
provided by Rinnai as well as other
inputs, methods and approaches, it does
not sufficiently account for historic
market data and trends, consumer
decision making, product and
installation costs, and concerns with
modeling and methodology, nor does it
suffice to meet statutory requirements
relating to economic justification,
significant energy savings, or product
unavailability. Rinnai stated that the
analysis in the July 2024 NODA does
not change its conclusion that the
proposed rule would limit the
affordable, efficient options available to
consumers, would impede a marketdriven shift toward more efficient
storage-type water heaters,24 and would
likely result in a net reduction in energy
savings and an increase in carbon
emissions. Rinnai therefore requested
that DOE correct its claimed
deficiencies and flaws in the July 2024
NODA, issue a supplemental notice of
24 The commenter used the phrase ‘‘tank water
heaters’’ but did not clarify how amended standards
for gas-fired instantaneous water heaters would
impede a market transition towards more efficient
types of storage water heaters; however, they later
reiterate the concern regarding a shift towards gasfired storage water heaters, which, in general, tend
to have lower UEF ratings today compared to gasfired instantaneous water heaters.
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105199
proposed rulemaking to address these
changes and allow thorough stakeholder
input, and reconsider the July 2023
NOPR’s proposed rule. Rinnai suggested
that DOE should either maintain the
existing standard for gas-fired
instantaneous water heaters, or
alternatively promulgate separate
standards for condensing and noncondensing gas-fired instantaneous
water heaters. (Rinnai, No. 1443 at pp.
2–3)
Rinnai raised concern with the
condensing-level standards supported
by the Joint Stakeholders, asserting that
such standards would not adequately
consider the gas-fired instantaneous
water heater market and industry as a
whole. Specifically, Rinnai expressed
that it does not believe that noncondensing gas-fired instantaneous
water heaters are ‘‘on the way out’’ of
the market. According to Rinnai, the
July 2024 NODA showed a projected 30
percent of gas-fired instantaneous water
heater sales in 2030 would be noncondensing models, consistent with
current trends. Rinnai stated that it
would suffer the direct impacts of this
rule, being not only one of the leading
manufacturers of gas-fired instantaneous
water heaters in general but also the
market leader in sales of noncondensing models, producing
approximately 60 percent of the market
share of non-condensing models.
(Rinnai, No. 1443 at pp. 23–24) Rinnai
argued that DOE’s consumer water
heater rulemaking, and in particular its
actions with regard to gas-fired
instantaneous water heaters, depend
heavily on DOE’s interpretation of
several statutory provisions in EPCA.
According to Rinnai, DOE’s
interpretations of statutory provisions
are not entitled to deference—for
example, DOE’s interpretation of the
unavailability provision, section
6295(o)(4), the ‘‘significant conservation
of energy’’ provision, section 6295(o)(3),
the economic justification provision,
section 6295(o)(2)(B), and the separate
standards provision, section 6295(q).
Rinnai expressed its concern that DOE’s
consumer water heater rulemaking, in
conjunction with its rulemaking
proceedings on furnaces and boilers,
represent a significant overhaul of the
appliance manufacturing industry.
Rinnai commented that, in line with the
outcome of West Virginia v. EPA,25
25 In West Virginia v. EPA, 597 U.S. 697 (2022),
the Court expounded on the major questions
doctrine, and held that agencies could not adopt
rules with, as Rinnai put it, ‘‘significant economic,
industry and consumer choice impacts’’ without
having clear congressional authorization to do so.
(Rinnai, No. 1443 at p. 24)
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EPCA was not intended to allow DOE to
favor one fuel or type of appliance over
another or to reshape the appliance
industry. (Rinnai, No. 1443 at pp. 23–
24)
DOE’s rulemaking to amend energy
conservation standards for gas-fired
instantaneous water heaters does not
disallow the production, import, or sale
of water heaters using any specific fuel
type. Moreover, gas-fired instantaneous
water heaters will not be made
unavailable as a result of this
rulemaking. Stakeholders have not
indicated that raising standards for gasfired instantaneous water heaters would
push consumers towards electric or oilfired water heaters—and such a case
would be highly improbable based on
DOE’s own analysis of consumer
purchasing decisions. Instead,
stakeholders such as Rinnai and the Gas
Association Commenters appear to
indicate that more-stringent standards
for gas-fired instantaneous water heaters
may impact shipments of other gas-fired
water heaters, and these comments are
discussed further in section IV.F.10 of
this document. As such, there is no
evidence to support Rinnai’s suggestion
that DOE’s action ‘‘favors’’ one fuel type
over another. Furthermore, since the
statutory consumer water heater
standards were established by EPCA at
42 U.S.C. 6295(e)(1), DOE has
maintained separate product classes
(i.e., separate standards) for gas-fired,
oil-fired, and electric water heaters. See
10 CFR 430.32(d)(1)–(2). These separate
product classes are consistent with the
statutory provisions at 42 U.S.C.
6295(q).
DOE has statutory authority to
routinely evaluate and address
minimum efficiency levels for gas-fired
instantaneous water heaters (and all
other consumer water heaters). See
section II.A of this document. As a
general matter, energy conservation
standards save energy by removing the
least-efficient technologies and designs
from the market. Discussed further in
section IV.A.1 of this document, noncondensing gas-fired instantaneous
water heaters use only one heat
exchanger that operates at a higher
temperature, whereas condensing gasfired instantaneous water heaters make
use of corrosion-resistant condensing
heat exchangers that can extract far
more energy from the flue gases
exhausted by combustion—causing the
exhaust flue gases to condense into
liquid (hence, the term ‘‘condensing’’).
Because of this, condensing gas-fired
instantaneous water heaters are a step
up in efficiency from non-condensing
products. The energy-saving purposes of
EPCA would be frustrated if DOE were
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required to set standards that maintain
less-energy-efficient covered products
and equipment in the market based
simply on the fact that they use a
specific type of less-efficient design.
DOE has evaluated the statutory
criteria—technological feasibility,
significant energy savings, and
economic justification—and considered
the application of the statutory
‘‘unavailability provision’’ (see 42
U.S.C. 6295(o)(4)) to determine the
product class structure for gas-fired
instantaneous water heaters; see section
IV.A.1 of this document for further
details. DOE has not sought to ‘‘reshape
the appliance industry,’’ but rather to
set standards in accordance with the
statutory requirements of EPCA.
Analytical results from multiple
rulemakings indicate that certain
segments of the space and water heating
industries have made significant
progress in transitioning the market
towards more-efficient condensing
products, and the analysis herein for
gas-fired instantaneous water heaters
also reflects this trend. As such, DOE is
not setting condensing-level standards
simply to increase the usage of
condensing technology. Rather, DOE has
found that condensing-level standards
are justified for gas-fired instantaneous
water heaters based on extensive
analysis and review.
4. Comments on Higher Standards Than
Proposed in the NOPR
EL 3 corresponds to the efficiency that
would meet the current ENERGY STAR
Specification version 5.0, and as such is
an efficiency level that many
manufacturers currently target. In the
July 2023 NOPR, DOE tentatively
determined that the additional benefits
and savings from amended standards at
EL 3 could be considered significant,
but there was uncertainty as to whether
manufacturing capacity of EL 3 models
could be scaled up to meet national
demand for gas-fired instantaneous
water heaters. 88 FR 49058, 49161.
While the July 2023 NOPR proposed
standards at EL 2, DOE requested
additional information on the benefits
and burdens of a potential amended
standard for gas-fired instantaneous
water heaters at EL 3, especially with
respect to manufacturers being able to
scale their entire production to EL 3 in
the compliance time frame being
considered by this rulemaking. Id.
In response, Bosch stated that EL 3
would be significantly more difficult to
reach compared to EL 2, adding that
though EL 3 is feasible with current
technology, the technology comes with
increased complexity. Specifically,
Bosch stated that the most significant
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challenge in raising the efficiency of a
gas-fired instantaneous water heater
from a UEF of 0.93 to 0.95 for the high
draw pattern is the need for significant
burner modulation. Bosch
recommended DOE retain the EL 2
proposal for gas-fired instantaneous
water heaters. (Bosch, No. 1204 at pp.
4–5) Noritz stated that EL 3 is
significantly more difficult to reach than
EL 2, due to complexity related to the
software, controls, fan, and gas valve, as
well as higher material costs due to
increased heat exchanger surface area.
(Noritz, No. 1202 at p. 3) BWC
recommended against adopting
standards for gas-fired instantaneous
water heaters at EL 3 because this would
be inconsistent with the Joint
Stakeholder Recommendation, and the
proposed standards at EL 2 already
amount to substantial increase in
efficiency. (BWC, No. 1164 at p. 16)
Rheem stated that it does not support EL
3 for gas-fired instantaneous water
heaters as the costs to the manufacturer
outweigh the benefit of the slight
increase in UEF. Rheem further stated
that EL 3 requires completely different
condensing technology than EL 2 and
will have significantly more impact on
existing manufacturing facilities.
(Rheem, No. 1177 at p. 13)
AHRI stated that gas-fired
instantaneous water heaters would
experience more difficulty achieving EL
3 compared to EL 2 due to increasing
complexity, driven by designs
incorporating full burner modulation.
AHRI further stated that this would
require substantial research and
development and more expensive
components. (AHRI, No. 1167 at pp. 12–
13)
CEC stated that if DOE received data
in response to the request for
information in the July 2023 NOPR,
DOE should consider finalizing a
standard consistent with EL 3 for gasfired instantaneous water heaters. (CEC,
No. 1173 at p. 12)
In response to the July 2023 NOPR,
the CA IOUs encouraged DOE to set
more stringent standards for gas-fired
instantaneous water heaters,
recommending that DOE establish the
standards proposed at TSL 6 in the July
2023 NOPR, equivalent to max-tech (i.e.,
EL 4). According to the CA IOUs, more
stringent standards for all gas-fired
consumer water heater sub-classes,
specifically at condensing efficiencies,
would result in significant savings of
natural gas in California and across the
United States. Regarding statements
from some stakeholders that significant
installation barriers are associated with
gas condensing water heaters, the CA
IOUs referred DOE to a report docketed
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in 2019 titled ‘‘Investigation of
Installation Barriers and Costs for
Condensing Gas Appliances.’’ 26 Key
findings from this report indicate that
these challenges impact less than 5
percent of condensing gas retrofit
installations for residential and
commercial applications, and that
condensate management and chimney
relining were minor concerns for
installing gas condensing products. (CA
IOUs, No. 1175 at p. 2) In response to
the July 2024 NODA, the CA IOUs
reiterated that more-stringent efficiency
standards for gas-fired instantaneous
water heaters would conserve natural
gas, reduce emissions, and lower utility
payments for Californians. The CA IOUs
stated that while a standard based on EL
2 would generate between $0.13 billion
($2022, at a 7-percent discount rate) and
$0.47 billion ($2022, at a 3-percent
discount rate) in consumer benefits for
all Californians over 30 years, a
standard based on EL 3 would generate
between $0.21 billion ($2022, at a 7percent discount rate) and $0.75 billion
($2022, at a 3-percent discount rate) in
consumer benefits for all Californians
over the same time period. The CA IOUs
stated that adoption of EL 3 would
increase consumer benefits by 60
percent relative to EL 2 and reiterated
that EL 3 has the shortest simple
payback period of any gas-fired
instantaneous water heater efficiency
level. The CA IOUs urged DOE to adopt
a standard for gas-fired instantaneous
water heaters based on EL 3. (CA IOUs,
No. 1442 at pp. 1–2)
In this final rule analysis, DOE finds
that although EL 3 would present many
consumer benefits, the average
estimated simple payback period for EL
3 is 8.3 years, whereas for EL 2 it is 8.9
years, which is not strikingly different
in the context of the product’s lifespan,
which is estimated to be about 20 years.
DOE acknowledges that setting
standards at EL 3 for gas-fired
instantaneous water heaters would
require notably higher levels of
investment compared to EL 2 for gasfired instantaneous water heaters. In
this final rule, DOE is adopting TSL 2,
which corresponds to EL 2 for gas-fired
instantaneous water heaters. DOE notes
that industry would need to
significantly scale up production of
models that meet EL 3 given the lower
quantity of shipments of these models
today. Approximately 60 percent of gasfired instantaneous water heater
shipments currently meet the adopted
26 EERE–2018–BT–ST–0018–0062. February 28,
2019. Available at: www.regulations.gov/comment/
EERE-2018-BT-STD-0018-0062 (last accessed: Oct.
1, 2024).
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level (i.e., EL 2).27 However, only 15
percent of gas-fired instantaneous water
heater shipments currently meet EL 3.
To meet EL 3, DOE expects
manufacturers would implement a more
efficient heat exchanger design (e.g.,
replacing a tube condensing heat
exchanger with a flat plate condensing
heat exchanger) and increase the
condensing heat exchanger area relative
to EL 2. DOE understands that
implementing the larger, improved
condensing heat exchanger technology
could increase the complexity of the
manufacturing process compared to the
tube design condensing heat exchanger
technology analyzed at EL 1 and EL 2.
Given the low shipments volumes and
increased complexity of EL 3 models,
DOE expects most manufacturers would
need to add new production lines to
maintain existing capacity at TSL 3.
DOE does not expect most
manufacturers would need to add new
production lines or incur notable capital
investments to meet TSL 2. DOE
estimates that industry conversion costs
at EL 2 would reach approximately $20
million whereas industry conversion
costs would triple at EL 3
(approximately $60 million). See section
V.B.2.a of this document for the
estimated industry conversion costs at
each TSL. See section V.C.1 of this
document for the benefits and burdens
of the TSLs considered in this
rulemaking.
B. Scope of Coverage
Gas-fired instantaneous water heaters
are a subset of consumer water heaters.
Generally, DOE defines a ‘‘water
heater,’’ consistent with EPCA’s
definition at 42 U.S.C. 6291(27) and
codified at 10 CFR 430.2, as a product
which utilizes oil, gas, or electricity to
heat potable water for use outside the
heater upon demand. An instantaneoustype water heater is one that heats water
but contains no more than one gallon of
water per 4,000 Btu per hour of input,
and consumer gas-fired instantaneous
water heaters are additionally defined as
having an input rating less than 200,000
Btu per hour. 10 CFR 430.2; (42 U.S.C.
6291(27)).
This rulemaking does not cover gasfired circulating water heaters, which
must be used in combination with
recirculation pump and a storage tank or
recirculation loop, and therefore
constitute storage-type water heaters. 10
CFR 430.2.
As stated in section I of this
document, EPCA prescribed energy
27 The term ‘‘current shipments’’ refers to no-newstandards shipments estimated to occur in 2024 (the
reference year).
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105201
conservation standards for all consumer
water heaters (i.e., those that meet the
definition of ‘‘water heater’’ above). For
the purposes of this final rule, DOE is
solely considering ‘‘gas-fired
instantaneous water heaters,’’ including
those for which there are no current
UEF-based standards codified at 10 CFR
430.32(d)(1).
See section IV.A.1 of this document
for discussion of the product classes
analyzed in this final rule.
C. Test Procedure
EPCA sets forth generally applicable
criteria and procedures for DOE’s
adoption and amendment of test
procedures. (42 U.S.C. 6293)
Manufacturers of covered products must
use these test procedures as the basis for
certifying to DOE that their product
complies with the applicable energy
conservation standards and as the basis
for any representations regarding the
energy use or energy efficiency of the
product. (42 U.S.C. 6295(s) and 42
U.S.C. 6293(c)). Similarly, DOE must
use these test procedures to evaluate
whether a basic model complies with
the applicable energy conservation
standard(s). 10 CFR 429.110(e). The
current test procedure for consumer and
residential-duty commercial water
heaters is codified at 10 CFR part 430,
subpart B, appendix E. Appendix E
includes provisions for determining
UEF, the metric on which current
standards are based. 10 CFR
430.32(d)(1).
DOE most recently amended the test
procedure for these products at
appendix E in the consumer and
residential-duty commercial water
heater test procedure final rule
published on June 21, 2023 (‘‘June 2023
TP Final Rule’’) pursuant to the 7-year
review requirement as specified by
EPCA. (42 U.S.C. 6293(b)(1)(A) and 42
U.S.C. 6314(a)(1)(A)) In that final rule,
DOE established effective storage
volume (‘‘Veff’’) as a metric to address
how much hot water could be
immediately delivered by the system,
taking into account the temperature of
the stored water and, in the case of
circulating water heaters, the volume of
the paired storage tank. 88 FR 40406.
The amended test procedure established
by the June 2023 TP Final Rule is
mandatory for gas-fired instantaneous
water heater testing starting December
18, 2023, 180 days after publication. Id.
In response to the July 2023 NOPR,
BWC reiterated its comments in
response to the March 2022 Preliminary
Analysis asserting that there is evidence
to suggest that gas-fired instantaneous
water heaters may gain an unfair
advantage in the current test procedure
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as compared to gas-fired storage water
heaters. The commenter provided DOE
with a study published by the Davis
Energy Group, Inc. and requested that
DOE elaborate on its disagreement with
the outcome of that study. In particular,
BWC pointed out that while gas-fired
instantaneous water heaters are not
subjected to standby losses like their
storage-type counterparts, the number,
timing, and frequency of draws required
for these products causes the heat
exchanger to be raised to temperature
for each draw; and this, according to
Davis Energy Group, Inc., can cause a
bias toward higher efficiency ratings for
gas-fired instantaneous water heaters.
BWC requested further discussion on
this topic to ensure that both types of
gas-fired products are treated fairly.
(BWC, No. 1164 at pp. 9–10)
In response, DOE notes that the
current test procedure for consumer
water heaters is designed to represent
generally how consumer water heaters
are used in-field. As such, if one type of
water heater generally receives higher
efficiency ratings than another, it would
be the result of that water heater type
having a more efficient design for actual
consumer usage patterns than the other.
This difference would therefore not be
a bias, but a reflection of actual
differences in operating efficiency being
captured by the test result. The Davis
Energy Group, Inc. study cited by BWC
shows the efficiency of the gas-fired
instantaneous water heater that was
tested was more affected by the time
between water draws than that of the
gas-fired storage water heater that was
tested. That is, the efficiency of the gasfired instantaneous water heater
degraded more when the time between
water draws increased than did the gasfired storage water heater. However, for
these findings to have any significance,
DOE would also need evidence to show
that the water draw sequencing of the
current test procedure at appendix E is
unrepresentative. The draw sequence
was developed as a representative test
method in the 2014 test procedure
rulemaking that established the UEF test
method, and it considered factors such
as standby loss periods, test stand
capabilities, and water heater recovery
rates (see 79 FR 40542). In the absence
of sufficient data provided by BWC or
the Davis Energy Group, Inc. report
demonstrating that the current test
procedure is unrepresentative, DOE
cannot conclude that the prescribed test
method results in an unfair advantage
for gas-fired instantaneous water heaters
over gas-fired storage water heaters. In
this standards analysis, DOE has relied
on an efficiency-level approach to
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identify potential standards based on
UEF ratings that are demonstrated
(certified) for gas-fired instantaneous
water heaters on the basis of testing
under the DOE test procedure.
Therefore, hypothetically, even if these
products do benefit from factors in the
test procedure that allow them to have
higher UEF ratings, all gas-fired
instantaneous water heaters would
benefit equally, and the increase in UEF
is reflected in product ratings and the
efficiency levels selected for the
analysis. By basing its analysis around
commercially available products and
their certified ratings in the product
classes separately, DOE is ensuring that
the standards it is setting for gas-fired
instantaneous water heaters are
reflective of these products’
performance under the appendix E test
procedure. DOE used a similar approach
for all other types of consumer water
heaters (e.g., gas-fired storage water
heaters) when it finalized amended
standards in a May 6, 2024 final rule
pertaining to those products. 89 FR
37778.
D. Technological Feasibility
1. General
As discussed, any new or amended
energy conservation standard must be
designed to achieve the maximum
improvement in energy efficiency that
DOE determines is technologically
feasible and economically justified. (42
U.S.C. 6295(o)(2)(A))
To determine whether potential
amended standards would be
technologically feasible, DOE first
develops a list of all known
technologies and design options that
could improve the efficiency of the
products or equipment that are the
subject of the rulemaking. DOE
considers technologies incorporated in
commercially available products or in
working prototypes to be
‘‘technologically feasible.’’ 10 CFR part
430, subpart C, appendix A, sections
6(a)(3)(iii)(A) and 7(b)(1). Section IV.A.2
of this document discusses the
technology options identified by DOE
for this analysis. For further details on
the technology assessment conducted
for this final rule, see chapter 3 of the
final rule technical support document
(‘‘TSD’’).
After DOE has determined which, if
any, technologies and design options are
technologically feasible, it further
evaluates each technology and design
option in light of the following
additional screening criteria: (1)
practicability to manufacture, install,
and service; (2) adverse impacts on
product utility or availability; (3)
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adverse impacts on health or safety; and
(4) unique-pathway proprietary
technologies. 10 CFR part 430, subpart
C, appendix A, sections 6(a)(3)(iii)(B)
through (E) and 7(b)(2) through (5).
Those technology options that are
‘‘screened out’’ based on these criteria
are not considered further. Those
technology and design options that are
not screened out are considered as the
basis for higher efficiency levels that
DOE could consider for potential
amended standards. Section IV.B of this
document discusses the results of this
screening analysis conducted for this
final rule. For further details on the
screening analysis conducted for this
final rule, see chapter 4 of the final rule
TSD.
2. Maximum Technologically Feasible
Levels
EPCA requires that for any proposed
rule that prescribes an amended or new
energy conservation standard, or
prescribes no amendment or no new
standard for a type (or class) of covered
product, DOE must determine the
maximum improvement in energy
efficiency or maximum reduction in
energy use that is technologically
feasible for each type (or class) of
covered products. (42 U.S.C. 6295(p)(1))
Accordingly, in the engineering
analysis, DOE identifies the maximum
efficiency level currently available on
the market. DOE also defines a ‘‘maxtech’’ efficiency level, representing the
maximum theoretical efficiency that can
be achieved through the application of
all available technology options retained
from the screening analysis.28 In many
cases, the max-tech efficiency level is
not commercially available because it is
not currently economically feasible.
The max-tech levels that DOE
determined for this analysis are
described in section IV.C.1.a of this
document and in chapter 5 of the final
rule TSD.
E. Energy Savings
1. Determination of Savings
For each TSL, DOE projected energy
savings from application of the TSL to
gas-fired instantaneous water heaters
purchased during the 30-year period
that begins in the first year of
compliance with the amended standards
(2030–2059).29 The savings are
measured over the entire lifetime of
products purchased during the 30-year
28 In applying these design options, DOE would
only include those that are compatible with each
other that when combined, would represent the
theoretical maximum possible efficiency.
29 DOE also presents a sensitivity analysis that
considers impacts for products shipped in a 9-year
period.
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analysis period. DOE quantified the
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
NES from potential amended standards
for gas-fired instantaneous water
heaters. The NIA spreadsheet model
(described in section IV.H of this
document) calculates energy savings in
terms of site energy, which is the energy
directly consumed by products at the
locations where they are used. For
electricity, DOE reports NES in terms of
primary energy savings, which is the
savings in the energy that is used to
generate and transmit the site
electricity. For natural gas, the primary
energy savings are considered to be
equal to the site energy savings. DOE
also calculates NES in terms of FFC
energy savings. The FFC metric includes
the energy consumed in extracting,
processing, and transporting primary
fuels (i.e., coal, natural gas, petroleum
fuels), and thus presents a more
complete picture of the impacts of
energy conservation standards.30 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.
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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.31 For example, some
covered products and equipment have
most of their energy consumption occur
during periods of peak energy demand.
The impacts of these products on the
energy infrastructure can be more
pronounced than the impacts of
30 The FFC metric is discussed in DOE’s
statement of policy and notice of policy
amendment. 76 FR 51282 (Aug. 18, 2011), as
amended at 77 FR 49701 (Aug. 17, 2012).
31 The numeric threshold for determining the
significance of energy savings established in a final
rule published on February 14, 2020 (85 FR 8626,
8670) was subsequently eliminated in a final rule
published on December 13, 2021 (86 FR 70892).
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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.
As stated, the standard levels adopted
in this final rule are projected to result
in NES of 0.58 quad, the equivalent of
the primary annual energy use of about
4 million homes. Based on the amount
of FFC savings, the corresponding
reduction in emissions, and the need to
confront the global climate crisis, DOE
has determined the energy savings from
the standard levels adopted in this final
rule are ‘‘significant’’ within the
meaning of 42 U.S.C. 6295(o)(3)(B).
F. Economic Justification
1. Specific Criteria
As noted previously, EPCA provides
seven factors to be evaluated in
determining whether a potential energy
conservation standard is economically
justified. (42 U.S.C.
6295(o)(2)(B)(i)(I)(VII)) The following
sections discuss how DOE has
addressed each of those seven factors in
this rulemaking.
a. Economic Impact on Manufacturers
and Consumers
In determining the impacts of
potential new or amended standards on
manufacturers, DOE conducts a
manufacturer impact analysis (‘‘MIA’’),
as discussed in section IV.J of this
document. First, DOE uses an annual
cash-flow approach to determine the
quantitative impacts. This step includes
both a short-term assessment—based on
the cost and capital requirements during
the period between when a regulation is
issued and when entities must comply
with the regulation—and a long-term
assessment over a 30-year period. The
industry-wide impacts analyzed
include: (1) INPV, which values the
industry on the basis of expected future
cash flows; (2) cash flows by year; (3)
changes in revenue and income; and (4)
other measures of impact, as
appropriate. Second, DOE analyzes and
reports the impacts on different types of
manufacturers, including impacts on
small manufacturers. Third, DOE
considers the impact of standards on
domestic manufacturer employment and
manufacturing capacity, as well as the
potential for standards to result in plant
closures and loss of capital investment.
Finally, DOE takes into account
cumulative impacts of various DOE
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regulations and other regulatory
requirements on manufacturers.
For individual consumers, measures
of economic impact include the changes
in LCC and PBP associated with new or
amended standards. These measures are
discussed further in the following
section. For consumers in the aggregate,
DOE also calculates the national NPV of
the consumer costs and benefits
expected to result from particular
standards. DOE also evaluates the
impacts of potential standards on
identifiable subgroups of consumers
that may be affected disproportionately
by a standard.
b. Savings in Operating Costs Compared
To Increase in Price (LCC and PBP)
EPCA requires DOE to consider the
savings in operating costs throughout
the estimated average life of the covered
product in the type (or class) compared
to any increase in the price of, or in the
initial charges for, or maintenance
expenses of, the covered product that
are likely to result from a standard. (42
U.S.C. 6295(o)(2)(B)(i)(II)) DOE conducts
this comparison in its LCC and PBP
analysis.
The LCC is the sum of the purchase
price of a product (including its
installation) and the operating cost
(including energy, maintenance, and
repair expenditures) discounted over
the lifetime of the product. The LCC
analysis requires a variety of inputs,
such as product prices, product energy
consumption, energy prices,
maintenance and repair costs, product
lifetime, and discount rates appropriate
for consumers. To account for
uncertainty and variability in specific
inputs, such as product lifetime and
discount rate, DOE uses a distribution of
values, with probabilities attached to
each value.
The PBP is the estimated amount of
time (in years) it takes consumers to
recover the increased purchase cost
(including installation) of a 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.
For its LCC and PBP analysis, DOE
assumes that consumers will purchase
the covered products in the first year of
compliance with new or amended
standards. The LCC savings for the
considered efficiency levels are
calculated relative to the case that
reflects projected market trends in the
absence of new or amended standards.
DOE’s LCC and PBP analysis is
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discussed in further detail in section
IV.F of this document.
c. Energy Savings
Although significant conservation of
energy is a separate statutory
requirement for adopting an energy
conservation standard, EPCA requires
DOE, in determining the economic
justification of a standard, to consider
the total projected energy savings that
are expected to result directly from the
standard. (42 U.S.C. 6295(o)(2)(B)(i)(III))
As discussed in section IV.H, DOE uses
the NIA spreadsheet models to project
NES.
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d. Lessening of Utility or Performance of
Products
In establishing product classes, and in
evaluating design options and the
impact of potential standard levels, DOE
evaluates potential standards that would
not lessen the utility or performance of
the considered products. (42 U.S.C.
6295(o)(2)(B)(i)(IV)) Based on data
available to DOE, the standards adopted
in this document would not reduce the
utility or performance of the gas-fired
instantaneous water heaters under
consideration in this rulemaking.
e. Impact of Any Lessening of
Competition
EPCA directs DOE to consider the
impact of any lessening of competition,
as determined in writing by the
Attorney General, that is likely to result
from a standard. (42 U.S.C.
6295(o)(2)(B)(i)(V)) It also directs the
Attorney General to determine the
impact, if any, of any lessening of
competition likely to result from a
standard and to transmit such
determination to the Secretary within 60
days of the publication of a proposed
rule, together with an analysis of the
nature and extent of the impact. (42
U.S.C. 6295(o)(2)(B)(ii)) To assist the
Department of Justice (‘‘DOJ’’) in making
such a determination, DOE transmitted
copies of its proposed rule and the
NOPR TSD to the Attorney General for
review, with a request that the DOJ
provide its determination on this issue.
In its assessment letter responding to
DOE, DOJ concluded that the proposed
energy conservation standards for gasfired instantaneous water heaters are
unlikely to substantially lessen
competition. DOE is publishing the
Attorney General’s assessment at the
end of this final rule.
In response to the July 2023 NOPR,
Rinnai asserted that eliminating noncondensing gas-fired instantaneous
water heaters from the market would
create detrimental effects on
competition by limiting consumer
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choice, raising prices on more efficient
products, eliminating consumers’ option
to make like-for-like product
replacements, all of which would place
Rinnai at a disadvantage as a smaller
competitor in a concentrated water
heater market. (Rinnai, No. 1186 at p. 7)
In response to the July 2024 NODA,
Rinnai commented that the consumer
water heater market is already a highly
concentrated market with three
dominant players, and that moving to a
standard for gas-fired instantaneous
water heaters that requires condensing
technology would impede competition.
(Rinnai, No. 1443 at p. 22)
DOE recognizes the importance of
competition in the marketplace. For this
final rule, DOE reviewed its Compliance
Certification Database,32 AirConditioning, Heating, and Refrigeration
Institute’s Directory of Certified Product
Performance,33 California Energy
Commission’s Modernized Appliance
Efficiency Database System,34 and the
ENERGY STAR Product Finder
dataset 35 to ensure an up-to-date
assessment of gas-fired instantaneous
water heater manufacturers operating in
the United States. Through its review,
DOE identified 12 OEMs of gas-fired
instantaneous water heaters subject to
more stringent standards under this
rulemaking. All 12 OEMs already
manufacture condensing gas-fired
instantaneous water heaters. Of these 12
manufacturers, 10 manufacturers,
including Rinnai, manufacture products
that meet the standards adopted in this
final rule. Collectively, these 10 OEMs
offer 71 basic models (accounting for 51
percent of model listings and 60 percent
of shipments in 2024) that meet the
adopted level (TSL 2). Thus, a variety of
companies already participate in the
condensing gas-fired instantaneous
water heater market. Comparatively,
only eight OEMs currently manufacture
non-condensing gas-fired instantaneous
water heaters. See chapter 3 of the final
rule TSD for a complete list of
manufacturers of gas-fired instantaneous
water heaters. Based on Rinnai’s
comments in response to the July 2023
32 U.S. Department of Energy’s Compliance
Certification Database is available at
regulations.doe.gov/certification-data (last accessed
July 19, 2024).
33 Air-Conditioning, Heating and Refrigeration
Institute’s Directory of Certified Product
Performance is available at https://
ahridirectory.org/search/searchhome?
Returnurl=%2f (last accessed July 23, 2024).
34 California Energy Commission’s Modernized
Appliance Efficiency Database System is available
at cacertappliances.energy.ca.gov/Pages/Search/
AdvancedSearch.aspx (last accessed July 19, 2024).
35 ENERGY STAR Product Finder is available at
www.energystar.gov/productfinder (last accessed
July 22, 2024).
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NOPR, DOE understands that Rinnai’s
market share of non-condensing gasfired instantaneous water heaters is 60
percent and their market share of
condensing gas-fired instantaneous
water heater sales is 20 percent. (Rinnai
No. 1186 at p. 1) Given that all 12
manufacturers already offer condensing
gas-fired instantaneous water heater
products, DOE does not anticipate
lessening of competition in the gas-fired
instantaneous water heater market;
which is estimated to represent 14
percent of the total consumer water
heater market in 2030. As previously
discussed, this conclusion is also
supported by the DOJ’s assessment
letter.
f. Need for National Energy
Conservation
DOE also considers the need for
national energy and water conservation
in determining whether a new or
amended standard is economically
justified. (42 U.S.C. 6295(o)(2)(B)(i)(VI))
The energy savings from the adopted
standards are likely to provide
improvements to the security and
reliability of the Nation’s energy system.
Reductions in the demand for electricity
also may result in reduced costs for
maintaining the reliability of the
Nation’s electricity system. DOE
conducts a utility impact analysis to
estimate how standards may affect the
Nation’s needed power generation
capacity, as discussed in section IV.M of
this document.
DOE maintains that environmental
and public health benefits associated
with the more efficient use of energy are
important to take into account when
considering the need for national energy
conservation. The adopted standards are
likely to result in environmental
benefits in the form of reduced
emissions of air pollutants and GHGs
associated with energy production and
use. DOE conducts an emissions
analysis to estimate how potential
standards may affect these emissions, as
discussed in section IV.K of this
document; the estimated emissions
impacts are reported in section V.B.6 of
this document. DOE also estimates the
economic value of emissions reductions
resulting from the considered TSLs, as
discussed in section IV.L of this
document.
g. Other Factors
In determining whether an energy
conservation standard is economically
justified, DOE may consider any other
factors that the Secretary deems to be
relevant. (42 U.S.C. 6295(o)(2)(B)(i)(VII))
To the extent DOE identifies any
relevant information regarding
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economic justification that does not fit
into the other categories described
previously, DOE could consider such
information under ‘‘other factors.’’
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2. Rebuttable Presumption
As set forth in 42 U.S.C.
6295(o)(2)(B)(iii), EPCA creates a
rebuttable presumption that an energy
conservation standard is economically
justified if the additional cost to the
consumer of a product that meets the
standard is less than three times the
value of the first year’s energy savings
resulting from the standard, as
calculated under the applicable DOE
test procedure. DOE’s LCC and PBP
analyses generate values used to
calculate the effect potential amended
energy conservation standards would
have on the PBP for consumers. These
analyses include, but are not limited to,
the 3-year PBP contemplated under the
rebuttable-presumption test. In addition,
DOE routinely conducts an economic
analysis that considers the full range of
impacts to consumers, manufacturers,
the Nation, and the environment, as
required under 42 U.S.C.
6295(o)(2)(B)(i). The results of this
analysis serve as the basis for DOE’s
evaluation of the economic justification
for a potential standard level (thereby
supporting or rebutting the results of
any preliminary determination of
economic justification). The rebuttable
presumption payback calculation is
discussed in section IV.F of this final
rule.
IV. Methodology and Discussion of
Related Comments
This section addresses the analyses
DOE has performed for this rulemaking
with regard to gas-fired instantaneous
water heaters. Separate subsections
address each component of DOE’s
analyses.
DOE used several analytical tools to
estimate the impact of the standards
considered in this document. The first
tool is a spreadsheet that calculates the
LCC savings and PBP of potential
amended or new energy conservation
standards. The NIA uses a second
spreadsheet set that provides shipments
projections and calculates NES and NPV
of total consumer costs and savings
expected to result from potential energy
conservation standards. DOE uses the
third spreadsheet tool, the Government
Regulatory Impact Model (‘‘GRIM’’), to
assess manufacturer impacts of potential
standards. These three spreadsheet tools
are available on the DOE website for this
rulemaking: www.regulations.gov/
docket/EERE-2017-BT-STD-0019.
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Additionally, DOE used output from the
latest version of the Energy Information
Administration’s (‘‘EIA’s’’) Annual
Energy Outlook (‘‘AEO’’) for the
emissions and utility impact analyses.
A. Market and Technology Assessment
DOE develops information in the
market and technology assessment that
provides an overall picture of the
market for the products concerned,
including the purpose of the products,
the industry structure, manufacturers,
market characteristics, and technologies
used in the products. This activity
includes both quantitative and
qualitative assessments, based primarily
on publicly-available information. The
subjects addressed in the market and
technology assessment for this
rulemaking include: (1) a determination
of the scope of the rulemaking and
product classes, (2) manufacturers and
industry structure, (3) existing
efficiency programs, (4) shipments
information, (5) market and industry
trends, and (6) technologies or design
options that could improve the energy
efficiency of gas-fired instantaneous
water heaters. The key findings of DOE’s
market assessment are summarized in
the following sections. See chapter 3 of
the final rule TSD for further discussion
of the market and technology
assessment.
1. Product Classes
When evaluating and establishing or
amending energy conservation
standards, DOE establishes separate
standards for a group of covered
products (i.e., establish a separate
product class) based on the type of
energy used, or if DOE determines that
a product’s capacity or other
performance-related feature justifies a
different standard. (42 U.S.C. 6295(q)) In
making a determination whether a
performance-related feature justifies a
different standard, DOE considers such
factors as the utility of the feature to the
consumer and other factors DOE
determines are appropriate. (Id.)
EPCA, as amended by the National
Appliance Energy Act (NAECA; Pub. L.
100–12), established initial energy
conservation standards for consumer
water heaters, expressed in EF, that
were based on three product classes
differentiated by fuel type: (1) gas-fired,
(2) oil-fired, and (3) electric. (42 U.S.C.
6295(e)(1)) These standards applied to
consumer water heaters manufactured
on or after January 1, 1990. Gas-fired
instantaneous water heaters were, at the
time, required to comply with the same
EF standards as gas-fired storage water
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105205
heaters because the standards were not
differentiated by storage versus
instantaneous water heaters.
DOE subsequently amended these EF
standards twice, most recently in the
April 2010 Final Rule, with which
compliance was required starting on
April 16, 2015. 75 FR 20112. By the
April 2010 Final Rule, DOE had further
divided gas-fired consumer water
heaters into product classes based on
demand type (storage, instantaneous),
storage volume, and input rate. While
the April 2010 Final Rule had separate
standards for gas-fired instantaneous
water heaters and gas-fired storage water
heaters, DOE did not adopt standards
for gas-fired instantaneous water heaters
with less than 50,000 Btu/h of input
because, at that time, there were no such
low-input gas-fired instantaneous water
heaters available on the market. Id. at 75
FR 20127.
Most recently, the December 2016
Conversion Factor Final Rule, published
and effective on December 29, 2016,
translated the EF-based standards to
UEF-based standards. 81 FR 96204. In
doing so, separate product classes were
created for each of the four draw
patterns (very small, low, medium, and
high) in the UEF test procedure.
However, due to concerns that the UEF
test procedure would not apply to gasfired instantaneous water heaters 2
gallons or larger at the time, DOE
determined that the translated UEFbased standards would apply only to
gas-fired instantaneous water heaters
with less than 2 gallons of storage
volume. Id. at 81 FR 96205. As a result,
UEF-based standards were established
only for gas-fired instantaneous water
heaters with less than 2 gallons of
storage volume and more than 50,000
Btu/h of input. Id. at 81 FR 96205. As
discussed in the December 2016
Conversion Factor Final Rule, the
standards established in EPCA do not
define a minimum fuel input rate or
maximum storage volume for gas-fired
instantaneous water heaters; therefore,
the original standards established by
EPCA in terms of EF remained
applicable to all gas-fired instantaneous
water heaters without UEF-based
standards. Id. at 81 FR 96209–96211.
The four product classes for which DOE
has currently established UEF-based
standards are summarized in table IV.1.
The product classes without UEF-based
standards, for which EF-based standards
from EPCA apply, are shown in table
IV.2.
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TABLE IV.1—GAS-FIRED INSTANTANEOUS WATER HEATER PRODUCT CLASSES WITH CURRENT UEF-BASED STANDARDS
Product type
Rated storage volume and input rating
Instantaneous Gas-Fired Water Heater .............
<2 gal and >50,000 Btu/h ................................
Draw patterns
Very Small.
Low.
Medium.
High.
TABLE IV.2—GAS-FIRED INSTANTANEOUS WATER HEATER PRODUCT CLASSES WITHOUT CURRENT UEF-BASED
STANDARDS
Rated storage volume and input rating
(if applicable)
Product class
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Gas-fired Instantaneous ...........................................................................
In response to the July 2024 NODA,
A.O. Smith noted that the conversion
factor rulemaking did not establish a
product class for gas-fired instantaneous
water heaters ≥2 gallons and ≤200,000
Btu/h. A.O. Smith noted that, while the
intent of the December 2016 Conversion
Factor Final Rule was to satisfy the
requirements of AEMTCA, DOE is not
statutorily required under EPCA to
establish standards in terms of UEF for
the entirety of this product class
because some products meet the criteria
for exclusion on account of being
commercial equipment. (A.O. Smith,
No. 1440 at p. 3) A.O. Smith claimed
that the hot water delivery capacity, as
a function of input capacity and storage
volume, of a subset of products in the
≥2 gallon, ≤200,000 Btu/h proposed
product class for gas-fired instantaneous
water heaters includes equipment that
would not be used or installed
residentially and would only be suitable
for commercial applications. A.O. Smith
noted that equipment meeting the
capacity ranges of the proposed product
class already exist on the market and are
exclusively used in commercial
applications. (A.O. Smith, No. 1440 at
pp. 3–4) A.O. Smith recommended that
DOE re-evaluate the gas-instantaneous
water heater product class structure and
avoid prescribing a UEF test metric and
standard for these water heaters where
the UEF metric is inappropriate. A.O.
Smith noted that EPCA’s definition for
commercial gas-fired instantaneous
water heaters does not include a
minimum input or volume limit and
claimed that it does not prevent DOE
from specifying a reasonable storage
volume threshold for gas-fired
instantaneous water heaters above
which the product would be rated to
commercial metrics and considered as
commercial equipment. (A.O. Smith,
No. 1440 at p. 4)
As stated earlier, in the December
2016 Conversion Factor Final Rule, DOE
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<2 gal and ≤50,000 Btu/h.
≥2 gal.
determined that the translated UEFbased standards would apply only to
gas-fired instantaneous water heaters
with less than 2 gallons of storage
volume due to concerns at the time that
the UEF test procedure would not apply
to gas-fired instantaneous water heaters
2 gallons or larger. 81 FR 96204, 96205.
However, after conducting the market
assessment for this rulemaking, DOE is
now aware of multiple gas-fired
instantaneous water heaters with 2 or
more gallons of storage volume
presently on the market. These products
are specifically marketed for residential
applications in publicly available
product listings and literature.36 37 DOE
is not aware of, nor has A.O. Smith
provided, evidence suggesting that
products in this product class are
designed or marketed exclusively for
commercial applications. As such,
products in this size range have
demonstrated residential use and
therefore do not meet the requirement
for exclusion from the UEF descriptor as
specified at 42 U.S.C. 6295(e)(5)(F)(i).
In response to the July 2023 NOPR,
some stakeholders provided comments
specific to the proposed standards for
gas-fired instantaneous water heaters in
reference to the ‘‘unavailability
provision’’ found in EPCA, 42 U.S.C.
6295(o)(4). DOE indicated that these
comments would not be addressed in
the May 2024 Final Rule. 89 FR 37778,
37814. After further consideration of
36 American Water Heaters. See the ProLine® XE
Polaris® PG10–34–150–2NV 34-gallon
‘‘Commercial-Grade Residential Gas Water Heater’’
with 150,000 Btu input rate. Information available
online at www.americanwaterheater.com/media/
28107/nrgss03316.pdf (Last accessed Aug. 29,
2024).
37 HTP. See the ‘‘High Efficiency Crossover Floor
Water Heater,’’ with information provided to
compare against typical residential 50-gallon gasfired storage water heaters and tankless 199,000
Btu/h gas-fired instantaneous water heaters.
Information available online at
www.htproducts.com/literature/mktlit-117.pdf (Last
accessed Aug. 27, 2024).
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these comments DOE is addressing them
in this final rule. Relatedly, DOE
received a multitude of comments
throughout this rulemaking pertaining
to a potential product class structure
that differentiates between noncondensing and condensing products.
Per 42 U.S.C. 6295(o)(4), which
outlines certain criteria for prescribing
new or amended standards, the
Secretary may not prescribe an amended
or new standard under this section if the
Secretary finds (and publishes such
finding) that interested persons have
established by a preponderance of the
evidence that the standard is likely to
result in the unavailability in the United
States in any covered product type (or
class) of performance characteristics
(including reliability), features, sizes,
capacities, and volumes that are
substantially the same as those generally
available in the United States at the time
of the Secretary’s finding. The failure of
some types (or classes) to meet this
criterion shall not affect the Secretary’s
determination of whether to prescribe a
standard for other types (or classes).
Briefly, condensing and noncondensing products differ in how
efficiently they make use of flue gas
heat. A baseline gas-fired instantaneous
water heater relies on a single heat
exchanger, which extracts heat energy
from the flue gases and transfers it to the
water being delivered to the consumer.
However, these flue gases contain more
heat energy than the baseline heat
exchanger is able to extract and, as a
result, much of the heat in the flue gases
is lost as they are exhausted outdoors.
Enhancements to the heat exchanger—
including the use of a secondary heat
exchanger—enable high-efficiency gasfired instantaneous water heaters to
extract much more of the energy
available in the flue gases. When
enough energy is extracted by the heat
exchangers, the flue gases cool to the
point where they begin to condense,
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forming liquid condensate. This results
in a significant rise in efficiency. See
chapter 3 of the final rule TSD for
further discussion of condensing heat
exchangers.
As noted in the comments submitted
by NPGA, APGA, AGA, and Rinnai in
response to the July 2023 NOPR, the
UEF requirements for gas-fired
instantaneous water heaters as proposed
in the July 2023 NOPR would require
condensing technology. (NPGA, APGA,
AGA, and Rinnai, No. 441 at pp. 2–3)
Rinnai contended that the proposed rule
exceeds DOE’s authority because it is in
conflict with statutory provisions in
EPCA, most notably the unavailability
provision. Rinnai added that if the
proposed rule were adopted, it would
eliminate non-condensing tankless
water heaters, one of its product
offerings. (Rinnai, No. 1186 at p. 2)
Rinnai further argued that DOE may not
make non-condensing gas-fired
instantaneous water heaters unavailable
pursuant to the section 6295(o)(4) of
EPCA (the ‘‘unavailability provision’’).
Rinnai cited to DOE’s interpretation of
the unavailability provision in a recent
rulemaking for residential furnaces and
commercial water heaters and suggested
that DOE’s interpretation of the
provision is unduly narrow and not
supported by the provision’s plain
language.38 (Rinnai, No. 1186 at p. 9)
Rinnai noted that there is no reference
to ‘‘consumer utility’’ in the
unavailability provision detailed in
section 6295(o)(4) of EPCA. Rinnai
stated that, rather than relying on the
plain language of section 6295(o)(4)
itself, DOE’s interpretation of the
unavailability provision in section
6295(o)(4) of EPCA relies on reading
section 6295(q) as a redundant
companion provision to section
6295(o)(4) and suggested there is no
basis to do so. Rinnai added that this
misinterpretation constitutes an evasion
of the limits placed on DOE’s authority
by section 6295(o)(4) of EPCA. (Rinnai,
No. 1186 at p. 10)
Rinnai stated that even if DOE’s
interpretation of the unavailability
provision in section 6295(o)(4) of EPCA
is taken as correct, non-condensing gas38 DOE finds the better reading of the term
‘‘features’’ in the unavailability provision (i.e., those
features that cannot be eliminated by the
establishment of a new or amended energy
conservation standard) to be those features that
provide a consumer unique utility during the
operation of the appliance in performance of its
major function(s). Stated another way, the
‘‘features’’ provision and the related utility of such
features pertain to those aspects of the appliance
with which the consumer interacts during the
operation of the product (i.e., when the product is
providing its ‘‘useful output’’) and the utility
derived from those features during normal
operation. 86 FR 73947, 73955.
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fired instantaneous water heaters still
provide utility because the consumer’s
operation of, or interaction with, the
appliance necessarily depends on
whether or not the appliance can be
installed. Rinnai added that installation
costs should be considered under the
unavailability provision in section
6295(o)(4) of EPCA, not just as part of
determining whether or not a standard
is economically justified. (Rinnai, No.
1186 at pp. 10–11) Similarly, ONE Gas
claimed that DOE’s proposed standards
for gas-fired instantaneous water heaters
violate section 6295(o)(4) of EPCA
because the unavailability provision is
not only limited to product classes and
types, but also certain performance
characteristics including, features,
reliability, sizes, capacities, and
volumes within those product classes
and types. ONE Gas asserted that DOE’s
association of customer utility with
understanding of, and interaction with,
the covered appliance is incorrect and is
an overreach in interpretation of section
6295 of EPCA. (ONE Gas, No. 1200 at
pp. 4–5)
In response to the July 2024 NODA,
Rinnai reiterated its position that noncondensing gas-fired instantaneous
water heaters have useful and valuable
features, including the ability to have
like-for-like replacements, compatibility
for easier and wider applications of
installations, compatibility with noncondensing venting, smaller space
requirements, and greater efficiency at
lower cost than gas-fired storage water
heaters. Rinnai claimed that there is no
sound statutory basis for DOE’s refusal
to recognize that non-condensing gasfired instantaneous water heaters have
distinct features and characteristics
from those of condensing gas-fired
instantaneous water heaters that provide
utility to consumers. Rinnai stated that
DOE could instead establish separate
standards for condensing and noncondensing gas-fired instantaneous
water heaters to recognize the different
functions, capabilities, and installation
requirements while preserving
consumer choice, and therefore retain
the increased energy efficiency standard
for condensing gas-fired instantaneous
water heaters. Rinnai requested that
DOE run an analysis of this proposal
with product substitution and other
factors taken properly into account.
(Rinnai, No. 1443 at pp. 4–5)
Regarding Rinnai’s request for further
analysis on product substitution, see
section IV.F.10 of this document for
further details.
Regarding Rinnai’s assertion that
DOE’s interpretation of the
unavailability provision requires a
redundant reading of 42 U.S.C. 6295(q)
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to 42 U.S.C. 6295(o)(4), DOE notes that
while these provisions are related, they
are not redundant. EPCA provides DOE
authority to establish product classes
with different standard levels under 42
U.S.C. 6295(q). Under this authority,
DOE has to determine if a performancerelated feature justifies a different
standard, i.e., is worth preserving in the
market, by considering, among other
things, utility to the consumer. In
contrast, for the performance
characteristics, features, sizes,
capacities, and volumes protected under
the unavailability provision, Congress
has already made the determination that
they should be preserved in the market.
DOE uses its authority under the
product class provision at 42 U.S.C.
6295(q) to then ensure that these
performance characteristics, features,
sizes, capacities, and volumes are
preserved in the market. Without the
product class authority, DOE would
have to set one standard for a covered
product that preserves every aspect of a
covered product protected under the
unavailability provision. For example,
larger capacity gas-fired storage water
heaters are generally less-efficient than
smaller capacity units because standby
losses are higher for larger capacity
storage tanks. As a result, the lower
efficiency of the largest capacity models
could limit DOE’s ability to set
standards under 42 U.S.C. 6295(o)(4).
But 42 U.S.C. 6295(q) lets DOE set a
more-stringent standard for smaller
capacity gas-fired storage water heaters
that saves more energy and a lessstringent standard for larger capacity
gas-fired storage water heaters that helps
preserve their presence in the market.
Finally, it is important to note that the
product class provision is not just
limited to implementing the
unavailability provision. As the product
class provision contemplates that the
utility of some performance-related
features to the consumer may not justify
preservation in the market under a
separate product class, it is clear that
Congress intended this provision to
apply to a larger set of performancerelated features than would be protected
under the unavailability provision.
As for Rinnai’s statement that there is
no reference to ‘‘consumer utility’’ in
the unavailability provision detailed in
section 6295(o)(4) of EPCA, Rinnai’s
own comment also cited a House of
Representatives report that stated the
purpose of the unavailability provision
is to ensure that an amended standard
does not deprive consumers of product
choices and characteristics, features,
sizes, etc., and that significant energy
savings can be achieved without
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sacrificing the utility of an appliance to
a consumer. (Rinnai, No. 1186 at pp.
10). Performance characteristics,
features, sizes, capacities, and volumes
all offer some utility or benefit to the
consumer. To the extent that Rinnai is
suggesting that the protection of the
unavailability provision in EPCA should
be extended to aspects of a covered
product that offer no utility to a
consumer during operation, like the
less-efficient heat exchanger design of a
non-condensing gas-fired water heater,
or whether the venting material is
plastic or stainless steel, DOE strongly
disagrees. Any interpretation of the
unavailability provision not based on
the assumption that Congress was
concerned with preserving the utility of
covered products, results in a regulatory
framework where DOE is forced to
create so many product classes that
achieving any significant amount of
energy savings is all but impossible.
DOE also disagrees with Rinnai’s
contention that the specific provisions
of the unavailability provision—
performance characteristics (including
reliability), features, sizes, capacities,
and volumes—should be read to also
include, among other things,
‘‘installation costs’’ and ‘‘greater
efficiency at lower cost than gas-fired
storage water heaters.’’ Extending the
unavailability provision to installation
costs and efficiency is demonstrably an
impossibly broad interpretation of what
DOE is expected to preserve in the
market under the unavailability
provision. Efficiency is certainly a
performance characteristic of a water
heater as it measures how well a water
heater performs its intended function.
However, it would be nonsensical for
efficiency to be a performance
characteristic under the unavailability
provision as the express purpose of the
statute is to improve the energy
efficiency of covered products and
equipment, i.e., eliminate less-efficient
products and equipment from the
market. Furthermore, cost is certainly a
feature of a product. Arguably, it is one
of the most important features of a
product to a consumer. But again, the
energy-saving purposes of EPCA would
be frustrated if DOE were required to set
standards under the unavailability
provision that maintain less-energyefficient covered products based solely
on the fact that they cost less to install.
Instead, EPCA expressly contemplates
increases in the installed cost of a
covered product or equipment in the
economic justification analysis where
DOE is directed to consider, among
other things, the savings in operating
costs compared to any increase in the
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initial and maintenance costs of a
covered product. (42 U.S.C.
6295(o)(2)(B)(i)(II)). At bottom, Rinnai’s
argument is that DOE may not eliminate
one water-heating option (noncondensing gas instantaneous water
heaters) if that option is cheaper to
install than another, different option
(condensing gas-fired instantaneous
water heaters). But, Congress made it
clear that kind of comparative
assessment is to be done as part of the
economic analysis and has no role
under the unavailability provision. As
discussed at length elsewhere in this
document, DOE’s economic analysis
considers the extent to which its
standards for gas-fired instantaneous
water heaters will affect the market.
Additionally, in determining whether
a standard is economically justified
under EPCA, DOE is directed, among
other things, to consider any lessening
of the utility or performance of the
covered product likely to result from the
standard. Thus, extending the
unavailability provision to preserve any
performance characteristic or feature
would frustrate EPCA’s purpose and
statutory scheme. Simply put, EPCA
requires DOE to adopt standards set at
the maximum improvement in energy
efficiency determined to be
technologically feasible and
economically justified. EPCA
anticipates that new or amended energy
conservation standards will result in the
unavailability of certain inefficient
technologies. An overly broad reading of
the unavailability provision to include
attributes of the covered product not
addressed by the text of that provision
(i.e., efficiency, costs, installation costs,
etc.) would be at odds with the statute’s
energy-saving purposes. Similarly, DOE
disagrees with reading other qualifiers
into the unavailability provisions,
including ‘‘like-for-like replacements,
compatibility for easier and wider
applications of installations,
compatibility with non-condensing
venting, smaller space requirements.’’
As discussed further below, an existing
non-condensing gas-fired instantaneous
water heater can always be replaced
with a condensing gas-fired
instantaneous water heater in the same
place (i.e., it is always technically
feasible).
As discussed previously, DOE’s
interpretation of the unavailability
provision does not require a redundant
reading of 42 U.S.C. 6295(q). Instead,
DOE interprets these two provisions as
complementing one another. EPCA
provides DOE some discretionary
authority to establish product classes
with different standard levels under 42
U.S.C. 6295(q). Under this authority,
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DOE has to determine if a performancerelated feature justifies a different
standard by considering, among other
things, utility to the consumer. And
based on DOE’s own research as well as
information presented in stakeholder
comments, differences in cost or
complexity of installation between
different methods of venting (e.g., a
condensing water heater versus a noncondensing water heater) do not make
specific methods of venting a
performance-related feature under 42
U.S.C. 6295(q)(1)(B), so as to justify
separating the products into different
product classes. In reaching this
determination, DOE considered
Category III venting (for non-condensing
designs) and Category IV venting (for
condensing designs), which are
associated but external to the covered
product, and concluded that condensing
gas-fired instantaneous water heaters
can be installed in the same locations
where non-condensing gas-fired water
heaters are currently installed. As stated
throughout this rulemaking, installation
costs and considerations are very
relevant to the establishment of energy
conservation standards, and are
accounted for in the LCC analysis to
determine the economic justification of
standards.
Unlike specific methods of venting, a
covered product’s capacity is addressed
under the unavailability provision in 42
U.S.C. 6295(o)(4), and described under
the product class provision in 42 U.S.C.
6295(q)(1)(B). DOE notes that a water
heater’s capacity provides utility to a
consumer during use (unlike the type of
venting or installation costs). For
example, water heaters with higher
capacities enable consumers to run
multiple applications requiring hot
water at the same time. Further, DOE is
required to preserve the utility offered
by larger capacity water heaters in the
market under the unavailability
provision in 42 U.S.C. 6295(o)(4).
Unlike capacity, a lower installation
cost has no effect on the performance of
a water heater and offers no utility to a
consumer during use. In addition to
capacity, DOE has also established
product classes for water heaters based
on: volumes (e.g., a division at 2
gallons), input rating (e.g., a division at
50,000 Btu/h), delivery capacities (e.g.,
divisions for the very small, low,
medium, and high usage patterns), and
demand type (e.g., storage versus
instantaneous); in addition to
distinguishing by context and
applications (e.g., consumer product
versus commercial equipment) as well
as fuel types (e.g., gas-fired, oil-fired, or
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electric) as required under 42 U.S.C.
6295(q)(1)(A).
APCA opposed DOE’s proposed
standards for gas-fired instantaneous
water heaters because these standards
would require condensing operation.
(APCA, No. 1152 at p. 1) The Governor
of Georgia commented that the proposed
standards would limit consumer choice
by reducing the availability of many
non-condensing tankless water heaters
currently on the market, negatively
impact consumers through increased
product costs, and contradict EPCA
requirements. (Governor of Georgia, No.
1157 at pp. 1–3)
ONE Gas indicated that noncondensing/positive vent pressure gasfired instantaneous water heaters peak
at approximately 0.82 UEF and that UEF
ratings from 0.89 to 0.93 would be
technologically infeasible for noncondensing products. (ONE Gas, No.
1200 at pp. 2–3) Huntsville Utilities
expressed opposition to the proposed
standards for gas-fired water heaters,
adding that it is especially concerned
with the proposed standards for gasfired instantaneous water heaters that
require an efficiency level over 91
percent, effectively eliminating the noncondensing option for this product
class. (Huntsville Utilities, No. 1176 at
p. 1) JEA, WMU, PGW, Southeast Gas,
CEA, ASGE and ONE Gas stated that the
proposed standard for gas-fired water
heaters would effectively eliminate the
option of a non-condensing
instantaneous water heater and
requested that DOE reassess the negative
impacts on public gas utility customers
and manufacturers of water heaters that
would result from the proposed
standard for gas-fired water heaters.
(JEA, No. 865 at pp. 1–2; WMU, No. 872
at pp. 1–2; PGW, No. 886 at pp. 1–2;
Southeast Gas, No. 887 at pp. 1–2; CEA,
No. 914 at pp. 1–2; ASGE, No. 976 at pp.
1–2; ONE Gas, No. 1200 at p. 2)
The Gas Association Commenters
expressed that the transition to
condensing-level efficiencies for gasfired instantaneous water heaters would
result in the unavailability of products
with what it considered to be
performance characteristics and features
provided by non-condensing products.
This group of commenters cited
comments submitted by Rinnai, stating
that non-condensing gas-fired
instantaneous water heaters can be
installed and used in cases where
condensing products cannot be (e.g., in
high-rise buildings, historically
protected buildings, or any other
building with complications to venting
capabilities). According to EPCA, the
Gas Association Commenters stated,
DOE should decline to adopt the
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proposed standard for gas-fired
instantaneous water heaters on the
grounds that it would result in the
unavailability of products with
‘‘performance characteristics’’ and
‘‘features’’ currently available to
consumers in the United States. (Gas
Association Commenters, No. 1181 at p.
7)
In response to these comments, DOE
acknowledges that the standards for gasfired instantaneous water heaters cannot
be achieved by non-condensing designs.
Nevertheless, in response to comments
from ONE Gas suggesting that the
amended standards are technologically
infeasible, condensing-level standards
are still technologically feasible because
condensing designs are widely available
on the market. DOE has determined that
non-condensing technology does not
provide any inherent performance
benefit to consumers beyond what is
provided by condensing designs.
Instead, as discussed previously in this
section of this document, DOE has
determined that non-condensing
technology does not constitute a
performance-related feature for which a
separate product class must be
established under EPCA, nor does noncondensing technology warrant
preservation under the unavailability
provision. Condensing gas-fired
instantaneous water heaters can be
installed in the same locations where
non-condensing gas-fired water heaters
are currently installed with proper
consideration for the venting
requirements of condensing water
heaters. As discussed in section IV.F.2
of this document, the venting
requirements of each type of water
heater are considered in the analysis of
installation costs. Moreover, DOE has
not identified, nor have commenters
provided, any specific examples of
buildings that currently use gas-fired
water heaters that cannot be retrofitted
to accommodate a condensing gas-fired
water heater in place of an existing noncondensing gas-fired water heater. DOE
research indicates that historically
protected buildings can be renovated
with appropriate permitting from local
jurisdictions.39 In the case of buildings
preserved under the U.S. General
Services Administration’s stewardship
program, HVAC renovations have
39 For example, the Historic Beacon Hill District
in Boston, Massachusetts has an architectural
commission to review proposed alterations to
exterior architectural features within the district
that are open to view from a public way. Guidelines
for this district are provided by the City of Boston,
available at: www.cityofboston.gov/images_
documents/Beacon%20Hill%20Architectural
%20Commission%20Guidelines_tcm3-17489.pdf
(last accessed August 6, 2024).
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increased energy and water efficiency.40
When a chimney is not used to vent the
flue gases (such as when sidewall
venting is used), venting terminations
on the exterior of a building are visually
unobtrusive—far less prominent than
outdoor units for air-conditioning
systems that are often installed in
privately-owned homes in historic
districts. With respect to high-rise
buildings, DOE has found that these
buildings are uncommonly outfitted
with consumer gas-fired instantaneous
water heaters at present because these
types of buildings more commonly rely
on central domestic hot water
production (i.e., commercial water
heaters). This is because if consumer
gas-fired instantaneous water heaters are
centrally located in a multi-family
building, they could require multiple
long vents for flue gases and for
combustion air, which can be generally
prohibitive for both non-condensing and
condensing products alike. However,
even if gas-fired instantaneous water
heaters are located in some high-rise
buildings, they can be located near
exterior walls, and therefore each unit
can have separate venting. If high-rise
buildings rely on non-condensing gasfired instantaneous water heaters that
are installed in each individual
dwelling rather than in a central
location, the building would already
have venting in place (which would
need to be modified to accommodate a
condensing product, resulting in added
installation cost, just as any other case).
In general, as any gas-fired
instantaneous water heater would
already require venting to the outside,
the existing non-condensing venting can
always be converted to condensing
venting. These installation costs and
considerations have been included in
the quantitative factors of the analysis.
See section IV.F.2 for details on how
they are accounted for in the installation
cost analysis and the development of
LCC estimates. In summary, DOE has
not found any cases where
complications in venting cannot be
overcome. As a result, DOE finds that
interested persons have not established
by a preponderance of the evidence that
the standard is likely to result in the
unavailability of gas-fired instantaneous
water heaters in certain applications,
e.g., high-rise buildings, historically
protected buildings, or any other
building with complications to venting
capabilities. So, any argument that noncondensing gas-fired instantaneous
40 See, for example, the 2023 report by The Center
for Historic Buildings, available at: www.gsa.gov/
system/files/Stewardship2023_0.pdf (last accessed
August 8, 2024).
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water heaters should be preserved in the
market under 42 U.S.C. 6295(o)(4) must
be based on a performance characteristic
(e.g., reliability), feature, size, capacity,
or volume that is unique to noncondensing gas-fired instantaneous
water heaters.
First, regarding reliability, as
discussed in the March 2022
preliminary analysis and the July 2023
NOPR, standards adopted at EL 2 would
result in a transition towards
condensing technology for gas-fired
instantaneous water heaters (for those
with less than 2 gallons of storage
volume and more than 50,000 Btu/h of
rated input) but would not result in the
unavailability of reliably-performing
products. (See chapter 2 of the
preliminary analysis TSD; 88 FR 49058,
49079). Condensing gas-fired
instantaneous water heaters have been
on the market for many years. DOE has
noted clusters of models at condensing
efficiency levels as far back as the April
2010 Final Rule. (See table IV.11 at 75
FR 20112, 20145, which includes
condensing technology at efficiency
level 7). Over time, condensing models
have only grown in popularity. Today,
about two-thirds of gas-fired
instantaneous water heater shipments
are condensing products. Given this
substantial market penetration, and the
fact that a significant portion of these
shipments are installed in replacement
applications where the upfront cost is
likely higher than for non-condensing
products, and that DOE does not expect
that consumers on a large scale would
trade off efficiency for reliability, DOE
concludes that condensing gas-fired
instantaneous water heaters are likely to
be just as reliable as non-condensing
models—otherwise, they would not
comprise more than half of nationwide
shipments. See chapter 9 of the final
rule TSD for more details on product
shipments.
Regarding sizes, capacities and
volumes, gas-fired instantaneous water
heaters are typically described in terms
of capacity, i.e., Btu/hr. Based on DOE’s
market assessment, gas-fired
instantaneous water heaters that meet
the adopted EL 2 efficiency are available
over the full range of capacities up to
the maximum input that is allowable by
statute (200,000 Btu/h), and models on
the market also offer modulating
burners to meet reduced demands.
Therefore, no sizes, capacities or
volumes 41 will be made unavailable as
41 Consumer gas-fired instantaneous water heaters
often have little to no storage volume (i.e., can have
0 gallons of rated storage volume), however. These
models are also referred to as ‘‘tankless.’’ Hence
volume of the gas-fired instantaneous water heater
is not typically a consideration for most consumers,
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a result of DOE not separating product
classes for non-condensing and
condensing gas-fired instantaneous
water heaters in this rule. As a result,
DOE finds that interested persons have
not established by a preponderance of
the evidence that the standard is likely
to result in the unavailability of any
sizes, capacities, or volumes of gas-fired
instantaneous water heaters that are
substantially the same as those generally
available in the market.
DOE has found no sound statutory
basis for interpreting ‘‘size’’ to refer to
the physical dimensions or total
installation footprint of a covered
product. As technology advances, many
products get smaller. Computers used to
be the size of rooms and now they can
fit in a pocket. Similarly, televisions,
which are covered products under 42
U.S.C. 6292(a)(12) and are typically
referred to by screen size, have
undergone significant technological
advances over the past two decades as
the market has shifted from cathode-raytube (CRT) televisions and rearprojection televisions to liquid-crystaldisplay (LCD) televisions. LCD
televisions are a fraction of the physical
size of a CRT television or rearprojection television for the same screen
size. It would make little sense for the
unavailability provision to require DOE
to preserve CRT and rear-projection
televisions in the market because they
take up more space than an LCD
television with the same screen size. As
such, DOE views size, capacities, and
volumes as product-specific terms that
all refer to the same aspect of a covered
product.
Nonetheless, even if a smaller
installation footprint is considered a
performance characteristic or feature,
interested persons have not established
by a preponderance of the evidence that
the standard is likely to result in the
unavailability of gas-fired instantaneous
water heaters with smaller installation
footprints. Gas-fired instantaneous
water heaters that only just meet the
current standards (‘‘baseline’’ models)
are designed with a combustion blower
to help exhaust the flue gases and
improve heat exchange. These designs
use ‘‘category III’’ 42 venting, which is a
nor does it substantially affect the model’s ability
to deliver hot water on-demand.
42 In 2021, the National Fire Protection
Association (NFPA) and American National
Standards Institute (ANSI) published the NFPA 54/
ANSI Z223.1, ‘‘National Fuel Gas Code.’’ (NFPA
54–2021). Chapter 3 of NFPA 54–2021 divides the
‘‘vented appliance’’ definition into four categories
according to whether the appliance operates with
positive or nonpositive static pressure in the vent
and whether there is excessive condensate
formation in the vent. NFPA 54–2021 can be found
online at: www.nfpa.org/codes-and-standards/nfpa-
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type of vent made for pressurized flue
gases (such as those generated by a
baseline gas-fired instantaneous water
heater with a combustion blower).
While category III venting is for noncondensing appliances, it is similar to
category IV venting (used for
condensing appliances) because both
types handle pressurized flue gases from
appliances with blowers. Condensing
gas-fired instantaneous water heaters
also use combustion blowers. The
primary difference in the venting for
these designs is the material that the
vent is made of: category III vents
handle higher temperatures and are
therefore made of metal, whereas
category IV vents have to be able to
withstand corrosion from condensate
but can be made of less expensive
plastics due to the lower temperatures
produced by condensing appliances
(condensing appliances do not exhaust
as much heat as non-condensing
appliances do because condensing
appliances are more effective at
transferring the heat to the water). In a
replacement scenario, the existing
category III venting must be removed
and replaced with category IV venting,
however the new venting can utilize the
existing vent run because both venting
types operate with positive static
pressure and can be configured
horizontally or vertically. As a result,
the installation footprint can be
maintained when switching from a noncondensing to a condensing gas-fired
instantaneous water heater. As
discussed previously, the replacement
of the venting will incur additional
labor and material costs, but it is
technically feasible. See section IV.F.2
for further details on installation costs.
See chapter 3 of the TSD for more
details on venting types and baseline
components and operation.
For these reasons, DOE has concluded
that interested persons have not
established by a preponderance of the
evidence that the standard is likely to
result in the unavailability in the United
States of gas-fired instantaneous water
heaters with performance characteristics
(including reliability), features, sizes,
capacities, and volumes that are
substantially the same as those generally
available in the United States.
Additionally, DOE has determined that
separate product classes for inefficient
non-condensing technology and designs
are not justified under 42 U.S.C.
6295(q)(1)(B).
Lastly, DOE notes that the
condensing-level standards adopted by
this final rule do not apply to all gas54-standard-development/54. (Last accessed
December 4, 2024).
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fired instantaneous water heaters, but
only those with less than 2 gallons of
storage volume and more than 50,000
Btu/h of rated input. While these
products comprise the vast majority of
gas-fired instantaneous water heaters, it
is not the entirety. Further discussion of
condensing standards for other gas-fired
instantaneous water heaters is presented
in section IV.C.2.b of this document.
2. Technology Options
In the July 2023 NOPR market
analysis and technology assessment,
DOE identified several technology
options initially determined to improve
the efficiency of gas-fired instantaneous
water heaters, as measured by the DOE
test procedure. The technology options
DOE identified are listed in table IV.3.
These technology options pertain to gasfired instantaneous water heaters with
less than 2 gallons of stored volume and
over 50,000 Btu/h of rated input.
Technology options for other types of
gas-fired instantaneous water heaters are
largely similar; however, additional
options may be used to complement the
applications of those products. For
example, gas-fired instantaneous water
heaters with substantial storage volume
may employ thicker insulation to
improve UEF ratings by reducing
standby losses. As discussed in section
105211
IV.C of this document, the engineering
analysis for products with 2 or more
gallons of storage volume and for
products with less than 50,000 Btu/h of
rated input consists of a ‘‘crosswalk,’’
i.e., a translation of existing standards
from one metric (EF) to another (UEF).
Because a crosswalk maintains the same
stringency of standards, DOE has not
completed an assessment of the market
for technology options used to improve
UEF in models subject to the translated
standards. DOE will continue to monitor
the market and assess the designs of
these models as more information
pertaining to UEF ratings becomes
available.
TABLE IV.3—POTENTIAL TECHNOLOGIES FOR INCREASING GAS-FIRED INSTANTANEOUS WATER HEATER EFFICIENCY
Technology option
Electronic ignition ............................
Improved burners ............................
I
Intermittent pilot ignition.
Intermittent direct ignition.
Hot surface ignition.
Condensing pulse combustion.
Power burner.
Reduced burner size (burner derating).
Modulating burners ................................................................................
I
Heat exchanger improvements .......
Improved venting .............................
Improved controls ............................
Increased heat exchanger surface area.
Flue baffle.
Condensing technology.
Direct venting.
Concentric direct venting.
Modulating controls.
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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
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Fully modulating burners.
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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(a)(3)(iii) and 7(b).
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
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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.
1. Screened-Out Technologies
In the July 2023 NOPR, DOE screened
out the following technology options
pertaining to gas-fired instantaneous
water heaters based on the previously
described criteria: condensing pulse
combustion and reduced burner size. 88
FR 49058, 49083. DOE did not modify
its screening analysis in the July 2024
NODA or in this final rule analysis.
Regarding condensing pulse
combustion, DOE has determined it is
not technologically feasible for the
broader market and not likely to be
practicable to manufacture, install, and
service this technology on the scale
necessary to serve the relevant market at
the time of the effective date of this
standard. Although condensing pulse
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combustion technology shows
promising results in increasing
efficiency, it has not yet been
demonstrated in any commerciallyavailable consumer gas-fired
instantaneous water heaters. Similar
efficiencies are achievable with other
technologies that have already been
introduced on the market such that it is
unlikely for manufacturing with
condensing pulse combustion
technology to be scaled up in the future.
DOE screened out reduced burner size
due to adverse impacts to consumer
utility (because reducing the burner size
reduces the amount of heat the water
heater can provide). Further details of
the screening analysis are provided in
chapter 4 of the final rule TSD.
2. Remaining Technologies
Through a review of each technology,
DOE tentatively concludes that all of the
other identified technologies listed in
section IV.B.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:
TABLE IV.4—REMAINING TECHNOLOGY OPTIONS
Technology option
Electronic ignition ............................
Burner improvements ......................
I
Intermittent pilot ignition.
Intermittent direct ignition.
Hot surface ignition.
Power burner.
Modulating burners ................................................................................
Step modulating burners.
I Fully modulating burners.
Heat exchanger improvements .......
Improved venting .............................
Improved controls ............................
Increased heat exchanger surface area.
Flue baffle.
Condensing technology.
Direct venting.
Concentric direct venting.
Modulating controls.
C. Engineering Analysis
The purpose of the engineering
analysis is to establish the relationship
between the efficiency and cost of the
product. There are two elements to
consider in the engineering analysis: the
selection of efficiency levels to analyze
(i.e., the ‘‘efficiency analysis’’), and the
determination of product cost at each
efficiency level (i.e., the ‘‘cost
analysis’’). In determining the
performance of higher-efficiency
products, DOE considers technologies
and design option combinations not
eliminated by the screening analysis.
For each product class, DOE estimates
the baseline cost, as well as the
incremental cost for the product/
equipment at efficiency levels above the
baseline. The output of the engineering
analysis is a set of cost-efficiency
‘‘curves’’ that are used in downstream
analyses (i.e., the LCC and PBP analyses
and the NIA).
As discussed in section IV.A.1 of this
document, certain classes of gas-fired
instantaneous water heaters currently
have UEF-based standards, while for
others EPCA’s EF-based standards
apply. For this rulemaking, DOE
analyzed amended UEF standards for
the product classes that currently have
standards in terms of UEF. For the
product classes with EF-based
standards, DOE developed translated
standards in terms of UEF for use in the
analysis but did not analyze higher
efficiency levels because, as discussed
in section IV.C.2.b of this document,
DOE does not currently have sufficient
information to determine which higher
efficiencies may be economically
justified and result in significant
national energy savings.
DOE has analyzed standards with
respect to the effective storage volume
43 As discussed in section III.B of this document,
circulating gas-fired water heaters are storage-type
water heaters that are outside the scope of this final
rule.
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DOE determined that these
technology options are technologically
feasible because they are being used or
have previously been used in
commercially available products or
working prototypes. DOE also finds that
all of the remaining technology options
meet the other screening criteria (i.e.,
practicable to manufacture, install, and
service; do not result in adverse impacts
on consumer utility, product
availability, health, or safety; and do not
utilize unique-pathway proprietary
technologies). For additional details, see
chapter 4 of the final rule TSD.
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metric (as proposed in the July 2023
NOPR) to allow consistency between
standards in different product classes.
As outlined in the July 2023 NOPR,
there are two types of water heaters that
can cause the system to store more
energy than would be otherwise
determined by the rated storage volume:
(1) water heaters capable of operating
with an elevated tank temperature, and
(2) circulating water heaters.43 88 FR
49058, 49086. For water heaters that are
not capable of storing water at elevated
tank temperatures, including ‘‘tankless’’
models (e.g., products with current
UEF-based standards), the effective
storage volume is equivalent to the rated
storage volume. However, some gasfired instantaneous water heaters can
include smaller tanks (i.e., the product
class for models with at least 2 gallons
of storage volume), therefore the
effective storage volume metric was
determined to be useful for gas-fired
instantaneous water heaters as well.
The product classes analyzed in this
final rule and the respective analytical
approaches utilized are listed in table
IV.5.
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TABLE IV.5—ANALYSIS APPROACH BY PRODUCT CLASS
Product category analyzed in this final rule
Distinguishing characteristics
(effective storage volume and input rating)
Analysis
Gas-fired Instantaneous Water Heater ..............
<2 gal and ≤50,000 Btu/h ................................
Converting EF-based standards to UEF-based
standards.
Amending UEF-based standards.
Converting EF-based standards to UEF-based
standards.
<2 gal and >50,000 Btu/h; All Draw Patterns ..
≥2 gal and ≤200,000 Btu/h ..............................
1. Products With Current UEF-Based
Standards
DOE typically uses one of two
approaches to develop energy efficiency
levels for the engineering analysis: (1)
relying on observed efficiency levels in
the market (i.e., the efficiency-level
approach), or (2) determining the
incremental efficiency improvements
associated with incorporating specific
design options to a baseline model (i.e.,
the design-option approach). Using the
efficiency-level approach, the efficiency
levels established for the analysis are
determined based on the market
distribution of existing products (in
other words, based on the range of
efficiencies and efficiency level
‘‘clusters’’ that already exist on the
market). Using the design option
approach, the efficiency levels
established for the analysis are
determined through detailed
engineering calculations and/or
computer simulations of the efficiency
improvements from implementing
specific design options that have been
identified in the technology assessment.
DOE may also rely on a combination of
these two approaches. For example, the
efficiency-level approach (based on
actual products on the market) may be
extended using the design option
approach to interpolate to define ‘‘gap
fill’’ levels (to bridge large gaps between
other identified efficiency levels) and/or
to extrapolate to the ‘‘max-tech’’ level
(particularly in cases where the ‘‘maxtech’’ level exceeds the maximum
efficiency level currently available on
the market).
In the July 2023 NOPR, DOE
developed efficiency levels with a
combination of the efficiency-level and
design-option approaches. DOE
conducted a market analysis of
currently available models listed in
DOE’s Compliance Certification
Database to determine which efficiency
levels were most representative of the
current distribution of gas-fired
instantaneous water heaters available on
the market. DOE also completed
physical teardowns of commercially
available units to determine which
design options manufacturers may use
to achieve certain efficiency levels. DOE
requested comments from stakeholders
concerning these efficiency levels,
which, in this final rule, are consistent
with those analyzed in the July 2024
NODA.
a. Efficiency Levels
For each product class, DOE generally
selects a baseline model as a reference
point for each class, and measures
anticipated changes resulting from
potential energy conservation standards
against the baseline model. The baseline
model in each product class represents
the characteristics of a product 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. 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.
In this final rule, DOE has analyzed
the same efficiency levels as were
considered in the July 2023 NOPR and
the July 2024 NODA. These efficiency
levels are presented in table IV.6. For
each draw pattern, EL 2 corresponded
with the levels proposed in the Joint
Stakeholder Recommendation (‘‘JSR’’)
as discussed in section II.B.2 of this
document. See chapter 5 of the final
rule TSD for further details regarding
the efficiency level analysis.
TABLE IV.6—EFFICIENCY LEVELS FOR PRODUCTS WITH Veff <2 GAL, RATED INPUT >50,000 BTU/H
UEF
Efficiency level
Very small *
0
1
2
3
4
(Baseline) ......................................................................................................
.......................................................................................................................
(JSR) .............................................................................................................
.......................................................................................................................
(Max-Tech) ...................................................................................................
Low *
0.80
† 0.86
† 0.89
† 0.90
† 0.91
Medium
0.81
† 0.87
† 0.91
† 0.92
† 0.93
0.81
0.87
0.91
0.92
0.93
High
0.81
0.89
0.93
0.95
0.96
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* Only one brand has commercially-available products in the very small draw pattern and low draw pattern at the time of this analysis.
† DOE applied the differences in efficiency levels from the medium draw pattern to define the Efficiency Levels 1 through 4 for the very small
draw pattern and the low draw pattern.
In response to the July 2023 NOPR,
ONE Gas stated that as efficiencies of
non-condensing instantaneous gas water
heaters have increased since their
introduction, replacements would
accrue efficiency gains and emissions
reductions over the products when first
introduced in the 2000s and now at the
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end of their predicted lives (20 years
according to the Department’s analysis).
(ONE Gas, No. 1200 at p. 4)
DOE agrees that efficiencies of gasfired instantaneous water heaters have
increased over time. In the present
rulemaking, DOE considered the
baseline efficiency of gas-fired
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instantaneous water heaters to be
equivalent to the current standards. This
efficiency was required as a result of the
April 2010 Final Rule, which set
standards at a level that typically
corresponds to electronic ignition, larger
non-condensing heat exchangers, and
power venting. As shown in chapter 3
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of the final rule TSD, models are now
able to achieve significantly higher
efficiencies (e.g., condensing levels).
With respect to efficiency level 2,
Rinnai stated that DOE’s proposed
standard is not technically achievable
by non-condensing gas-fired
instantaneous water heaters, and,
accordingly, will make them obsolete.
Rinnai noted that it had previously
submitted comments on the July 2023
NOPR, stating that the proposed rule
would eliminate one of Rinnai’s two
residential water heater product
offerings and significantly impact
Rinnai’s tankless water heater sales and
manufacturing facility. (Rinnai, No.
1443 at pp. 1–2)
DOE has concluded that the efficiency
levels analyzed in this rulemaking are
technologically feasible for gas-fired
instantaneous water heaters through the
use of condensing heat exchangers,
which are widely used in the market
today. DOE understands Rinnai’s
concern regarding the elimination of
less-efficient models impacting the
manufacturer, and therefore these topics
are addressed more in detail in section
IV.J.3 of this document, which discusses
MIA comments. After consideration of
feedback from commenters, DOE is
maintaining the efficiency levels
provided in the July 2024 NODA.
b. Design Options
Based on its teardown analyses and
feedback provided by manufacturers in
confidential interviews, DOE
determined the technology options that
are most likely to constitute the
pathway to achieving the efficiency
levels assessed. These technology
options are referred to as ‘‘design
options.’’ While manufacturers may
achieve a given efficiency level using
more than one design strategy, the
selected design options reflect what
DOE expects to be the most likely
approach (most likely to prove costeffective) for the market in general in a
standards-case scenario. Further details
are provided in chapter 5 of the final
rule TSD.
DOE has found that gas-fired
instantaneous water heaters are often
differentiated based on heat exchanger
and burner designs. Step-modulating
burners feature a manifold with
multiple solenoids regulating the gas
flow into the burner. Sections of the
burner can be shut off or opened up as
demand for hot water varies. Each
additional open solenoid means another
‘‘step up’’ in heat input. By contrast,
fully modulating burners make use of
the full combustion chamber and heat
exchanger surface area, modulating the
input rate in tandem with the
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combustion blower. Such systems tend
to be more complex than stepmodulating gas-fired instantaneous
water heaters. In the March 2022
Preliminary Analysis, DOE observed
some manufacturers using fully
modulating burners in lieu of stepmodulating burners at the max-tech
efficiency level. In the July 2023 NOPR,
DOE analyzed an additional efficiency
level, EL 3, that was close to the maxtech level, EL 4, and used generally
similar design options. However, in the
July 2024 NODA, upon further review
DOE found products that meet EL 3 but
not EL 4 using step modulation. Thus,
DOE tentatively determined that fully
modulating burners are more likely to
be implemented in only EL 4 designs. In
the July 2024 NODA, based on
additional data collected in its analyses,
DOE also surmised that EL 4 efficiencies
could still be met without the use of
fully modulating burners—i.e., relying
mainly on improvements to the
condensing heat exchanger. DOE stated
that this result is consistent with the
conclusion in the July 2023 NOPR
because the pathway relying on heat
exchanger improvements could be more
cost-effective for manufacturers to massproduce designs at a scale necessary to
meet national demand, therefore the
Department expects that such designs
may be more common if standards were
to be set at EL 4 than in the current
market. As such, DOE analyzed EL 4 to
be achievable using either step
modulating or fully modulating burners,
and the manufacturer production cost
for EL 4 estimated in the July 2024
NODA reflected an average of these
design pathways. 89 FR 59692, 59693–
59694. Due to the uncertainty regarding
which design pathway would be more
prevalent in the case of standards set at
the max-tech efficiency level, DOE
raised the issue to seek additional
information from interested parties on
this topic.
In response to the July 2024 NODA,
AHRI disagreed with DOE’s assessment
that EL 3 and EL 4 can be achieved
using step modulating burners. AHRI
stated that fully modulating burners are
required to achieve EL 3 and EL 4. AHRI
claimed that fully modulating burners
provide the precise control necessary to
optimize combustion efficiency,
minimize energy waste, and
consistently achieve the higher
performance levels associated with EL 3
and EL 4. AHRI claimed that this is
supported by current market data,
which shows that the vast majority of
gas-fired instantaneous water heaters
achieving high efficiency levels,
particularly those with a UEF above
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0.93, rely on fully modulating burners.
AHRI claimed DOE’s findings are not
supported by the existing market
landscape. AHRI urged DOE to consider
performing a detailed review of the
efficiency gains that can be realistically
expected from step modulating versus
fully modulating burners, as well as a
comprehensive assessment of market
data in order to support the claim that
step-modulating burners can be used to
achieve EL 3 and EL 4. (AHRI, No. 1437
at pp. 1–2)
Rinnai requested that DOE analyze
and validate the assumptions regarding
the feasibility of achieving EL 3 or EL
4 using step modulating burners, a
change made in the July 2024 NODA.
According to Rinnai, fully modulating
burners consistently achieve EL 3 and
EL 4, which the July 2024 NODA now
contradicts. (Rinnai, No. 1443 at p. 23)
Rheem disagreed with the design
options for EL 3 and EL 4 as described
in the July 2024 NODA, claiming that
step modulation was not reflected in the
MPCs. Rheem indicated that there are
currently no models utilizing step
modulating burners on the market that
meet EL 4. In addition, Rheem stated
that, while there are step modulating
designs currently on the market that
meet EL 3, some are complex downfired designs that were not reflected in
the technology options discussed in the
NOPR TSD. Finally, Rheem questioned
whether traditional step modulating
designs can meet EL 3 at all input rates.
(Rheem, No. 1436 at p. 2)
A.O. Smith stated that DOE’s
engineering analysis should reflect the
technologies and design pathways
currently available on the market and
avoid making speculative assumptions
regarding cost and performance of
theoretical designs which have not been
fully vetted or proven to be market
ready and emphasized that the use of
theoretical design pathways is more
prone to inaccurate or incomplete cost
estimates. (A.O. Smith, No. 1440 at pp.
5–6)
BWC agreed that designs utilizing
step modulating burners can achieve EL
4, but stated that manufacturers do not
widely design their products in this way
due to their increased complexity,
which correlates with reduced product
lifetimes. Additionally, the
manufacturer stressed that added
product complexity would entail more
specialized manufacturing processes,
leading to additional costs passed on to
consumers. (BWC, No. 1441 at pp. 1–2)
BWC further stated that for products
achieving EL 4 efficiencies with the use
of step modulating burners the
increased complexity of step
modulating burners would make
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products more difficult to efficiently
mass produce, requiring the
development of more specialized
manufacturing processes. BWC stated
that this would lead to increased
production costs that may be passed on
to consumers. (BWC No. 1441 at p. 2)
To clarify, DOE bases its assignment
of design options not only on publicly
available product literature, but also on
its independent analysis of teardown
samples. DOE combines this
information to determine what the most
cost-effective pathway to increasing
efficiency may be.
With respect to burner configuration
(i.e., up-fired vs. down-fired), DOE notes
that it has not found evidence to suggest
that the configuration itself lends to
improvements in UEF. Although the
topic was discussed, burner
configuration was not attributed as a
design option to improve the efficiency
of commercial gas-fired instantaneous
water heaters in DOE’s recent
rulemaking pertaining to standards for
that equipment.44 Traditional designs of
consumer gas-fired instantaneous water
heaters utilize an ‘‘up-fired’’ approach
where the burner is located at the
bottom and directs the flame upwards
through a heat exchanger above it. This
configuration is the natural choice for
product lines that used buoyancy to
vent the flue gases away because the hot
flue gases can rise through the heat
exchanger and exit through the vent.
However, baseline models today utilize
power burners with blowers to expel the
flue gases without the need for
buoyancy to move these gases out.
Because of this, designs are no longer
limited to up-fired configurations.
Down-fired configurations—where the
burner and blower are located above the
heat exchanger—may be preferred by
some manufacturers due to this design’s
natural ability to manage condensate in
condensing models. In a down-fired
configuration, gravity allows the
condensate to collect at a receiver near
the secondary (condensing) heat
exchanger because, in this
configuration, the condensing heat
exchanger is towards the bottom of the
water heater. Teardown samples show
that both firing configurations are used
in condensing models today. As such,
DOE finds that the burner configuration
is likely the manufacturer’s preference
rather than an inherent benefit to
efficiency. See chapters 3 and 5 of the
final rule TSD for more details.
44 See chapter 5 of the TSD to the October 2023
commercial water heater standards final rule,
available online at: www.regulations.gov/document/
EERE-2021-BT-STD-0027-0038.
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Where DOE has found a correlation
between down-fired configurations and
UEF is in the implementation of fully
modulating burners. Down-fired
configurations tend to have higher UEF
ratings because fully modulating
burners are typically always down-fired.
This may be because, as discussed
further in the following paragraphs,
fully modulating burners require
different manufacturing equipment and
production lines. For example, if a
manufacturer is designing a new
production line for models with fully
modulating burners, there may be an
opportunity to implement a down-fired
design for the condensate. However, the
research and teardown analyses
conducted by DOE did not yield
evidence to suggest that the down-fired
configuration causes an increase in UEF
without the implementation of a fully
modulating burner. Hence DOE
maintains that the pathway to
increasing efficiencies up to the maxtech level includes incorporating fully
modulating burner designs, which
happen to be down-fired. For
condensing efficiency levels below the
max-tech level, DOE’s teardown
analyses indicate that there would not
be a significant difference in MPC
between a down-fired design and an upfired design, all else the same.
Therefore, DOE has not directly
analyzed the incorporation of downfired burners as a design option in this
engineering analysis except where fully
modulating burners are used.
With respect to the burner modulation
type, DOE agrees that fully modulating
burners are capable of achieving higher
efficiencies, including those from EL 1
through EL 4. However, in its
teardowns, DOE identified samples of
gas-fired instantaneous water heaters
currently on the market meeting the
efficiencies as high as EL 3 using stepmodulating burners. Additionally, the
comments from Rheem implicitly
provide that fully modulating designs
are associated with higher costs
compared to step-modulating designs,
which may be a reason step-modulating
burners are still commonly used at
higher efficiencies. DOE’s teardown
analyses verify this understanding—
fully modulating burners use more
advanced components that cause MPCs
to rise commensurately. Responding to
the comments from BWC, DOE
understands that a production line built
to manufacture step-modulating burners
would have additional equipment that a
fully modulating burner production line
would not require. For example,
manufacturers typically need additional
metal presses and/or dies to stamp the
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compartments of a step-modulated
burner and combustion chamber. Each
manufacturer has the ability to choose
which type of burner to implement in
its designs, taking into consideration the
pros and cons of each approach (e.g.,
step-modulating burners may cost less
overall, but have a trade-off in that they
require more equipment to
manufacture). The availability of stepmodulating burners at various efficiency
levels strongly suggests that
manufacturers do opt to use this
pathway despite the added complexity
of the production line.
As stated earlier, DOE aims to identify
the most cost-effective and likely
pathway to achieving higher efficiency
levels. The cost-efficiency curves serve
as estimates for what the overall
market—not just one manufacturer—
would experience in a scenario where
standards are set to that efficiency
levels. In the July 2024 NODA, DOE
tentatively determined that the
continued use of step-modulating
burners, along with heat exchanger
improvements, would be the most costeffective pathway to achieve EL 3. Then,
to reach EL 4, fully modulating burners
may have similar cost-effectiveness such
that manufacturers could opt to use
either a step-modulating burner with an
even larger heat exchanger or a fully
modulating burner at this level.
DOE once again reviewed its
teardowns and online product literature
to assess how different manufacturers
implement step-modulating and fully
modulating burner designs, as suggested
by AHRI. To Rheem’s point, DOE once
again found that step-modulating
designs on the market today can achieve
EL 3 and can span the full range of
capacities (up to 200,000 Btu/h), as
described in chapter 5 of the final rule
TSD. While there may be some cases of
product lines not reaching EL 3 across
the full span of capacities, DOE believes
these discrepancies in efficiency can be
addressed by improving the heat
exchanger (and the added costs of doing
so are included in DOE’s estimates of
MPCs). Considering this, the
Department has confirmed that the
design option pathway to EL 3 could be
more cost-effective using stepmodulating burners.
DOE also found that, although stepmodulating designs would be capable of
meeting EL 4 (as BWC indicated), more
manufacturers use fully-modulating
burners at EL 4. To determine whether
step-modulating burners would be
appropriate to consider for EL 4, DOE
evaluated the comments from
manufacturers regarding manufacturing
complexity. Currently, approximately
only 8 percent of shipments currently
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meet EL 4. In a standards-case-scenario,
manufacturers would have to
significantly ramp up production
capacity such that 100 percent of
models sold in the U.S. would meet that
efficiency level. The comments from
multiple manufacturers serve as a strong
indication that, in a standards-casescenario where production capacity for
these high-efficiency models would
have to be multiplied, it is more realistic
to expect designs to use fully
modulating burners to simplify the
production process. Hence, DOE agrees
with commenters indicating that fully
modulating burners are more
appropriate for EL 4.
As a result, the design options
analyzed in this final rule are listed in
table IV.7.
TABLE IV.7—DESIGN OPTIONS FOR GAS-FIRED INSTANTANEOUS: Veff <2 GAL, RATED INPUT >50,000 BTU/H
EL
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0
1
2
3
4
.............
.............
.............
.............
.............
Design options
Step modulating burner; Non-condensing tube-and-fin heat exchanger.
Step modulating burner; Condensing tube heat exchanger.
Step modulating burner; Larger condensing heat exchanger.
Step modulating burner; Larger, flat plate condensing heat exchanger.
Fully modulating burner; Larger condensing heat exchanger.
c. Cost Analysis
The cost analysis portion of the
engineering analysis is conducted using
one or a combination of cost
approaches. The selection of cost
approach depends on a suite of factors,
including the availability and reliability
of public information, characteristics of
the regulated product, the availability
and timeliness of purchasing the
product on the market. The cost
approaches are summarized as follows:
• Physical teardowns: Under this
approach, DOE physically dismantles a
commercially available product,
component-by-component, to develop a
detailed bill of materials for the product.
• Catalog teardowns: In lieu of
physically deconstructing a product,
DOE identifies each component using
parts diagrams (available from
manufacturer websites or appliance
repair websites, for example) to develop
the bill of materials for the product.
• Price surveys: If neither a physical
nor catalog teardown is feasible (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 publicly
available pricing data published on
major online retailer websites and/or by
soliciting prices from distributors and
other commercial channels.
In the present case, DOE conducted
the analysis using a combination of the
physical and catalog teardown
approaches to develop estimates of the
manufacturer production cost (‘‘MPC’’)
at each UEF efficiency level analyzed.
Data from the teardowns were used to
create bills of materials (‘‘BOMs’’) that
capture all of the materials,
components, and manufacturing
processes necessary to manufacture
products at various efficiency levels
spanning the full range of efficiencies
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from the baseline to max-tech. DOE
used the BOMs along with publicly
available material and component cost
data as the basis for estimating the
MPCs. DOE refined its cost estimates
and its material and component cost
data based on feedback received during
confidential manufacturer interviews
conducted during this rulemaking.
To perform this analysis, DOE selects
representative capacities for each
product class. These capacities reflect
the most common or average size of a
gas-fired instantaneous water heater in
that product class, and this step is
important because the MPC is
dependent upon the size of the water
heater—water heaters with higher input
rates cost more to manufacture. In the
July 2023 NOPR and July 2024 NODA,
DOE analyzed input rates of 120,000
Btu/h and 199,000 Btu/h as
representative capacities for the
medium and high draw patterns,
respectively. DOE has determined that
these capacities remain representative
in this final rule. Based on the results
of the market assessment, DOE has
determined that there are very few
models in the low draw pattern, with
only one manufacturer making these
products. There are no very small draw
pattern gas-fired instantaneous water
heaters greater than 50,000 Btu/h in
input rating. DOE’s teardown analyses
have shown that the design option
pathways and manufacturer production
cost versus efficiency curves are
generally similar for all tankless gasfired instantaneous water heaters, such
that the results from a direct analysis of
the medium and high draw patterns
would be representative for the very
small and low draw patterns as well.
Thus, the very small and low draw
patterns were not directly analyzed
product classes in this final rule.
Rheem stated that the incremental
MPCs from EL 2 to EL 3 and from EL
3 to EL 4 are too low, and do not
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adequately capture the higher costs
associated with the new step
modulation or fully modulating burner
systems. Furthermore, Rheem reiterated
its comment in response to the July
2023 NOPR that the incremental retail
cost between step modulating and fully
modulating gas-fired instantaneous
water heater designs is 50 percent lower
than expected. (Rheem, No. 1436 at pp.
2–3)
As described in section IV.C.1.b, DOE
determined that the burner design
options for EL 3 and EL 4 would be
step-modulating burners and fully
modulating burners, respectively. The
July 2024 NODA assumed that only a
fraction of the market would switch to
fully modulating burners at EL 4, and,
therefore, the incremental cost increase
reflected an average of some
manufacturers retaining the stepmodulating burner (no additional
burner cost) and some manufacturers
switching to fully modulating burners
(significant additional burner cost). As a
result, the incremental MPC between EL
3 and EL 4 in the July 2024 NODA
averaged out to be lower than the
estimated total cost of switching to a
fully modulating burner. In this final
rule analysis, DOE assumes that all
models at EL 4 would utilize fully
modulating burners. Hence, the MPCs at
EL 4 are increased to reflect this change
in design pathway, and this would in
turn increase the incremental retail cost
between EL 3 and EL 4.
See chapter 5 of the final rule TSD for
additional details.
d. Shipping Costs and Manufacturer
Selling Price
As discussed in the July 2024 NODA,
DOE similarly maintained the
methodology for shipping costs from the
July 2023 NOPR (see 88 FR 49058,
49095–49096). DOE updated the cost
per trailer using the most recent data
available. 89 FR 59692. Because many
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gas-fired instantaneous water heaters
sold in the United States are
manufactured overseas, these shipping
costs include the cost of shipping
products from overseas to the United
States, and then from the coast to the
middle of the country.
A.O. Smith stated that DOE does not
account for the increase in downstream
shipping costs at EL 3 and EL 4 that
would result from incorporating larger
heat exchangers into consumer gas fired
instantaneous water heaters. (A.O.
Smith, No. 1440 at pp. 5–6)
DOE agrees that larger heat
exchangers would increase the product
footprint. In some cases, this causes
fewer units to fit in a container or
trailer, thereby increasing the per-unit
outbound shipping cost to
manufacturers. To determine how many
units would fit, DOE assumed standard
trailer dimensions and a nearly full
truckload configuration (see chapter 5 of
the final rule TSD for details). In DOE’s
shipping cost calculation, the maximum
units that can fit is based not only on
the size of each unit, but also the
possible orientations that boxes can be
loaded in with. Per DOE’s analysis, the
same number of units could fit in one
load whether the model is an EL 3
design or a slightly larger EL 4 design.
As a result, the shipping costs are
estimated to be the same at these two
efficiency levels.
To account for manufacturers’ nonproduction costs and profit margin, DOE
applies a multiplier (the manufacturer
markup) to the MPC. The resulting
manufacturer selling price (‘‘MSP’’) is
the price at which the manufacturer
distributes a unit into commerce. DOE
developed an average manufacturer
markup by examining the annual
Securities and Exchange Commission
(‘‘SEC’’) 10–K 45 reports filed by
publicly traded manufacturers that
produce gas-fired instantaneous water
heaters, the manufacturer markups from
the April 2010 Final Rule, and feedback
from confidential manufacturer
interviews. 75 FR 20112. See section
IV.J.2.d of this document and chapter 12
of the final rule TSD for additional
detail on the manufacturer markup.
e. Cost-Efficiency Results
The results of the engineering analysis
are reported as cost-efficiency data in
the form of MPCs and shipping costs
calculated for each efficiency level of
each product class for which DOE is
105217
proposing amended UEF-based
standards. As discussed previously,
DOE determined these costs by
developing BOMs based on a
combination of physical and catalog
teardowns and using information in the
BOMs along with component and
material price data to estimate MPCs. As
discussed in section IV.C.1.c of this
document, the very small and low draw
patterns were not directly analyzed due
to the low number of basic models
identified in these draw patterns during
the market and technology assessment.
However, as shown in section IV.C.1.a
of this document, higher efficiency
levels of the very small and low draw
pattern product classes continue to be
assessed. Further evaluation of the
economic justification of potential
amended standards for gas-fired
instantaneous water heaters (all models
with Veff <2 gal and rated input >50,000
Btu/h) is based on the understanding
that the medium and high draw pattern
results are representative of the overall
market given the very low shipments of
very small and low draw pattern
models. The results of the engineering
analysis, in 2023 dollars, are
summarized in table IV.8.
TABLE IV.8—ENGINEERING ANALYSIS RESULTS FOR GAS-FIRED INSTANTANEOUS: Veff <2 GAL, RATED INPUT >50,000
Btu/h
UEF
EL
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Very small
Medium
120,000
Btu/h
Low
MPC
(2023$)
High
199,000
Btu/h
0 (Baseline) .....
N/A
N/A
0.81
0.81
1 ......................
N/A
N/A
0.87
0.89
2 (JSR) ............
N/A
N/A
0.91
0.93
3 (E *) ..............
N/A
N/A
0.92
0.95
4 (Max tech) ....
N/A
N/A
0.93
0.96
2. Products Without Current UEF-Based
Standards
In the December 2016 Conversion
Factor Final Rule, DOE established that
EF-based standards as established by
EPCA are applicable to consumer water
heaters but would not be enforced until
conversion factors and converted
standards are adopted. 81 FR 96204,
96209–96211. To convert these EFbased standards to UEF-based
standards, DOE first developed
Med: 310.51
327.89.
Med: 441.74
461.02.
Med: 445.63
466.00.
Med: 451.39
473.22.
Med: 490.04
514.99.
MSP
(2023$)
High:
High:
High:
High:
High:
conversion factors that convert tested
values measured under the DOE test
procedure in effect prior to the July
2014 TP Final Rule (which produces the
EF metric) to values found under the
current DOE test procedure (which
produces the UEF metric). DOE then
applied these conversion factors to
representative baseline models and
derived the UEF-based energy
conservation standards from the
resulting UEF values.
Med: 450.24
475.44.
Med: 640.52
668.48.
Med: 646.16
675.71.
Med: 654.52
686.17.
Med: 710.56
746.74.
20:37 Dec 23, 2024
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High:
High:
High:
High:
High:
Med: 4.52 High:
7.63.
Med: 7.07 High:
9.49.
Med: 10.17 High:
11.45.
Med: 10.17 High:
11.45.
Med: 10.17 High:
11.45.
For the July 2023 NOPR, DOE applied
a similar methodology to translate from
minimum efficiency levels denominated
in EF to those in UEF for classes of
covered consumer water heaters that do
not yet have UEF-based standards. 88
FR 49058, 49098. The translated
standards for gas-fired instantaneous
water heaters are shown in table IV.9.
These efficiencies all correspond to noncondensing operation.
45 U.S. Securities and Exchange Commission.
Company Filings. Available at www.sec.gov/searchfilings (last accessed August 7, 2024).
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TABLE IV.9—TRANSLATED UEF-BASED ENERGY CONSERVATION STANDARDS FOR PRODUCT CLASSES WITHOUT
ESTABLISHED UEF-BASED STANDARDS
Product class
Nominal input
Effective
storage volume
Draw pattern
Instantaneous Gas-fired Water Heater ....
≤50,000 Btu/h .............................
<2 gal ...............
≤200,000 Btu/h ...........................
≥2 gal ................
Very Small ........
Low ...................
Medium .............
High ..................
Very Small ........
Low ...................
Medium .............
High ..................
In the July 2023 NOPR, DOE proposed
to adopt these translated standards and
reiterated that the stringency of the
standards is not increasing as a result of
the conversion. 88 FR 49058, 49098–
49100.
ddrumheller on DSK120RN23PROD with RULES2
a. Crosswalk to Equivalent-Stringency
UEF-Based Standards
In the July 2023 NOPR, DOE
requested feedback regarding the
appropriateness of the proposed
converted UEF-based standards and
whether products on the market can
meet or exceed the proposed levels. 88
FR 49058, 49100.
The Gas Association Commenters
stated that DOE did not justify the
proposed new standards for gas-fired
instantaneous water heaters that are <2
gallons and <50,000 Btu/h or greater
than or equal to 2 gallons. In its
comments, the Gas Association
Commenters interpreted the economic
analysis performed for gas-fired
instantaneous water heaters that are <2
gallons and >50,000 Btu/h as being
treated as representative for all gas-fired
instantaneous water heater standards
being proposed in the July 2023 NOPR.
These commenters noted that DOE
tentatively concluded these product
classes are different enough to warrant
separate standards, but that there was
no economic justification provided for
the two product categories remaining at
non-condensing efficiency levels. Citing
the statutory requirement for any new or
amended energy conservation standards
to be technologically feasible and
economically justified, the Gas
Association Commenters recommended
that DOE modify its approach. (Gas
Association Commenters, No. 1181 at p.
8)
EPCA directed DOE to establish a
uniform efficiency descriptor to be used
to regulate all covered water heaters,
with certain exceptions for water
heaters used only in commercial
applications. (42 U.S.C. 6295(e)(5))
Therefore, DOE has conducted this
analysis in satisfaction of its statutory
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obligation to delineate standards for all
consumer water heaters, including gasfired instantaneous water heaters, in
terms of UEF. Because the statute
requires that the UEF-based standards
for these product classes reflect the
same stringency as the statutory EFbased standards that are currently
applicable—i.e., these are not standards
that would require higher efficiency to
comply—it is not necessary for DOE to
conduct an assessment of energy savings
or economic justification prior to
proposing such standards. (42 U.S.C.
6295(e)(5)(E)(iii) For example, the
translated UEF standards can be met by
non-condensing models and products
with standing pilot lights as well. The
Department believes that the Gas
Association Commenters may have
misinterpreted the analysis for product
classes with current UEF-based
standards as also applying to these
product classes which have EF-based
standards. To reiterate, these standards
are not being established pursuant to
EPCA provisions at 42 U.S.C.
6295(o)(A), but instead in accordance
with those at 42 U.S.C. 6295(e)(5).
Additionally, the statutory EF-based
standards are provided within EPCA
and do not require separate justification
to adopt these stringencies. 89 FR
37778, 37845.
b. Consideration of More Stringent
Standards
In the July 2023 NOPR, DOE also
requested information and data
regarding the UEF of products within
these product classes if they are found
to generally exceed the proposed levels.
88 FR 49058, 49100.
Some commenters identified a need to
consider more stringent standards for
gas-fired instantaneous water heaters
with less than 50,000 Btu/h of input,
discussed as follows.
A.O. Smith indicated that
simultaneous establishment of baseline
UEF levels for converted product classes
while increasing the standard levels for
existing product classes creates a
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Uniform energy factor
0.64
0.64
0.64
0.64
0.2534–(0.0018
0.5226–(0.0022
0.5919–(0.0020
0.6540–(0.0017
×
×
×
×
Veff)
Veff)
Veff)
Veff)
scenario where new products may
emerge, and shipments may shift from
product classes with more stringent
standards to very similar products in
new product classes with less stringent
standards. (A.O. Smith, No. 1182 at p.
14) A.O. Smith identified that product
classes for <2 gallon and <50,000 Btu/
h gas-fired instantaneous water heaters
and ≥2 gallon and ≤200,000 Btu/h gasfired instantaneous water heaters with
non-condensing standard levels are
likely to incentivize circumvention of
the <2 gallon and >50,000 Btu/h
condensing standards. (A.O. Smith, No.
1182 at p. 14)
Bosch noted that there are still
pathways for non-condensing gas-fired
instantaneous water heaters to stay in
the market, which could be realized by
creating model lines that are either
below 50,000 Btu/h in input or above 2
gallons in storage capacity. To remedy
this, Bosch recommended DOE require
condensing technology for all gas-fired
instantaneous water heaters. (Bosch, No.
1204 at pp. 2–3)
By contrast, the CA IOUs stated that
the proposed product sub-class with a
rated volume of <2 gallons and an input
rating of ≤50,000 Btu/h is appropriate
for point-of-use applications and that
this subclass will not account for a
significant amount of gas fired
instantaneous water heater shipments.
(CA IOUs, No. 1442 at pp. 2–3) Rheem
suggested that DOE consider increasing
the standards for gas-fired instantaneous
water heaters <2 gallons and less than
or equal to 50,000 Btu/h of input to an
efficiency that corresponds to removal
of standing pilot lights, but not an
efficiency that utilizes condensing
technology. Rheem stated that gas-fired
instantaneous water heaters under
50,000 Btu/h exist and have residential
applications (i.e., they are not
exclusively marketed for recreational
vehicles or as portable equipment).
However, the commenter also wrote that
these products are not a direct
replacement for the condensing gasfired instantaneous water heaters that
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would be required for input rates greater
than 50,000 Btu/h, and thus generally
supported the translated standards for
these products. (Rheem, No. 1177 at p.
12)
DOE agrees that there may be a market
for gas-fired instantaneous water heaters
with less than 50,000 Btu/h of input
based on the designs it has reviewed.
Gas-fired instantaneous water heaters
with less than 50,000 Btu/h of heat
input are typically used in ‘‘point-ofuse’’ applications (e.g., affixed to a
showerhead) because the heat input is
generally not high enough to serve an
entire house. Hence, DOE expects that
shipments of these ‘‘point-of-use’’
tankless gas-fired instantaneous water
heaters would not easily replace
shipments of ‘‘whole-home’’ tankless
gas-fired instantaneous water heaters
with input rates higher than 50,000 Btu/
h.
While DOE acknowledges that
removing standing pilot lights would
result in additional energy savings, DOE
does not currently possess data
supporting more stringent standards
than those being established as part of
this rulemaking. However, DOE may
analyze the benefits and burdens of
higher standards for these products at a
later time. Further, after the compliance
date of this final rule, the availability of
UEF certification data for these products
may inform a future analysis of more
stringent standards in a future
rulemaking.
In addition to Bosch and A.O. Smith,
several other commenters raised
concerns regarding non-condensing
standards for larger gas-fired
instantaneous water heaters—those with
2 or more gallons of storage volume.
Rheem commented that gas-fired
instantaneous water heaters greater than
or equal to 2 gallons of rated storage
volume do not currently exist on the
market because there is no need for
them. (Rheem, No. 1177 at p. 13) Rheem
stated that the ≥2 gallons and ≤200,000
Btu/h product category could be used to
circumvent the condensing-level
standards for <2 gallon and >50,000
Btu/h gas-fired instantaneous water
heaters and recommended aligning the
standards to the condensing levels (e.g.,
change the intercepts in the standards
equations for the >2 gallon classes to
match the amended standards for the <2
gallon classes). (Rheem, No. 1177 at p.
13) Rheem reiterated these comments in
response to the July 2024 NODA.
(Rheem, No. 1436 at p. 3)
In response to the July 2024 NODA,
the CA IOUs stated that manufacturers
could produce gas fired instantaneous
water heaters with a rated volume of ≥2
gallons and an input rating of ≤200,000
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20:37 Dec 23, 2024
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Btu/h that do not meet condensing
standards. The CA IOUs expressed
concern that this would allow
manufacturers to avoid meeting
condensing standards for all consumer
gas fired instantaneous water heater
offerings. The CA IOUs expressed
concern that, because of the low cost to
manufacturers of increasing the rated
volume of existing non-condensing gas
fired instantaneous water heaters to 2
gallons or higher, DOE’s proposal could
allow non-condensing products to
remain in the market at lower prices
than condensing products. The CA IOUs
urged DOE to modify its proposed
subclass definitions if it can do so in a
timely manner and to immediately
begin a new rulemaking to address its
concerns should modifying product subclasses present a significant delay to a
final rule being issued for gas fired
instantaneous water heaters (CA IOUs,
No. 1442 at pp. 3–4). Specifically, the
CA IOUs recommended that DOE
expand the existing subclass to include
all gas fired instantaneous water heaters
with a volume less than 20 gallons and
an input rating >50,000 Btu/h and
≤200,000 Btu/h. (CA IOUs, No. 1442 at
pp. 3–4)
A.O. Smith claimed that, because
some products ≥2 gallons and ≤200,000
Btu/h are used only in commercial
applications, condensing-level
standards are justified for these
products, citing the conclusions of
DOE’s rulemaking for commercial water
heaters. (A.O. Smith, No. 1440 at p. 4)
A.O. Smith emphasized the importance
of establishing condensing-level
standards for all gas-fired instantaneous
water heaters, noting that finalizing the
proposed standard for this product class
leaves open the opportunity for the
entry of new products intended to
circumvent both consumer condensing
standards and commercial condensing
standards effective in October 2026.
(A.O. Smith, No. 1440 at p. 4) A.O.
Smith stated that in this rulemaking, in
contrast with the conversion factor
rulemaking, DOE is evaluating whether
more stringent standards for gas-fired
instantaneous water heaters would be
technologically feasible, economically
justified, and result in significant energy
savings and that in this context, DOE
must consider the factors outlined in
EPCA at 42 U.S.C. 6295(q) for
establishing product classes and adjust
the gas-instantaneous product classes
accordingly. (A.O. Smith, No. 1440 at
p.4)
A.O. Smith recommended that DOE
expand the analyzed product class from
<2 gallons and >50,000 Btu/h to <5
gallons and >50,000 Btu/h to ensure that
condensing standards are not
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105219
circumvented through minor design
changes. (A.O. Smith, No. 1440 at p. 4)
A.O. Smith claimed that a gas-fired
instantaneous water heater with a 5gallon storage volume would have
negligible standby losses and a
consistent UEF standard value could
apply to the entire zero-to-five-gallon
range. A.O. Smith noted that EPCA only
established standby loss standards for
commercial gas-fired instantaneous
water heaters with a rated storage
volume greater than 10 gallons, stating
that this indicates that standby losses
are not expected to be significant
enough to warrant separate standards
and separate product classes until 10
gallons of storage volume for
commercial gas-fired instantaneous
water heaters. A.O. Smith stated that
this suggests that DOE expanding the
storage capacity range up to 5 gallons
for the gas-fired instantaneous consumer
water heater product class under
consideration for amended standards is
appropriate. (A.O. Smith, No. 1440 at
pp. 4–5)
In response to A.O. Smith, DOE notes
that the most recent commercial water
heaters rulemaking, which published in
the Federal Register a final rule on
October 6, 2023 (the ‘‘October 2023
Commercial Water Heaters Final Rule’’),
analyzed gas-fired instantaneous water
heaters that are considered covered
commercial equipment under EPCA. 88
FR 69686, 69706. Specifically, these
commercial gas-fired instantaneous
water heaters are defined at 10 CFR
431.102 as having a rated input above
200,000 Btu/h. Id. While the October
2023 Commercial Water Heaters Final
Rule established condensing-level
standards for commercial gas-fired
instantaneous water heaters, the
conclusions of that rulemaking would
not necessarily apply to gas-fired
instantaneous water heaters ≥2 gallons
and ≤200,000 Btu/h because these are
consumer water heaters and were not
analyzed in that rulemaking.
Further, DOE understands that the
recommendations to expand the
applicability of the condensing-level
standards to products with 2 or more
gallons of storage may be based on an
assumption that such a stringency
increase would have minimal impact to
the market. However, contrary to the
comments from Rheem, Bosch, and A.O.
Smith, DOE has identified several
consumer gas-fired instantaneous water
heaters on the market with 2 or more
gallons, as discussed in section IV.A.1
of this document. Some of these models
use non-condensing operation and
would not comply with condensinglevel standards at efficiency level 2.
DOE does not currently possess data
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supporting more stringent standards for
these products or how more stringent
standards would affect the market share
or consumers of these products. Lastly,
DOE believes the size of larger, noncondensing gas-fired instantaneous
water heaters may be a barrier for many
consumers choosing between products
with 2 or more gallons of storage and
products with less than 2 gallons of
storage. Many consumers who use gasfired instantaneous water heaters with
less than 2 gallons of storage do so
because of how little space these units
take up. As of this final rule, all of the
gas-fired instantaneous water heaters
certified to DOE have rated storage
volumes of either 0 or 1 gallon—hence,
the term ‘‘tankless’’ is often used to
describe these products. A 2-gallon gasfired instantaneous water heater would
be much larger than a model with 0 or
1 gallon of storage. DOE compared the
sizes of large (i.e., stored volume ≥2
gallons) gas-fired instantaneous water
heaters to the average sizes determined
in the engineering analysis for products
less than 2 gallons. For instance, based
on product literature published by one
manufacturer of large gas-fired
instantaneous water heaters, its 2.3gallon model and 3.5-gallon model are
over twice as deep and significantly
taller compared to a typical model on
the market today.46 Thus, it is unclear
to what extent consumers would choose
to install a gas-fired instantaneous water
heater with stored volume ≥2 gallons
over one with <2 gallons.
In light of these considerations, DOE
is maintaining the proposed separation
of product classes for products without
current UEF-based standards in this
final rule as proposed in the July 2023
NOPR. DOE will continue to monitor
the market for these products and may
address consider potential morestringent standards for larger gas-fired
instantaneous water heaters in a future
rulemaking.
D. Markups Analysis
The markups analysis develops
appropriate markups (e.g., retailer
markups, distributor markups,
contractor markups) in the distribution
chain and sales taxes to convert the
MSP estimates derived in the
engineering analysis to consumer prices,
which are then used in the LCC and PBP
analysis. At each step in the distribution
channel, companies mark up the price
46 For example, DOE reviewed the product
dimensions of the HTP Crossover series, a product
line of larger gas-fired instantaneous water heaters
intended for residential wall-hung installations.
Product dimensions can be found online at:
www.htproducts.com/literature/mktlit-118.pdf.
(Last accessed on August 28, 2024).
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of the product to cover business costs
and profit margin.
As part of the analysis, DOE identifies
key market participants and distribution
channels. For consumer gas-fired
instantaneous water heaters, the main
parties in the distribution chain are (1)
manufacturers, (2) wholesalers or
distributors, (3) retailers, (4) plumbing
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 this final rule, DOE characterized
how consumer gas-fired instantaneous
water heater products pass from the
manufacturer to residential and
commercial consumers 47 by gathering
data from several sources, including
consultant reports (available in
appendix 6A of the final rule TSD), the
2023 BRG report,48 and the 2022 Clear
Seas Research Water Heater contractor
survey 49 to determine the distribution
channels and fraction of shipments
going through each distribution
channel. The distribution channels for
replacement or new owners of consumer
water heaters in residential applications
(not including mobile homes) are
characterized as follows: 50
Manufacturer → Wholesaler →
Plumbing Contractor → Consumer
Manufacturer → Retailer → Consumer
Manufacturer → Retailer → Plumbing
Contractor → Consumer
For mobile home replacement or new
owner applications, the same
distribution channels are applicable for
consumer gas-fired instantaneous water
heaters.51
47 DOE estimates that 6 percent of gas-fired
instantaneous water heaters will be shipped to
commercial applications in 2030.
48 BRG Building Solutions, The North American
Heating & Cooling Product Markets (2023 Edition).
Available at www.brgbuildingsolutions.com/reportsinsights (last accessed August 29, 2024).
49 Clear Seas Research, 2022 Mechanical
System—Water Heater. Available at
clearseasresearch.com/reports/industries/
mechanical-systems/ (last accessed August 29,
2024).
50 Based on available data, DOE assumed that for
replacement or new owners in residential
applications consumer gas-fired instantaneous
water heaters go through the wholesaler/contractor
55 percent of the time, directly form the retailer 40
percent of the time, and through the retailer/
contractor 5 percent of the time.
51 Based on available data, DOE assumed that
consumer gas-fired instantaneous water heaters in
mobile homes go through the wholesaler/contractor
55 percent of the time, directly form the retailer 40
percent of the time, and though the retailer/
contractor 5 percent of the time. The data indicate
that gas-fired instantaneous water heaters are
almost never sold directly through a mobile home
retailer.
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For consumer gas-fired instantaneous
water heaters in commercial
applications, DOE considers an
additional distribution channel for
which the manufacturer sells the
equipment to the wholesaler and then to
the consumer through a national
account in both replacement and new
construction markets.
The new construction distribution
channel includes an additional link in
the chain—the builder. The distribution
channels for consumer gas-fired
instantaneous water heaters in new
construction 52 in residential
applications (not including mobile
homes) are characterized as follows: 53
Manufacturer → Wholesaler →
Plumbing Contractor → Builder →
Consumer
Manufacturer → Wholesaler →
Builder → Consumer
Manufacturer → Wholesaler (National
Account) → Consumer
DOE developed baseline and
incremental markups for each actor in
the distribution chain. Baseline
markups are applied to the price of
products with baseline efficiency, while
incremental markups are applied to the
difference in price between baseline and
higher-efficiency models (the
incremental cost increase). The
incremental markup is typically less
than the baseline markup and is
designed to maintain similar per-unit
operating profit before and after new or
amended standards.54
To estimate average baseline and
incremental markups, DOE relied on
several sources, including: (1) form 10–
K 55 from U.S. Securities and Exchange
Commission (‘‘SEC’’) for Home Depot,
Lowe’s, Wal-Mart, and Costco (for
retailers); (2) U.S. Census Bureau 2017
Annual Retail Trade Report for
52 DOE estimates that in the residential market 48
percent of gas-fired instantaneous water heaters will
be shipped to new construction applications in
2030.
53 DOE’s analysis indicates that many builders are
large enough to have a master plumber and not hire
a separate contractor, and assigned approximately
half of water heater shipments to new construction
to this channel. DOE estimated that in the new
construction market, 90 percent of the residential
(not including mobile homes) and 80 percent in
commercial applications goes through a wholesaler
to builders channel and the rest go through national
account distribution channel.
54 Because the projected price of standardscompliant products is typically higher than the
price of baseline products, using the same markup
for the incremental cost and the baseline cost would
result in higher per-unit operating profit. While
such an outcome is possible, DOE maintains that in
markets that are reasonably competitive it is
unlikely that standards would lead to a sustainable
increase in profitability in the long run.
55 U.S. Securities and Exchange Commission.
Company Filings. Available at www.sec.gov/searchfilings (last accessed August 29, 2024).
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miscellaneous store retailers (NAICS
453) (for online retailers); 56 (3) U.S.
Census Bureau 2017 Economic Census
data 57 on the residential and
commercial building construction
industry (for builder, plumbing
contractor, mobile home manufacturer);
and (4) the U.S. Census Bureau 2017
Annual Wholesale Trade Report data 58
(for wholesalers). DOE assumes that the
markups for national accounts is half of
the value of wholesaler markups. 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 59 to disaggregate
the mechanical contractor markups into
replacement and new construction
markets for consumer gas-fired
instantaneous water heaters used in
commercial applications.
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E. Energy Use Analysis
The purpose of the energy use
analysis is to determine the annual
energy consumption of consumer gasfired instantaneous water heaters at
different efficiencies in representative
U.S. single-family homes, mobile
homes, multi-family residences, and
commercial buildings, and to assess the
energy savings potential of increased
consumer gas-fired instantaneous water
heater efficiency. The energy use
analysis estimates the range of energy
use of consumer gas-fired instantaneous
water heaters 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.
56 U.S. Census Bureau, 2017 Annual Retail Trade
Report, available at www.census.gov/programssurveys/arts.html (last accessed August 29, 2024).
Note that the 2017 Annual Retail Trade Report was
the latest version of the report that includes
detailed operating expenses data at the time of the
analysis.
57 U.S. Census Bureau, 2017 Economic Census
Data. available at www.census.gov/programssurveys/economic-census.html (last accessed
August 29, 2024). Note that the 2017 Economic
Census Data is the latest version of this data.
58 U.S. Census Bureau, 2017 Annual Wholesale
Trade Report. available at www.census.gov/
wholesale/ (last accessed August 29,
2024). Note that the 2017 AWTR Census Data is the
latest version of the report that includes detailed
operating expenses data.
59 Air Conditioning Contractors of America
(‘‘ACCA’’), Financial Analysis for the HVACR
Contracting Industry (2005), available at
www.acca.org/store#/storefront (last accessed
August 29, 2024). Note that the 2005 Financial
Analysis for the HVACR Contracting Industry is the
latest version of the report and is only used to
disaggregate the mechanical contractor markups
into replacement and new construction markets.
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DOE estimated the annual energy
consumption of consumer gas-fired
instantaneous water heaters at specific
energy efficiency levels across a range of
climate zones, building characteristics,
and water heating applications. The
annual energy consumption includes
the natural gas, liquid petroleum gas
(‘‘LPG’’), and electricity used by the
consumer gas-fired instantaneous water
heater.
1. Building Sample
To determine the field energy use of
consumer water heaters used in homes,
DOE established a sample of households
using consumer water heaters from
EIA’s 2015 Residential Energy
Consumption Survey (‘‘RECS 2015’’) in
the July 2023 NOPR, which was the
most recent such survey that was then
fully available.60 DOE selected the
household sample based on the reported
variables from RECS on water heating
equipment type. The RECS data provide
information on the vintage of the home,
as well as water heating energy use in
each household. These data reflect how
water heaters are actually used by
consumers. DOE used the household
samples not only to determine water
heater annual energy consumption, but
also as the basis for conducting the LCC
and PBP analyses. DOE projected
household weights and household
characteristics in 2030, the first year of
compliance with any amended or new
energy conservation standards for
consumer water heaters. To characterize
future new homes, DOE used a subset of
homes in RECS that were built after
2000.
For this final rule, DOE incorporated
RECS 2020 as the basis of the building
sample development and updated the
analyses accordingly.61 Incorporating
RECS 2020 improves the
representativeness of the residential
building sample as RECS 2020 brings a
threefold increase in sample size
compared to RECS 2015.62 A larger
sample size generally results in smaller
standard errors, especially for estimates
of smaller subpopulations. In this final
rule, DOE maintains the same
methodology in residential sample
60 Energy Information Administration (‘‘EIA’’),
2015 Residential Energy Consumption Survey
(‘‘RECS’’). Available at www.eia.gov/consumption/
residential/ (last accessed August 29, 2024).
61 Energy Information Administration (‘‘EIA’’),
2020 Residential Energy Consumption Survey
(‘‘RECS’’). Available at www.eia.gov/consumption/
residential/ (last accessed August 29, 2024).
62 According to published data and EIA website,
RECS 2020 is based upon responses collected from
in total 18,496 households which is three times
greater than 5,686 respondents in RECS 2015.
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development as the July 2023 NOPR,
using the updated RECS.
To determine the field energy use of
consumer water heaters used in
commercial buildings, DOE established
a sample of buildings using consumer
water heaters from EIA’s 2018
Commercial Building Energy
Consumption Survey (‘‘CBECS 2018’’),
which is the most recent such survey
that is currently fully available.63 DOE
has maintained its sample development
methodology used in July 2023 NOPR
for consumer gas-fired instantaneous
water heaters used in commercial
applications.
AGA et al. supported DOE’s
incorporation of EIA’s 2020 RECS data
in the July 2024 NODA. (AGA et al., No.
1439 at p. 10)
2. Hot Water Use Determination
Based on the reported water heating
energy use from RECS and CBECS, DOE
estimated the hot water use for each
sampled household and building. Then,
in order to disaggregate the selected
sampled gas-fired instantaneous water
heaters into draw patterns, DOE used
model data from DOE’s public CCD 64
and AHRI certification directory 65
together with other publicly available
data from manufacturers’ catalogs of
consumer water heaters. DOE also used
a combination of confidential data
provided by AHRI from 2004–2007 66
and shipments data from BRG Building
Solutions 2023 report from 2007 to
2022.67
Responding to the July 2023 NOPR,
AHRI recommended DOE explain its
inputs in the energy use calculations.
AHRI commented that DOE’s use of
nesting of various assumptions for
residential water heaters leads to
unlikely results that DOE does not, or
cannot, explain. AHRI raised concerns
on two oddities in the energy use
calculations for gas-fired instantaneous
water heaters. First, the water
63 U.S. Department of Energy: Energy Information
Administration, Commercial Buildings Energy
Consumption Survey (2018). Available at:
www.eia.gov/consumption/commercial/data/2018/
index.php?view=microdata (last accessed August
29, 2024).
64 U.S. Department of Energy’s Compliance
Certification Database is available at
regulations.doe.gov/certification-data (last accessed
August 29, 2024).
65 Air Conditioning Heating and Refrigeration
Institute. Consumer’s Directory of Certified
Efficiency Ratings for Heating and Water Heating
Equipment. December 1, 2023. (Available at
www.ahridirectory.org) (last accessed August 29,
2024).
66 AHRI. Confidential Instantaneous Gas-fired
Water Heater Shipments Data from 2004–2007 to
LBNL. December 1, 2023
67 BRG Building Solutions. The North American
Heating & Cooling Product Markets (2023 Edition).
2023.
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consumption for residential use as
computed for the median RECS building
is 41 gallons per day and the 95th
highest use (95th percentile) is 3.5 times
as much (141 gallons per day) and the
remaining 5 percent of RECS buildings
use between 141 and 997 gallons per
day, or up to 24 times as much water
per day, an unlikely amount for a
residential household. AHRI stated that
this high usage rate for these 5 percent
heavy users raises the average
consumption to 61 gallons per day, or
50 percent more than the typical or
median user. AHRI commented that
presence and magnitude of these outlier
5 percent, heavy users raise serious
questions about the accuracy and
reliability of either (or both) the data
that DOE used and/or the methodology
it used to compute water consumption.
Second, even assuming some market
inefficiencies, AHRI claimed that there
still should be a general trend towards
RECS buildings with greater water use
selecting more efficient water heaters
absent standards. DOE contends that at
least some purchasers make
economically efficient choices. In that
circumstance, the data should show a
trend toward the highest-consuming
RECS buildings appearing in the higher
ELs absent standards. AHRI commented
that this is not the case in the actual
DOE data. Instead, if anything, the
highest-consuming RECS buildings are
assumed to purchase baseline water
heaters. (AHRI, No. 1167 at p. 19) AHRI
asked for an explanation of these outlier
data points and asked how DOE
validated its methodology to assure that
these are accurate representations of real
life. AHRI also asked why DOE has not
accepted the suggestion by AHRI and
others to use median, not the mean
values for consumption and LCC
savings to avoid the effects of these
outliers and to alleviate, at least in part,
the deficiencies of its base case
efficiency assignment issue. (AHRI, No.
1167 at p. 20)
Gas Association Commenters argued
that water consumption should be based
on household size and that there are
problems with water consumption
calculations, particularly for gas-fired
instantaneous water heaters. Gas
Association Commenters argue that for
gas-fired instantaneous water heaters,
DOE models incorrect tankless water
heater results (greater outliers than there
are for storage unit equivalents) in
regard to household size. Gas
Association Commenters argue the
model results in unrealistic outliers for
smaller households reaching
consumption levels equivalent to space
heating. Gas Association Commenters
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argue that a potential reason for this
failure is how the model calculates daily
water usage. For example, Gas
Association Commenters argued that in
DOE’s model, some single person
households use 200–350 gallons a day
which is far from reasonable (4–7 baths
of water a day every day of the year).
Gas Association Commenters argued
that Draw Pattern ID is based on
randomly assigned distribution. Gas
Association Commenters state that DOE
assumes that households will always
use more water if they use an
instantaneous unit. Gas Association
Commenters argue that while for small
storage units, there is a 5 percent chance
of a large draw pattern but there is a 75
percent chance for instantaneous. Gas
Association Commenters argued that if
consumption behavior was more
consistent between the gas storage water
heaters and gas-fired instantaneous
water heaters, LCC savings would be
lower. Gas Association Commenters
argues that a better solution would be to
use the test procedure for water heaters
as a basis for modeling energy usage
rather than assuming draw rates based
on the size of the original equipment in
RECS. Gas Association Commenters
suggested that alternately, gas-fired
instantaneous water heaters could just
have the same assumptions about water
usage as their gas storage water heaters
counterparts. (Gas Association
Commenters, No. 1181 at pp. 25–31)
Similarly, in response to the July 2024
NODA, Rinnai stated that the energy use
estimates in the energy conservation
standard should use the same
standardized draw patterns outlined in
the UEF test method rather than relying
on RECS, which the commenters
characterized as unreliable. Rinnai
recommended that the Department use
the hot water draw patterns from the
UEF test method as the basis for
comparing efficiency proposals and
reserve the RECS hot water
consumption data for estimating
national energy savings potential and
other downstream impacts. (Rinnai, No.
1443 at p. 20)
In response, DOE notes that RECS and
CBECS data provide the information on
the household size and water heating
energy use in buildings. RECS and
CBECS are the most comprehensive,
nationally-representative, and robust
data source on actual household and
commercial building energy
consumption available to DOE. In
general, DOE has found that the
weighted average energy use for water
heating correlates with the size of the
household, i.e., the reported number of
people in that household. Greater
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energy expenditure on water heating
largely falls into the bins of households
of larger sizes (4 people and above). The
hot water use derived based on the
water heating energy use follows similar
pattern (see chapter 7 of the final rule
TSD for the calculation of hot water
use). In terms of AHRI and Gas
Association Commenters’ concern over
the heavy users of hot water in the
sample, when reporting the distribution
of the derived hot water use, DOE takes
into account both consumer water
heaters used in residential as well as
commercial applications. In the final
rule analysis, DOE estimated that close
to 40 percent of the top 5 percent of
water-consuming sample buildings/
households are commercial applications
which generally have higher upper
bound of hot water use. These outlier
data points therefore represent either
data directly reported from RECS or
CBECS for larger households or
commercial applications using
consumer water heaters, both of which
represent real-world usage. In addition,
DOE evaluates each sampled building/
household individually by calculating
its hot water use and the corresponding
cost efficiency thereafter such that the
average LCC savings as reported is a
good representation of the aggregated
national values. Nevertheless, the LCC
spreadsheet includes a calculation of
median LCC savings, as well as LCC
savings at various percentiles. These
results are publicly available. Even if
DOE were to rely on the median LCC
savings instead of the mean LCC
savings, DOE’s conclusion of economic
justification would remain the same.68
For this final rule, DOE incorporated
the latest RECS 2020 data for its
analyses. With the increased sample
size and the most recent timeline of the
fielding of the survey, RECS 2020
provides a large sample pool with
current national representation of
housing characteristics and energy
consumption. Specifically, for gas-fired
instantaneous water heaters, which
historically have had a lower market
share relative to the gas storage type,
RECS 2020 reports over 800 sample
households utilizing a gas-fired
instantaneous water heater. As
discussed previously, the weighted
average of the energy use on water
heating and the derived hot water use
generally correlates with the size of the
household with deviations that
represent the real world complexities of
the use of a hot water heater in
households of different types. With the
update to RECS 2020, for example, the
68 See LCC analytical tool spreadsheet for gasfired instantaneous water heater final rule.
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estimate for the hot water use in a
single-person household is now
between 7 and 91 gallons for gas-fired
instantaneous water heaters, with a
weighted average of 32 gallons. The
average hot water use across all
household sizes is 73 gallons, relatively
stable compared to 71 gallons DOE
estimated with RECS 2015 in the July
2023 NOPR. DOE continues to rely on
RECS as the basis of its analyses for its
incomparable scope of coverage on
housing characteristics and energy
consumption. RECS 2020 is a reflection
of the real-world usage in the national
water heater market. In terms of the
assignment of draw pattern for gas-fired
instantaneous water heaters, DOE
derived the distribution of different
draw patterns based on market research
of the number of models in each bin that
are available on the market. The
breakdown can be found in chapter 7 of
the final rule TSD.
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3. Energy Use Determination
To calculate the energy use of
consumer water heaters, DOE
determined the energy consumption
associated with water heating and any
auxiliary electrical use. DOE calculated
the energy use of water heaters using a
simplified energy equation, the water
heater analysis model (‘‘WHAM’’).
WHAM accounts for a range of
operating conditions and energy
efficiency characteristics of water
heaters. The current version of WHAM
is most appropriate for calculating the
energy use of electric resistance storage
water heaters. To account for the
characteristics of consumer gas-fired
instantaneous water heaters, energy use
must be calculated using modified
versions of the WHAM equation. For
gas-fired instantaneous water heaters,
the water heater operating conditions
are indicated by the daily hot water
draw volume, inlet water temperature,
and thermostat setting. To describe
energy efficiency characteristics of
water heaters, WHAM also uses
parameters in the DOE test procedure
including recovery efficiency (‘‘RE’’)
and rated input power (‘‘PON’’). These
modified versions are further discussed
in chapter 7 and appendix 7B of the
final rule TSD.
The daily hot water draw volume is
estimated based on the gas-fired
instantaneous water heater energy use
from RECS 2020 and CBECS 2018. The
inlet water temperature is based on
weather station temperature data and
RECS 2020 ground water temperature
data for each household. The consumer
gas-fired instantaneous water heater
thermostat setting is based on multiple
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sources including contractor survey data
and field data.
AGA et al. stated that electricity
consumption should be slightly higher
for all units installed in unconditioned
spaces in the winter that are exposed to
freezing temperatures because of freeze
protection. (AGA et al., No. 1439 at p.
7) Similarly, Rinnai noted that the
absence of freeze protection in the
model doesn’t adequately account for
seasonal variation in electricity use and
higher consumption for all units in
unconditioned spaces during winter.
(Rinnai, No. 1443 at p.18) In response,
DOE acknowledges that freeze
protection is an integrated feature in
many tankless water heaters. A freeze
protection electric heater will activate to
protect the internal of the water heater
from freezing when it reaches certain
ambient temperatures. Power
consumption varies slightly by models
but generally is up to 200 Watts during
freeze protection mode. DOE’s energy
use analysis is aimed to evaluate the
electricity and fuel consumption
associated with water heating, where
the electricity use covers the burner
operating mode and standby mode, and
then compare the energy consumed by
models at various analyzed efficiency
levels. Taking into consideration the
electricity consumption associated with
freeze protection mode not only will
have trivial impact to the total annual
electricity use results, given the
negligible fraction of time the water
heater being in such mode throughout
the year, but also will be
inconsequential to the electricity use
differential between different efficiency
levels. Therefore, for this final rule DOE
maintained its energy use analysis
method without taking into account
electricity use from freeze protection
operation.
Gas Association Commenters
commented that there is a bug in the
LCC tool that causes it to use only a
single year of weather data rather than
10-year average, which they believe
impacts gas-fired instantaneous water
heater results. (Gas Association
Commenters, No. 1181 at p. 34) In
response, DOE notes that the analysis
uses the NOAA’s 30 year average
weather data for the outside air
temperature.
Chapter 7 of the final rule TSD
provides details on DOE’s energy use
analysis for consumer gas-fired
instantaneous water heaters.
F. Life-Cycle Cost and Payback Period
Analysis
DOE conducted LCC and PBP
analyses to evaluate the economic
impacts on individual consumers of
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potential energy conservation standards
for consumer gas-fired instantaneous
water heaters. The effect of new or
amended energy conservation standards
on individual consumers usually
involves a reduction in operating cost
and an increase in purchase cost. DOE
used the following two metrics to
measure consumer impacts:
• The LCC is the total consumer
expense of an appliance or product over
the life of that product, consisting of
total installed cost (manufacturer selling
price, shipping costs, distribution chain
markups, sales tax, and installation
costs) plus operating costs (expenses for
energy use, maintenance, and repair).
To compute the operating costs, DOE
discounts future operating costs to the
time of purchase and sums them over
the lifetime of the product.
• The PBP is the estimated amount of
time (in years) it takes consumers to
recover the increased purchase cost
(including installation) of a moreefficient 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 consumer gas-fired
instantaneous water heaters 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,
DOE calculated the LCC and PBP for a
nationally representative set of housing
units and commercial buildings. As
stated previously, DOE developed
household samples from the RECS 2020
and CBECS 2018. For each sample
household and commercial building,
DOE determined the energy
consumption for the consumer gas-fired
instantaneous water heaters and the
appropriate energy price. By developing
a representative sample of households
and commercial buildings, the analysis
captured the variability in energy
consumption and energy prices
associated with the use of consumer gasfired instantaneous water heaters.
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,
retailer and distributor markups,
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shipping costs, and sales taxes—and
installation costs. Inputs to the
calculation of operating expenses
include annual energy consumption,
energy prices and price projections,
repair and maintenance costs, product
lifetimes, and discount rates. Inputs to
the PBP calculation include the
installed cost to the consumer and first
year operating expenses. DOE created
distributions of values for product
lifetime, discount rates, and sales taxes,
with probabilities attached to each
value, to account for their uncertainty
and variability.
The computer model DOE uses to
calculate the LCC relies on a Monte
Carlo simulation to incorporate
uncertainty and variability into the
analysis. The Monte Carlo simulations
sample input values from constrained
probability distributions based on
available data and consumer water
heater user samples. For this
rulemaking, the Monte Carlo approach
is implemented in MS Excel together
with the Crystal BallTM add-on.69 The
model calculated the LCC for products
at each efficiency level for 10,000 gas-
fired instantaneous water heater
installations in housing and commercial
building units 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 (as shown in
chapter 8 of the final rule TSD). In
performing an iteration of the Monte
Carlo simulation for a given consumer,
product efficiency is chosen based on its
probability. At the high end of the
range, if the chosen product efficiency
is greater than or equal to the efficiency
of the standard level under
consideration, the LCC calculation
reveals that the hypothetical consumer
represented by that data point is not
impacted by the standard level because
that consumer is already purchasing a
more-efficient product. At the low end
of the range, if the chosen product
efficiency is less than the efficiency of
the standard level under consideration,
the LCC calculation reveals that the
hypothetical consumer represented by
that data point is impacted by the
standard level. By accounting for
consumers who are already projected to
purchase more-efficient products, DOE
avoids overstating the potential benefits
from increasing product efficiency.
DOE calculated the LCC and PBP for
consumers of consumer gas-fired
instantaneous water heaters as if each
were to purchase a new product in the
first year of required compliance with
new or amended standards. New and
amended standards apply to consumer
water heaters manufactured 5 years after
the date on which any new or amended
standard is published. (42 U.S.C.
6295(m)(4)(A)(ii)) Therefore, DOE used
2030 as the first full year of compliance
with any amended standards for
consumer gas-fired instantaneous water
heaters.
Table IV.10 summarizes the approach
and data DOE used to derive inputs to
the LCC and PBP calculations. The
subsections that follow provide further
discussion. Details of the spreadsheet
model, and of all the inputs to the LCC
and PBP analyses, are contained in
chapter 8 of the final rule TSD and its
appendices.
TABLE IV.10—SUMMARY OF INPUTS AND METHODS FOR THE LCC AND PBP ANALYSIS *
Inputs
Source/method
Product Cost ...................................
Derived by multiplying MPCs by manufacturer and distribution chain markups and sales tax, as appropriate. Used historical data to derive a price scaling index to project future product costs.
Determined with labor and material cost data from RSMeans.
Including fuel use and electricity use.
Variability: Based on the RECS 2020 and CBECS 2018.
Natural Gas: Based on EIA’s Natural Gas Navigator data for 2022.
Electricity: Based on EIA’s Form 861 data for 2022.
Propane: Based on EIA’s State Energy Data System (‘‘SEDS’’) for 2021.
Variability: Regional energy prices determined for 50 states and District of Columbia for residential and
commercial applications.
Marginal prices used for natural gas and electricity prices.
Based on AEO2023 price projections.
Based on RSMeans data and other sources. Assumed variation in cost by efficiency.
Based on shipments data, multi-year RECS, American Housing Survey, American Home Comfort Survey
data.
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. Primary data source was Damodaran Online.
2030.
Installation Costs .............................
Annual Energy Use .........................
Energy Prices ..................................
Energy Price Trends .......................
Repair and Maintenance Costs ......
Product Lifetime ..............................
Discount Rates ................................
Compliance Date ............................
* Not used for PBP calculation. 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.
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1. Product Cost
To calculate consumer product costs,
DOE multiplied the total manufacturer
price, which is MSPs developed in the
engineering analysis plus shipping cost,
by the markups described previously
(along with sales taxes). DOE used
different markups for baseline products
69 Crystal BallTM is commercially-available
software tool to facilitate the creation of these types
of models by generating probability distributions
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and higher-efficiency products, because
DOE applies an incremental markup to
the increase in total manufacturer price
associated with higher-efficiency
products.
Examination of historical price data
for certain appliances and equipment
that have been subject to energy
conservation standards indicates that
the assumption of constant real prices
may, in many cases, overestimate longterm trends in appliance and equipment
prices. Economic literature and
historical data suggest that the real costs
of these products may in fact trend
and summarizing results within Excel, available at
www.oracle.com/technetwork/middleware/
crystalball/overview/ (last accessed
August 29, 2024).
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downward over time according to
‘‘learning’’ or ‘‘experience’’ curves.70
In the experience curve method, the
real cost of production is related to the
cumulative production or ‘‘experience’’
with a manufactured product. This
experience is usually measured in terms
of cumulative production. As
experience (production) accumulates,
the cost of producing the next unit
decreases. The percentage reduction in
cost that occurs with each doubling of
cumulative production is known as the
learning rate. In typical experience
curve formulations, the learning rate
parameter is derived using two
historical data series: cumulative
production and price (or cost). DOE
obtained historical PPI data for water
heating equipment from 1967–1973 and
1977–2022 for all other consumer water
heaters from the U.S. Bureau of Labor
Statistics’ (‘‘BLS’’).71 The PPI data
reflect nominal prices, adjusted for
product quality changes. An inflationadjusted (deflated) price index for
heating equipment manufacturing was
calculated by dividing the PPI series by
the implicit price deflator for Gross
Domestic Product Chained Price Index.
From 1967 to 2002, the deflated price
index for consumer gas-fired
instantaneous water heaters was mostly
decreasing, or staying flat. Since then,
the index has risen, primarily due to
rising prices of copper, aluminum, and
steel products which are the major raw
material used in water heating
equipment. The rising prices for copper
and steel products were attributed to a
series of global events, from strong
demand from China and other emerging
economies to the recent severe delay in
commodity shipping due to the COVID–
19 pandemic. Given the slowdown in
global economic activity in recent years
and the lingering impact from the global
pandemic, DOE believes that the extent
to which the trends of the past five years
will continue is very uncertain. DOE
also assumes that any current supply
chain constraints are short-lived and
will not persist to the first year of
compliance. Given the uncertainty
regarding the magnitude and direction
of potential future price trends, DOE
decided to use constant prices as the
default price assumption to project
future consumer gas-fired instantaneous
70 Desroches, L.-B., K. Garbesi, C. Kantner, R. Van
Buskirk, and H.-C. Yang. Incorporating Experience
Curves in Appliance Standards Analysis. Energy
Policy. 2013. 52 pp. 402–416; Weiss, M., M.
Junginger, M. K. Patel, and K. Blok. A Review of
Experience Curve Analyses for Energy Demand
Technologies. Technological Forecasting and Social
Change. 2010. 77(3): pp. 411–428.
71 Series ID PCU 33522033522083; see
www.bls.gov/ppi/.
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water heater prices. Thus, projected
prices for the LCC and PBP analysis are
equal to the 2023 values for each
efficiency level in each product class.
However, DOE performed a sensitivity
analysis utilizing both a decreasing and
an increasing price trend (see appendix
8C). The relative comparison of
potential standard levels remains the
same regardless of which price trend is
utilized and the conclusions of the
analysis do not change.
BWC requested that DOE detail its
methods in utilizing price learning
curves for condensing gas products, as
was indicated in section IV(F)(1) of the
July 2023 NOPR, so that stakeholders
may review them. BWC suggested the
additional components required to
manufacture higher efficiency products
required by this proposal, in addition to
their more complex manufacturing
processes, will continue to compel
higher product costs than is currently
expected of non-condensing gas water
heaters common in the market today,
economies of scale notwithstanding.
(BWC No. 1164 at p. 17) The available
data only allow estimation of price
trends for water heaters as a group, not
for different efficiency levels of water
heaters. DOE agrees that the product
costs of condensing gas products will
continue to be higher than noncondensing gas water heaters. However,
it is reasonable to expect that factors
affecting water heaters as a whole, such
as growing experience in production or
changes in commodity prices, will affect
all water heaters. Thus, for this final
rule, DOE maintained that same
methodology as the July 2023 NOPR and
assumed the same price trend
assumptions would apply to all gasfired instantaneous water heater
efficiency levels. To assess the impact of
alternative price learning assumptions,
DOE analyzed scenarios using low- and
high-price trends in the LCC. From this
sensitivity analysis, DOE finds that LCC
savings for alternative price trends are
similar to the reference case results and
DOE would arrive at the same policy
conclusion. See appendix 8C for details.
Responding to the July 2023 NOPR,
Ecotemp stated that non-condensing
tankless water heaters typically cost half
the price of comparable condensing
tankless water heaters. (Ecotemp, No.
1092 at p. 1) Rinnai argued that the
marginal price for non-condensing to
condensing gas-fired instantaneous
water heater prices are too low and
should be $450 rather than the $310
calculated by DOE. (Rinnai, No. 1186 at
p. 24) Rinnai claimed DOE’s installed
cost differential of $200 between noncondensing and condensing is too low
and based on data collected from
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installers and distributors the value is
closer to $665. (Rinnai, No. 1443 at p.
19)
To investigate stakeholder concerns,
DOE reviewed present-day retail prices
for non-condensing and condensing
models for this final rule. Overall, DOE
determined that comparable noncondensing and condensing gas-fired
instantaneous water heater models can
retail for similar prices, with
condensing models priced
competitively at 1.2–1.3 times the retail
price of non-condensing models. In this
final rule LCC analysis, DOE estimates
average retail prices of gas-fired
instantaneous water heaters at
condensing efficiency levels are 1.30–
1.42 times that of the baseline noncondensing gas-fired instantaneous
water heater corresponding to
incremental retail price of $294 to $414.
DOE notes that gas-fired instantaneous
water heaters are marked up differently
per distribution channels, as discussed
in section IV.D, and that the incremental
in retail prices between any given
condensing and non-condensing models
can be higher or lower than the reported
values above. DOE’s analysis calculated
weighted averages taking into account
both the markup associated with
individual distribution channels and the
probability of water heaters sold to
customers through each channel. In
response to Rinnai’s comment on
installed cost, which is the sum of retail
price and installation cost, DOE
estimated that the differential between
non-condensing and condensing slightly
lowered to between $217 and $337. This
is due to average installation cost for
condensing gas-fired instantaneous
water heaters being slightly lower than
that for non-condensing baseline. See
section IV.F.2 for more details in the
calculation of installation cost.
Rheem believes that incremental retail
costs between step and fully modulating
designs is about 50 percent too low.
(Rheem, No. 1436 at p. 3; Rheem, No.
1177 at p.12)
In response, DOE revised the
manufacturer production cost for EL 4
for the final rule such that retail price
estimates for max-tech designs, which
incorporate fully modulating burners,
have increased in this final rule
analysis. The incremental retail price
between step modulating burner and
fully modulating burner gas-fired
instantaneous water heaters, taking EL 2
and EL 4 as an example, is $106,
increasing from $56 (in 2022$) in the
July 2024 NODA (see section IV.C.1.c
for more details).
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2. Installation Cost
The installation cost is the cost to the
consumer of installing the consumer
gas-fired instantaneous water heater, in
addition to the cost of the water heater
itself. The cost of installation covers all
labor, overhead, and material costs
associated with the replacement of an
existing water heater or the installation
of a water heater in a new home, as well
as delivery of the new water heater,
removal of the existing water heater,
and any applicable permit fees. Higherefficiency water heaters may require
consumers 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 and CBECS 2018. For this final
rule, DOE used 2023 RSMeans data for
the installation cost estimates, including
labor costs.72 73 74 75 DOE’s analysis of
installation costs accounted for regional
differences in labor costs by aggregating
city-level labor rates from RSMeans into
50 U.S. States and the District of
Columbia to match RECS 2020 data and
CBECS 2018 data.
AHRI stated that replacement costs
are not uniform across the country and
vary by regional labor rates, building
codes, and availability of skilled
installers. AHRI believes that this
variability should be factored in each
state when assessing economic impacts.
(AHRI, No. 1437 at p. 3) In response, as
stated above, DOE has accounted for the
regional difference in labor rates by
incorporating regional labor cost factors
derived from RSMeans. DOE believes
that, therefore, variability in state level
labor costs is factored in in its analysis.
a. Basic Installation Costs
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First, DOE estimated basic installation
costs that are applicable to all consumer
gas-fired instantaneous water heaters, in
replacement, new owner, and new home
or building installations. These costs
include putting in place and setting up
the consumer water heater, gas piping
72 RSMeans Company Inc., RSMeans Mechanical
Cost Data. Kingston, MA (2023) (Available at:
www.rsmeans.com/products/books/2022-cost-databooks) (Last accessed August 29, 2024).
73 RSMeans Company Inc., RSMeans Residential
Repair & Remodeling Cost Data. Kingston, MA
(2023) (Available at: www.rsmeans.com/products/
books/2022-cost-data-books) (Last accessed August
29, 2024).
74 RSMeans Company Inc., RSMeans Plumbing
Cost Data. Kingston, MA (2023) (Available at:
www.rsmeans.com/products/books/2022-cost-databooks) (Last accessed August 29, 2024).
75 RSMeans Company Inc., RSMeans Electrical
Cost Data. Kingston, MA (2023) (Available at:
www.rsmeans.com/products/books/2022-cost-databooks) (Last accessed August 29, 2024).
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and/or electrical hookup, permits, water
piping, removal of the existing
consumer water heater, and removal or
disposal fees.
AGA et al. stated that DOE’s final
Furnaces rule and pending Boilers rule
show that market shares for condensing
and non-condensing units vary
significantly across different climates,
which they believed is likely true for
gas-fired instantaneous water heaters
suggesting that different climates and
household characteristics could heavily
influence not only the type of products
installed but also the required venting
parts to ensure safe and effective
operation. (AGA et al., No. 1439 at p. 7)
In response to AGA et al.’s comment, it
is true that space heating products
typically have some regionalities, which
is mainly driven by the varying heating
needs across different climate zones. For
water heating equipment like gas-fired
instantaneous water heater, however,
DOE has not found, nor have
stakeholders pointed to, any data
showing that there would be a similar
level of impact of the climate on market
adoption. In terms of the required
venting parts, DOE calculated the costs
for venting based on the vent material
suggested by manufacturers and code.
b. Venting Costs
After accounting for the basic costs for
removing the old water heater and
setting up the new, DOE considered the
installation costs associated with
venting. Non-condensing gas-fired
instantaneous water heaters are
Category III appliances that operate
under positive pressure. They require
stainless steel vent material. Condensing
gas-fired instantaneous water heaters are
Category IV appliance that can be
vented through a PVC, CPVC, or
polypropylene vent material. In its
analysis, DOE accounted for the cost for
setting up the vent pipes, vent elbows,
and terminations of the appropriate
material and the air intake pipe for
those that are direct vented (i.e.
combustion air is brought in from
outdoors).
DOE received comments after the
publication of July 2023 NOPR and July
2024 NODA regarding the use of
concentric vent, vent length, and
outdoor installations.
In response to July 2023 NOPR,
Rinnai stated the Department’s
estimated venting costs of $499 for noncondensing gas-fired instantaneous
water heater and $263 for condensing
gas-fired instantaneous water heater
overstate the cost differential, if any
even exists. (Rinnai, No. 1186 at p. 24)
Rinnai stated that most non-condensing
gas-fired instantaneous water heaters
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require 3″ diameter venting and not 4″
diameter venting as is used in the
analysis, leading to 25 percent reduction
in the cost of venting materials. Rinnai
stated that more than 75 percent of noncondensing models do not use stainless
steel venting and instead use concentric
and aluminum venting. Rinnai stated
that 20ft of venting and associated
fittings used in the LCC analysis needs
to be subjected to additional sensitivity
analysis, including the variation in
installed vent lengths, materials used,
concentric versus single wall vents, and
product installation location. Rinnai
stated that tankless water heaters are
installed typically on an outside wall,
which would require far less than 20
feet of venting, and for outdoor
installations, no venting would be
required. (Rinnai, No. 1186 at p. 24)
In response to July 2024 NODA,
Rinnai claimed that the analysis
overlooks that gas-fired instantaneous
water heater installation uses a different
pipe installation from furnaces that is
cheaper and significantly shorter than
vertical venting. Rinnai stated that they
account for half of sales for noncondensing gas-fired instantaneous
water heater units and those units use
aluminum/plastic concentric venting
and have on average 1–2 feet of venting
because they are mostly installed
outside or on outside walls (e.g.,
garages). Rinnai claimed that DOE’s
estimate for venting components is
overestimated compared to costs found
on retailer websites ($131 vs $85).
(Rinnai, No. 1443 at pp. 14–15) BWC
disagreed with DOE considering a 1 ft.
minimum vent length as part of their
analysis for this July 2024 NODA. They
commented that while it may be true
that some manufacturers of gas-fired
instantaneous water heaters indicate
this vent length is possible in their
literature, according to their experience
this is rarely. (BWC, No. 1441 at p. 3)
Rinnai claimed DOE’s model makes
unjustified assumptions on the gas-fired
instantaneous water heater installation
location. Rinnai claimed that the July
2024 NODA only estimates 12 percent
of gas-fired instantaneous water heaters
installed outdoors which is much lower
than the value inferred from RECS 2020
which reports half of households install
their water heater in an ‘‘outdoor closet,
crawlspace, or outdoor’’. Rinnai stated
their data indicate 23 percent of gasfired instantaneous water heaters are
installed outdoors. Rinnai further stated
that their data show that an additional
55 percent of gas-fired instantaneous
water heater installations are likely to be
located close to outside walls in order
to minimize venting. (Rinnai, No. 1443
at p.18)
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Rheem believed that only 20 percent
of condensing units would be installed
with concentric venting due to lower
relative costs of plastic venting and
wall/roof penetrations. Rheem estimated
that up to 50 percent of non-condensing
units are installed outdoors in new
construction where non-condensing is
more common. Rheem estimated that
about 40 percent of outdoor installations
use recess boxes or pipe covers (split
evenly between the two). Rheem
estimated that 7 percent of condensing
units are installed outdoors and expects
that number to rise if energy
conservation standards are amended.
(Rheem, No. 1436 at p. 2–3)
A.O. Smith and BWC commented that
they found DOE’s estimate of 50 percent
of condensing gas-fired instantaneous
water heaters using concentric vent to
be high. BWC did not provide a
percentage that they believe is
reasonable. A.O. Smith commented that
they would estimate only 20 percent of
condensing gas-fired instantaneous
water heaters use a concentric pipe.
(A.O. Smith, No. 1440 at p. 6; BWC, No.
1441 at p. 3)
BWC stated that DOE underestimated
the installed costs for gas-fired
instantaneous water heaters in the July
2024 NODA when assuming half of
these products installed outdoors, in
outdoor closets, or crawlspaces, would
not require venting. BWC countered that
the need for venting in these install
locations is not uncommon, particularly
in crawlspaces, which are often located
within the building envelope. BWC
added that some outdoor units require
use of a special vent kit, or a box that
would protect product controls from
inclement weather, both of which
would add to the installed cost of the
product. (BWC, No. 1441 at p. 3)
In response, for the July 2024 NODA,
DOE made further improvements to its
methodology used in the July 2023
NOPR to account for the venting costs
for gas-fired instantaneous water
heaters. First, DOE took into account the
use of a concentric pipe (a pipe used for
both air intake and venting) for some
installations in its analysis, which was
not previously included in the NOPR
analysis. There are two main vent
configurations for gas-fired
instantaneous water heaters—(1) single
pipe for venting with room air intake or
two pipes with one for outdoor air
intake and one for venting; (2)
concentric pipe for both air intake and
venting. DOE estimated that 90 percent
of the non-condensing and 50 percent of
the condensing gas-fired instantaneous
water heaters that would be direct
vented would use concentric pipes for
the benefit of only having to make one
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wall penetration. Among all
installations, these updates result in
approximately 22 percent of condensing
gas-fired instantaneous water heaters
and 41 percent of non-condensing gasfired instantaneous water heaters being
installed with a concentric vent. In
terms of its impact to the total
installation costs, because a single
concentric pipe is cheaper to install
than two separate pipes (one for air
intake and one for venting) this
installation scenario reduced overall
installation costs, particularly for noncondensing gas-fired instantaneous
water heaters. Additionally, because
metal venting for non-condensing water
heaters is more expensive per foot than
plastic venting for condensing water
heaters, updates to the analysis that
decrease the length of total venting
required for some installations will
lower the LCC savings when replacing
a non-condensing gas-fired
instantaneous water heater with a
condensing gas-fired instantaneous
water heater for these installations. For
this final rule, DOE maintained the
methodology used in July 2024 NODA.
Second, DOE adjusted its
methodology of estimating the
minimum length of the vent run in the
July 2024 NODA. In the July 2023
NOPR, DOE calculated the minimum
vent length based on housing
configuration and installation location
and estimated that the shortest route to
vent a gas-fired instantaneous water
heater is 3 ft. DOE conducted further
research of product literature and
concluded that for many installations a
shorter vent run could be achieved,
primarily by venting through a side
wall. Therefore, DOE recalibrated its
methodology and estimated that the
minimum vent length can be as low as
1 ft for a certain subset of installations.
Lastly, in the July 2023 NOPR, DOE
did not account for the outdoor
installation of gas-fired tankless water
heaters. In the July 2024 NODA, DOE
utilized the location information from
RECS 2020 and assumed that half of the
residential households that report their
water heaters being installed in an
‘‘outdoor closet, crawlspace, or
outdoor’’ would actually install the
tankless water heater on the outside of
a wall without venting. Therefore, DOE
estimated that among the entire sample,
about 12 percent of gas-fired
instantaneous water heaters are
installed outdoors. For the outdoor
installations, DOE assumed no venting
costs but a cost for an outdoor
installation conversion kit or box
needed to protect the water heater from
weather impacts. As with lowering the
minimum vent length above, this update
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to the analysis reduces LCC savings
when replacing a non-condensing gasfired instantaneous water heater with a
condensing gas-fired instantaneous
water heater for these installations.
Rinnai asserted that the vent cost
distributions used in the July 2024
NODA are skewed with the average vent
cost for non-condensing units being
higher than the average for condensing
units. Additionally, Rinnai noted that
for EL 0, the vent cost distribution has
a border spread of higher costs relative
to EL1–3 which have a gradual taper
with more concentration in lower cost
brackets. Rinnai claimed that, on
average, the two types of venting
installations are not significantly
different, though noted that there is a
small increase for non-condensing units
due to the venting materials used.
(Rinnai, No. 1443 at pp.15–16) Rinnai
pointed to a particular simulation case
in which the venting cost for EL 0 is
$841 and the venting cost at higher ELs
is $83 and noted that this variation is
not supported by typical data and affect
the accuracy of the July 2024 NODA’s
economic assessments. (Rinnai, No.
1443 at p. 16)
In response, the difference between
the venting costs for non-condensing
and condensing gas-fired instantaneous
water heaters depends largely on the
vent configuration (type of vent pipe
and vent length). As indicated by
Rinnai, the non-condensing units
generally have higher installation cost
because of the more expensive vent
material required. For this final rule,
after accounting for concentric pipes,
shorter vent lengths, and outdoor
installations, as elaborated above, DOE
noted a decrease in the differential in
installation cost between noncondensing and condensing. The
installation cost for non-condensing gasfired instantaneous water heaters is 7
percent higher than the condensing,
instead of 10 percent higher compared
to the July 2023 NOPR. For this final
rule analysis, DOE estimated an average
installation cost of $1,102 for noncondensing units and $1,025 for
condensing units. Further details
regarding installation cost methodology
can be found in chapter 8 and appendix
8D of the final rule TSD.
PHCC commented that DOE did not
mention additional installation costs for
vertical vents. PHCC commented that in
most vertical instances, the installation
will require walls to be opened for vent
removal, new vents and supports
installed, and the finished surfaces
replaced and it appears that DOE did
not consider these costs. (PHCC, No.
1151 at p. 3) In response, DOE
determined that for a fraction of
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replacement installations of gas tankless
water heater in an indoor closet, the
household may opt to conceal the vent
pipe that passes through the living
space. For the length of the concealing
needed, DOE determined that for most
household configurations, when
concealing is needed, typically the
horizontal vent is more likely to pass
through living space. Vertical run is
more likely to be installed by the
plumber where it is enclosed and
outside of living space.
In response to July 2024 NODA, AGA
et al. and Rinnai claimed that DOE had
applied the same installation cost and
venting assumptions from gas furnaces
to gas-fired instantaneous water heaters
which led to overestimation of both
labor hours and material costs. They
noted that Category I furnaces operate
under negative pressure and are mainly
vented vertically with substantially
longer venting systems, which does not
reflect the typical venting of a gas-fired
instantaneous water heater. (AGA et al.,
No. 1439 at pp. 3–5 and p. 6; Rinnai,
No. 1443 at pp. 11–14) AGA et al. and
Rinnai claimed that in the model 100
percent of installations were assumed to
use stainless steel parts with associated
high labor costs due to the complexity
of vertical installations and that the
model failed to account for the fact that
gas-fired instantaneous water heaters do
not universally require such extensive
venting solutions. They later
acknowledged that DOE’s model had
identified 86 percent of installations as
horizontal but still believed that the
percentage of vertical installations was
overestimated. Additionally, they stated
that the average horizontal system
requires less than 7 feet of venting and
follows a straightforward work plan like
that of a condensing unit, and that
DOE’s model applied the same labor
costs to horizontal installations as it
does to vertical, which resulted in an
overestimation. Rinnai also echoed this
comment. (AGA et al., No. 1439 at pp.
3–5 and p. 6; Rinnai, No. 1143, at p. 13)
AGA et al. claimed that while DOE’s
model includes cost data for alternative
materials like double-walled aluminum
flex pipe, which is approximately half
the cost of stainless steel, these
alternatives were not applied in any of
the 10,000 trials, which led to inflated
installation cost estimates for gas-fired
instantaneous water heaters. (AGA et
al., No. 1439 at p. 4) Similarly, Rinnai
commented that the July 2024 NODA
model incorrectly assumed that
stainless-steel pipes are used in all
10,000 trials with the end result being
venting costs are significantly
overstated. Furthermore, both AGA et
al. and Rinnai stated that an additional
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markup of 39 percent is applied to metal
venting which further widens the gap in
installation cost between EL 0 and
higher efficiency levels. (AGA et al., No.
1439 at p. 5; Rinnai, No. 1443 at pp. 14–
15)
In response, DOE believes that
commenters have misinterpreted
documentation in July 2023 NOPR TSD
and the July 2024 NODA analytical tool.
As discussed above, non-condensing
gas-fired instantaneous water heaters are
Category III appliance that operates
under positive pressure requiring
stainless steel vent material. Condensing
gas-fired instantaneous water heaters are
Category IV appliance that can be
vented through a PVC, CPVC, or
polypropylene vent material. DOE did
not assume the same venting for gasfired instantaneous water heaters as for
furnaces. DOE also did not assume 100
percent of non-condensing gas-fired
instantaneous water heater installations
to be using stainless steel vent pipe. To
further clarify, for the 41 percent of noncondensing gas-fired instantaneous
water heater installations that are
assumed to be using a concentric pipe,
DOE applied the material cost estimated
based on market research of aluminum/
PVC concentric pipe which is the most
affordable option on the market. In its
analytical tool, a conversion factor of
1.33 was applied to convert the material
price data for a regular 4’’ stainless steel
vent to that of a concentric pipe for
simplicity. Note that the conversion
factor changed slightly from 1.39 in July
2024 NODA because of the update from
2022$ to 2023$.
Rinnai claimed that in the July 2024
NODA, DOE ignored the replacement
market where consumers already using
a non-condensing gas-fired
instantaneous water heaters will have
no venting cost with a like-for-like
replacement. (Rinnai, No. 1443 at p.18)
In response, DOE believes that it is
unlikely for a new gas-fired
instantaneous water heater to be
compatible with the old vent of a unit
being replaced, even if both water
heaters fall under the same vent
category. According to product
literature, many models recommend
installation with vent pipes from a
suggested list of specific brands. Even if
the new non-condensing water heater is
from the same manufacturer, the model
is not likely to be the same since the
model nomenclature, specifications and
designs change every several years and
therefore such installation will likely
require a new venting system.
Therefore, DOE did not consider the
case of reusing stainless steel vent. DOE
notes that even if no venting cost was
associated with a like-for-like
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replacement of non-condensing units,
given the limited market share of noncondensing gas-fired instantaneous
water heaters in no-new-standards case,
this assumption will not impact the
economic justification reflected in the
positive LCC savings at the adopted
TSL.
c. Condensate Management Costs
Besides the basic installation cost for
removing the old water heater and
setting up the new and the venting cost
associated with setting up the flue vent
and air intake pipework, DOE also
considered specifically for condensing
gas-fired instantaneous water heaters
the cost of condensate management. In
order to drain condensate properly, cost
items can apply based on the specifics
of the installation including condensate
pipe, condensate pump, condensate
neutralizer, and condensate drain. DOE
additionally considered cases where a
heat tape is applied and cases where an
electric connection setup is needed.
In response to the June 2023 NOPR,
Rinnai stated that DOE excluded from
its analysis of condensing gas-fired
instantaneous water heaters many of the
costs of condensate management
including drains, pumps, neutralizers,
and associated and recurring
maintenance costs. (Rinnai, No. 1186 at
pp. 24–25) In response to July 2024
NODA, Rinnai further claimed that the
analysis underestimates the cost of
condensate management and states that
DOE either omits typical costs needed
for condensing installations or applies
them to a relatively small proportion of
condensing gas-fired instantaneous
water heater installations. For example,
Rinnai claimed that the July 2024
NODA only applies a condensate
neutralizer to 12.5 percent of
installations rather than 25 percent of
cases. Rinnai further requested DOE
provide evidence that the default of 12.5
percent represents a survey of
installations and market conditions.
(Rinnai, No. 1443 at p. 17) In response,
as mentioned above, DOE took into
account various cost items for
condensate management. DOE assumed
that some cost items would apply to
only a certain fraction of installation.
For example, DOE assumed that
condensate pipe cost is needed for both
replacement and new construction
installations but then only 12.5 percent
of replacement installations where the
household does not have a central AC
or heat pump would need to be applied
the cost of a condensate pump. As
Rinnai pointed out, DOE assumed that
12.5 percent of all installations would
be applied the cost of condensate
neutralizer. DOE adopted this estimate
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based on its market and technology
assessment, engineering analysis, and
its expert consultant feedback. Rinnai
however provided no basis to support
doubling the installation of condensate
neutralizers to 25% of all cases. Nor has
DOE found any other market data to
support an alternative estimate. For lack
of further data and evidence, DOE
maintained its assumption of 12.5
percent of condensate neutralizer
installations in this final rule.
PHCC commented that DOE’s
assumption that drains are required at
or near water heaters is wrong as codes
do not require it. They commented that
changing to an appliance that produces
condensate will require a pump or drain
that is near the heater because that
condensate cannot drain routinely
across the floor as it can create slippery
surfaces, and that an installed pipe to a
remote drain can be a trip hazard. PHCC
commented that the cost for adding a
drain should be allocated against all
replacement water heaters that will
produce condensate. (PHCC, No. 1151 at
p. 3) In response, DOE took into
consideration the cost items of setting
up a condensate pump and condensate
drain in its analysis. Condensate pump
is usually needed when the water heater
is below the closest drain or when
without an immediate drain the
condensate need to be pumped to a
remote drain. DOE assumed that for gasfired instantaneous water heaters,
around 12.5 percent of the replacements
will need to set up a new condensate
pump when the households do not have
installed central air conditioner or heat
pump that may already be equipped
with a condensate pump. Accordingly,
DOE applied the cost of non-corrosive
drain to those installations that require
the setup of a condensate pump. On
average, DOE estimated a cost of $36 for
condensate management in total.
Noritz commented that the ability to
replace a water heater in an emergency
is an important attribute of value to
consumers, and changes in installation
patterns raise costs and impose other
time-related constraints such as
changing venting patterns, carpentry to
make changes to the house, and possible
electrical work to complete installation.
Noritz commented that a condensing
gas-fired instantaneous water heater
does provide the same utility to
customers, but as noted in the NOPR
there are significant installation changes
which would require significant cost.
(Noritz, No. 1202 at pp. 1–2) DOE agrees
that in emergency replacement, like-forlike equipment provides the most
convenience to the consumer. However,
DOE estimates that the installation of
condensing equipment, including the
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flue venting, the condensate pipe, and
pump can be accomplished as part of an
emergency replacement, meaning that
for emergency replacements, noncondensing equipment do not
necessarily bring significant additional
value.
3. Annual Energy Consumption
For each sampled household and
building, DOE determined the energy
consumption for consumer gas-fired
instantaneous water heaters at different
efficiency levels using the approach
described previously in section IV.E of
this document.
Higher-efficiency gas-fired
instantaneous water heaters reduce the
operating costs for a consumer, which
can lead to greater use of the water
heater. 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.
Although some households may
increase their water heater use in
response to increased efficiency, DOE
does not include the rebound effect in
the LCC analysis because the increased
utilization of the water heater provides
value to the consumer, thus it is not
simply an added cost. DOE does include
rebound in the NIA for a conservative
estimate of national energy savings and
the corresponding impact to consumer
NPV. See chapter 10 of the final rule
TSD for more details.
4. Energy Prices
Because marginal energy 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 energy
prices for the energy use of the product
purchased in the no-new-standards
case, and marginal energy 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.76 77 78
76 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 29, 2024).
77 U.S. Department of Energy—Energy
Information Administration, Natural Gas Navigator
(2022) (Available at: www.eia.gov/naturalgas/
data.php) (Last accessed August 29, 2024).
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105229
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 and natural gas. For the
derivation of monthly price factors and
marginal price factors, DOE used
historical data from EIA from 2003 up
to 2022 and from 2013 up to 2022,
respectively. DOE adjusted energy
prices to 2023$ using the Consumer
Price Index. Further details may be
found in chapter 8 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 50
U.S. states and District of Columbia
from the reference case in AEO2023,
which has an end year of 2050.79 To
estimate price trends after 2050, DOE
used the average annual growth rate in
prices from 2046 to 2050 based on the
methods used in the 2022 Life-Cycle
Costing Manual for the Federal Energy
Management Program (‘‘FEMP’’).80
Rinnai stated that the July 2024
NODA improperly uses national
averages in its state-level analysis and
failed to account for regional differences
in cost and utilization. Rinnai noted that
there are significant regional and state
differences that directly impact water
heating demands, the efficiency and
operational costs of water heating.
Rinnai encouraged DOE to consider
state-specific data in its distribution
using discrete inputs to ensure results
reflect diverse conditions across the
U.S. (Rinnai, No. 1443 at p. 20) In
response to Rinnai’s concern, DOE
reiterates that, given that the hot water
use was derived based on representative
energy consumption data reported from
RECS 2020, there is already embedded
regionality accounted for in the results.
For no-new-standards case efficiency
distribution, for lack of more granular
data, DOE did not derive a market share
that varies by state. In terms of operating
costs of water heating, as discussed
above, DOE utilized state-level energy
prices for calculating the operating
78 U.S. Department of Energy—Energy
Information Administration, State Energy Data
System (‘‘SEDS’’) (2021) (Available at: www.eia.gov/
state/seds/) (Last accessed August 29, 2024).
79 EIA. Annual Energy Outlook 2023 with
Projections to 2050. Washington, DC. Available at
www.eia.gov/forecasts/aeo/ (last accessed August
29, 2024).
80 Lavappa, Priya D. and J.D. Kneifel. Energy Price
Indices and Discount Factors for Life-Cycle Cost
Analysis—2022 Annual Supplement to NIST
Handbook 135. National Institute of Standards and
Technology (NIST). NISTIR 85–3273–37, available
at www.nist.gov/publications/energy-price-indicesand-discount-factors-life-cycle-cost-analysis-2022annual (last accessed August 29, 2024).
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Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations
costs. See appendix 8E of the final rule
TSD for more details.
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 included
additional maintenance and repair costs
for higher efficiency consumer gas-fired
instantaneous water heaters (including
maintenance costs associated with
condensate withdrawal and deliming of
the heat exchanger and repair costs
associated with burner and blower
assembly) based on 2023 RSMeans
data.81 DOE accounted for regional
differences in labor costs by using
RSMeans regional cost factors.
Rinnai and AGA et al. claimed that
the July 2024 NODA underestimated the
maintenance cost associated with
general condensate withdrawal for
condensing gas-fired instantaneous
water heater units. Rinnai claimed that
a basic neutralizer refill can cost
between $35–50 (instead of $20 as
assumed in July 2024 NODA). Rinnai
also requested clarification on the
source of the $20 estimate. (Rinnai, No.
1443 at p. 17; AGA et al., No. 1439 at
p. 7) In response, DOE derived the
material cost of $20 for condensate
management maintenance based on its
consultant report included in the
appendix 8F of the final rule TSD. For
this final rule, given that the market
price can change between the time of
the final rule analysis and that of the
report, DOE reviewed the current
market prices for refills of condensate
neutralizer and decided that an average
price of $41.17 would be more
representative of the price paid by the
consumers. DOE has updated the LCC
analytical tool and the final rule TSD
accordingly to reflect the market prices
it reviewed and the updated cost
assumption.
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6. Product Lifetime
Product lifetime is the age at which an
appliance is retired from service. DOE
conducted an analysis of gas-fired
instantaneous water heater lifetimes
based on the methodology described in
a journal paper.82 For this analysis, DOE
relied on RECS 1990, 1993, 2001, 2005,
81 RSMeans Company, Inc., RS Means Facilities
Repair and Maintenance (2023), available at
www.rsmeans.com/ (last accessed August 29, 2024).
82 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): pp. 28 (Available
at: www.tandfonline.com/doi/abs/10.1080/
10789669.2011.558166) (Last accessed August 29,
2024).
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2009, 2015, and 2020.83 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.84
DOE used the appliance age data from
these surveys, as well as the historical
water heater 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 around 20 years for instantaneous
water heaters.
Noritz disputed that condensing and
non-condensing products have the same
average lifespan based on their internal
testing. Noritz argued that the less
complex nature of the non-condensing
product in their testing typically lasts
between 10 and 20 percent longer than
a similar condensing product. Noritz
argued that the analysis conducted by
DOE that proposes the average lifespan
of the two products to be identical will
impact the LCC and payback analysis.
(Noritz, No. 1202 at p. 3). In response,
DOE has not found any evidence in its
research pointing to a significantly
different lifespan for the two types of
water heaters. As described in appendix
8G of the final rule TSD, the data
sources cited did not indicate any
systematic decrease in lifetime for gasfired condensing products (additionally,
a majority of gas-fired instantaneous
water heaters in the market are
condensing). For this final rule, DOE
maintains its methodology of assuming
the same lifetime for all gas-fired
instantaneous water heaters.
In order to evaluate the impact of the
lifetime on the economic analysis
results, for this final rule DOE
conducted a sensitivity analysis, where
two additional lifetime scenarios were
evaluated. The sensitivity results do not
change DOE’s conclusion of economic
justification of the adopted standards
(see appendix 8G of the final rule TSD
for the comparison of results).
7. Discount Rates
In the calculation of LCC, DOE
applies discount rates appropriate to
83 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 29, 2024).
84 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 29, 2024).
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households to estimate the present
value of future operating cost savings.
DOE estimated a distribution of
discount rates for consumer gas-fired
instantaneous water heaters based on
the opportunity cost of consumer funds.
DOE applies weighted average
discount rates calculated from consumer
debt and asset data, rather than marginal
or implicit discount rates.85 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 analysis, 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.
To establish residential discount rates
for the LCC analysis, DOE identified all
relevant household debt or asset classes
in order to approximate a consumer’s
opportunity cost of funds related to
appliance energy cost savings. It
estimated the average percentage shares
of the various types of debt and equity
by household income group using data
from the Federal Reserve Board’s
triennial Survey of Consumer
Finances 86 (‘‘SCF’’) starting in 1995 and
ending in 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 standards would take effect.
85 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.
86 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 29, 2024). The Federal Reserve
Board is currently processing the 2022 Survey of
Consumer Finances, which is expected to be fully
available in late 2023.
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DOE assigned each sample household a
specific discount rate drawn from one of
the distributions. The average rate
across all types of household debt and
equity and income groups is 4.2 percent.
See chapter 8 of the final rule TSD for
further details on the development of
consumer discount rates.
To establish commercial discount
rates for the small fraction of consumer
gas-fired instantaneous water heaters
installed in commercial buildings, DOE
estimated the weighted-average cost of
capital using data from Damodaran
Online.87 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
105231
case (i.e., the case without amended or
new energy conservation standards).
This approach reflects the fact that some
consumers may purchase products with
efficiencies greater than the baseline
levels.
To estimate the energy efficiency
distribution of consumer gas-fired
instantaneous water heaters for 2030,
DOE used available shipments data by
efficiency including in previous AHRI
submitted historical shipment data,89
ENERGY STAR unit shipments data,90
and data from a 2023 BRG Building
Solutions report.91 To cover gaps in the
available shipments data, DOE used
DOE’s public CCD model database 92
and AHRI certification directory.93
The estimated market shares for the
no-new-standards case for consumer
gas-fired instantaneous water heaters are
shown in table IV.11. See chapter 8 of
the final rule TSD for further
information on the derivation of the
efficiency distributions.
particular company is proportional to
the systematic risk faced by that
company. DOE’s commercial discount
rate approach is based on the
methodology described in a Lawrence
Berkeley National Laboratory report,
and the distribution varies by business
activity.88 The average rate for
consumer gas-fired instantaneous water
heaters used in commercial applications
in this final rule analysis, across all
business activity, is 6.9 percent.
See chapter 8 of this 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 (market shares) of product
efficiencies under the no-new-standards
TABLE IV.11—NO-NEW-STANDARDS CASE ENERGY EFFICIENCY DISTRIBUTIONS IN 2030 FOR CONSUMER GAS-FIRED
INSTANTANEOUS WATER HEATERS
Draw pattern
Low
Efficiency level
UEF *
I
Medium
Market share
(%)
UEF *
I
High
Market share
(%)
UEF *
I
Market share
(%)
Gas-Fired Instantaneous Water Heaters, <2 gal and >50,000 Btu/h
0
1
2
3
4
...............................................................
...............................................................
...............................................................
...............................................................
...............................................................
........................
........................
........................
........................
........................
I
........................
........................
........................
........................
........................
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* UEF at the representative rated capacity.
I
0.81
0.87
0.91
0.92
0.93
30%
8
48
6
8
I
0.81
0.89
0.93
0.95
0.96
30%
8
47
7
8
The LCC Monte Carlo simulations
draw from the efficiency distributions
and assign an efficiency to the gas-fired
instantaneous water heater purchased
by each sample household in the nonew-standards case according to these
distributions.
Finally, DOE considered the 2019
AHCS survey,94 which 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. DOE did not find similar
data for consumer water heaters, but
believes that the HVAC data is relevant
to other larger appliances such as
consumer water heaters since they
similarly represent large energy end
uses. From these data, DOE found that
households with larger square footage
exhibited a higher fraction of High- or
Super-High efficiency equipment
installed. The fraction of respondents
with ‘‘super high efficiency’’ equipment
was larger by approximately 5 percent
for larger households and
correspondingly smaller for smaller
households. DOE therefore used the
AHCS data to adjust its water heater
efficiency distributions as follows: (1)
the market share of higher efficiency
equipment for households under 1,500
sq. ft. was decreased by 5 percentage
87 Damodaran Online, Data Page: Costs of Capital
by Industry Sector (2021) (Available at:
pages.stern.nyu.edu/∼adamodar/) (Last accessed
August 29, 2024).
88 Fujita, S., Commercial, Industrial, and
Institutional Discount Rate Estimation for Efficiency
Standards Analysis: Sector-Level Data 1998–2018
(Available at: ees.lbl.gov/publications/commercialindustrial-and) (Last accessed August 29, 2024).
89 AHRI. Confidential Instantaneous Gas-fired
Water Heater Shipments Data from 2004–2007 to
LBNL. March 3, 2008.
90 ENERGY STAR. Unit Shipments data 2010–
2021. multiple reports. (Available at:
www.energystar.gov/partner_resources/products_
partner_resources/brand_owner_resources/unit_
shipment_data) (Last accessed August 29, 2024).
91 BRG Building Solutions. The North American
Heating & Cooling Product Markets (2023 Edition).
2023.
92 U.S. Department of Energy’s Compliance
Certification Database is available at
regulations.doe.gov/certification-data (last accessed
August 29, 2024).
93 Air Conditioning Heating and Refrigeration
Institute. Consumer’s Directory of Certified
Efficiency Ratings for Heating and Water Heating
Equipment. May 16, 2023. (Available at
www.ahridirectory.org) (Last accessed August 29,
2024).
94 Decision Analysts, 2019 American Home
Comfort Studies (Available at:
www.decisionanalyst.com/syndicated/
homecomfort/) (Last accessed August 29, 2024).
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points; and (2) the market share of
condensing equipment for households
above 2,500 sq. ft. was increased by 5
percentage points. Other household and
demographic characteristics in the
survey did not exhibit any statistical
correlations with efficiency.
DOE acknowledges that economic
factors may play a role when
consumers, commercial building
owners, or builders decide on what type
of water heater to install. However,
assignment of water heater efficiency for
a given installation based solely on
economic measures such as life-cycle
cost or simple payback period does not
fully and accurately reflect actual realworld installations. There are a number
of market failures discussed in the
economics literature that illustrate how
purchasing decisions with respect to
energy efficiency are unlikely to be
perfectly correlated with energy use, as
described below. While this literature is
not specific to water heaters, DOE finds
that the method of assignment simulates
behavior in the water heater market,
where market failures and other
consumer preferences result in
purchasing decisions not being perfectly
aligned with economic interests, 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 water
heaters make economically irrational
decisions (i.e., the lack of a correlation
is not the same as a negative
correlation). As part of the sample
assignment, some homes or buildings
with large hot water use will be
assigned higher efficiency water heaters,
and some homes or buildings with
particularly low hot water use will be
assigned baseline water heaters. By
using this approach, DOE acknowledges
the variety of market failures and other
consumer behaviors present in the water
heater market, and does not assume
certain market conditions unsupported
by the available evidence.
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.95 There are
also several behavioral factors that can
influence the purchasing decisions of
complicated multi-attribute products,
95 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 January 5,
2024).
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such as water heaters. 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’re
presented for any given choice
scenario.96 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.97 R.H. 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.98 These characteristics
describe almost all purchasing
situations of appliances and equipment,
including water heaters. The installation
of a new or replacement water heater is
done infrequently, as evidenced by the
mean lifetime for water heaters.
Additionally, it would take at least one
full water heating season for any
impacts on operating costs to be fully
apparent. Further, if the purchaser of
the water heater 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 water
heaters more than many other types of
appliances. The principal-agent problem
is a market failure that results when the
96 Thaler, R.H., Sunstein, C.R., and Balz, J.P.
(2014). ‘‘Choice Architecture’’ in The Behavioral
Foundations of Public Policy, Eldar Shafir (ed).
97 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).
98 Thaler, R.H., and Sunstein, C.R. (2008). Nudge:
Improving Decisions on Health, Wealth, and
Happiness. New Haven, CT: Yale University Press.
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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 water heater to install,
whereas the renter is responsible for
paying energy bills In the LCC sample,
for gas-fired instantaneous water
heaters, approximately 10 percent of
households are renters. Given the
greater market share of instantaneous
water heaters in new construction
compared to other water heater product
classes, this fraction of renters is lower
than the national average (which is
approximately one third). For lowincome households (see section IV.I of
this document and chapter 11 of the
final rule TSD), however, the fraction of
renters increases to 38 percent of
households. The principle-agent
problem can also impact homeowners.
For example, in new construction,
builders influence the type of water
heater used in many homes but do not
pay operating costs. Finally, contractors
install a large share of water heaters in
replacement situations, and they can
exert a high degree of influence over the
type of water heater purchased based on
which products they are familiar with.
In addition to the split-incentive
problem, there are other market failures
that are likely to affect the choice of
water heater efficiency made by
consumers. For example, emergency
replacements of essential equipment
such as water heaters 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 it
may not be possible to consider the full
range of available options on the market.
The consideration of alternative product
options is far more likely for planned
replacements and installations in new
construction.
Additionally, Davis and Metcalf 99
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
99 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 January 5, 2024).
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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).
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.100 show that
consumers tend to underestimate the
energy use of large energy-intensive
appliances but tend to overestimate the
energy use of small appliances. Water
heaters are one of the largest energyconsuming end-uses in a home.
Therefore, it is likely that consumers
systematically underestimate the energy
use associated with water heater,
resulting in less cost-effective water
heater purchases.
These market failures may affect a
sizeable share of the consumer
population. A study by Houde 101
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, though subsequent
studies using alternative methodologies
have highlighted other consumer groups
who are to some extent responsive to
local energy prices with their appliance
purchases.102 The extent to which
consumers are perceptive of energy
prices and product efficiency when
making appliance purchasing decisions
is a topic of ongoing research.
Although consumer gas-fired
instantaneous water heaters are
predominantly installed in the
residential sector, some are also
installed in commercial buildings (6
percent of projected shipments; see
chapter 9 of the final rule TSD). There
are market failures relevant to consumer
100 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 January 5, 2024).
101 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/10.1111/17562171.12231) (Last accessed January 5, 2024).
102 Houde, S. and Meyers, E. (2021). ‘‘Are
consumers attentive to local energy costs? Evidence
from the appliance market,’’ Journal of Public
Economics, 201 (Available at: sciencedirect.com/
science/article/pii/S004727272100116X) (Last
accessed March 7, 2024).
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gas-fired instantaneous water heaters
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 costsaving 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
energy costs.103 104 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 in
some cases is not responsible for paying
energy costs). Additionally, some
commercial buildings have multiple
tenants. There are other similar
misaligned incentives embedded in the
organizational structure within a given
firm or business that can impact the
choice of a water heater. 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.105 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
103 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.
104 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
January 5, 2024).
105 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).
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105233
returns.106 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.107
Second, the nature of the
organizational structure and design can
influence priorities for capital
budgeting, resulting in choices that do
not necessarily maximize
profitability.108 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 energy
efficient investment will be
undertaken.109 U.S. tax rules for
106 Bushee, B.J. (1998). ‘‘The influence of
institutional investors on myopic R&D investment
behavior,’’ Accounting Review, 305–333. DeCanio,
SJ. (1993). ‘‘Barriers Within Firms to Energy
Efficient Investments,’’ Energy Policy, 21(9), 906–
914. (explaining the connection between shorttermism and underinvestment in energy efficiency).
107 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 January 5, 2024)
108 DeCanio, S.J. (1994). ‘‘Agency and control
problems in US corporations: the case of energyefficient investment projects,’’ Journal of the
Economics of Business, 1(1), 105–124.
Stole, L.A., and Zwiebel, J. (1996).
‘‘Organizational design and technology choice
under intrafirm bargaining,’’ The American
Economic Review, 195–222.
109 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), 2150–
2159.
Muthulingam, S., et al. (2013). ‘‘Energy Efficiency
in Small and Medium-Sized Manufacturing Firms,’’
Manufacturing & Service Operations Management,
15(4), 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 US manufacturing:
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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.110
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.111
Asymmetric information in financial
markets is particularly pronounced with
regard to energy efficiency
investments.112 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,113 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
Spillovers from firm management practices to
energy efficiency,’’ Journal of Environmental
Economics and Management, 68(3), 463–479.
110 Lovins, A. (1992). Energy-Efficient Buildings:
Institutional Barriers and Opportunities. (Available
at: rmi.org/insight/energy-efficient-buildingsinstitutional-barriers-and-opportunities/) (Last
accessed January 5, 2024).
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.
112 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.
113 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 January
5, 2024).
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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.114 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).115 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
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.116
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 117 and required payback periods
of many firms are higher than the
appropriate cost of capital for the
investment.118 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.119 The study found that multiple
organizational and institutional factors
114 Cooremans, C. (2012). ‘‘Investment in energy
efficiency: do the characteristics of investments
matter?’’ Energy Efficiency, 5(4), 497–518.
115 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 January 5, 2024).
116 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 January 5, 2024).
117 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.
118 DeCanio 1994, op. cit.
119 DeCanio, S.J. (1998). ‘‘The Efficiency Paradox:
Bureaucratic and Organizational Barriers to
Profitable Energy-Saving Investments,’’ Energy
Policy, 26(5), 441–454.
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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.120 For small businesses, the
payback periods for higher efficiency
gas-fired instantaneous water heaters are
typically 7 to 8 years on average, longer
than the usual requirement of 1 to 2
years, which ultimately discounts the
significant long-term savings from these
higher efficiency products. A number of
other case studies similarly demonstrate
the existence of market failures
preventing the adoption of energyefficient technologies in a variety of
commercial sectors around the world,
including office buildings,121
supermarkets,122 and the electric motor
market.123
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. Although these studies are not
specifically targeted to the water heater
market, they cover decision-making
generally and the impact of energy
efficiency, operating costs, and future
savings/expenditures on those
decisions, all of which apply to the
purchase of a consumer gas-fired
instantaneous water heater. DOE is not
aware of any market failure studies
specifically and narrowly focused on
gas-fired instantaneous water heaters
and so relies on the available literature
discussed above. If DOE developed an
efficiency distribution that assigned
water heater efficiency in the no-newstandards 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
120 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.
121 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.
122 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.
123 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 January 5, 2024).
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would not reflect any of the market
failures or behavioral factors above.
DOE thus concludes such a distribution
would not be representative of the water
heater market.
AGA et al. stated that DOE’s model
makes several assumptions that
significantly impact its outcomes.
According to AGA et al., DOE does not
account for regional variations when
implementing a national market share
for each product level, and bases
installation on square footage rather
than other household attributes such as
the number of bathrooms, bedrooms, or
inhabitants. (AGA et al., No. 1439 at p.
7)
Rinnai asserted that installations of
condensing and non-condensing units
vary regionally and DOE should account
for this in the model instead of using
national market share for each product
level and assuming an increased
likelihood a consumer purchases a more
efficient option based on square footage.
(Rinnai, No. 1443 at p.18)
In response, DOE notes that the
market share data for gas-fired
instantaneous water heaters are not
available at a regional or State level.
Manufacturer and industry associations
did not provide any regional or Statelevel shipments data by efficiency level
to be incorporated into the analyses.
There is similarly no data set DOE is
aware of, nor that any stakeholder
pointed to, that correlates gas-fired
instantaneous water heater efficiency to
household attributes or consumer
demographics. DOE therefore used
national-level data to estimate the
market share by efficiency level for gasfired instantaneous water heaters.
However, RECS 2020 is a nationally
representative survey of energy
consumption and incorporates regional
variation with respect to household
attributes, water heater usage, water
inlet temperature, and energy
consumption. Therefore, the LCC
analysis does include regional variation
with respect to housing characteristics,
sample location, labor cost (and
therefore installation cost), and
estimates of water heating usage. The
total costs are therefore not based solely
on square footage, but rather on
multiple household attributes. Square
footage is used to adjust the national
efficiency distribution based on the
observed consumer behavior that larger
homes are more likely to invest in more
efficient water heating equipment, as
discussed above.
Rinnai objected to DOE’s use of the
Monte Carlo method for estimating
energy savings, which Rinnai argues
overstates benefits by ignoring rational
consumer choice. Rinnai further stated
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that this error is compounded by not
analyzing product switching. (Rinnai,
No. 1443 at pp. 22–23)
In response, DOE notes that there are
a multitude of market failures present in
the water heater market that can
influence the efficiency of water heater
chosen by consumers in the absence of
new standards, as discussed above. DOE
is not ignoring rational consumer
choice, rather the methodology
acknowledges the range in consumer
behavior present in the market,
including those who make equipment
choices that minimize their costs. Those
consumers are indeed reflected in the
analysis, along with other consumers
who do not or cannot make choices that
minimize their costs for a variety of
reasons. With respect to switching to
other types of water heaters, as
discussed in greater detail in section
IV.F.10 of this document, the LCC
savings over a longer product lifetime,
other attributes of instantaneous water
heaters valued by consumers, logistical
barriers to switching in some housing
contexts, and marginal installed cost
differences will minimize the incentives
for consumers to switch to alternative
water heater product classes rather than
simply adopting a standards-compliant
gas-fired instantaneous water heater.
DOE therefore concludes that the
likelihood of an adopted standard for
gas-fired instantaneous water heaters
driving any significant product class
switching to be negligible.
AGA et al. commented that DOE’s
assignment methodology is
unreasonable and simulates extreme
and unreasonable purchasing behavior
as well as skews the result of DOE’s
analysis. They contended that economic
considerations do influence purchasing
behavior yet DOE’s assignment
methodology assumes that economic
considerations never matter. (AGA et
al., No. 1439 at pp. 8–9)
In response, DOE has never stated that
economic considerations never matter.
This is a mischaracterization of the
analysis. DOE acknowledges the full
range of consumer behaviors in the
water heater market and the analysis is
modeled to reflect this range. As
discussed below, the model produces a
variety of outcomes including a
significant fraction of consumers who
choose an efficiency level that
minimizes their life-cycle costs in the
absence of new standards. These are
consumers that the commenter would
characterize as ‘‘reasonable’’ and they
are reflected in the total sample.
However, DOE also acknowledges that
other groups of consumers exist who
face a variety of market failures,
preventing from choosing an efficiency
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level that minimizes their life-cycle
costs in the absence of new standards.
DOE’s focus on a limited number of
variables in projecting the efficiency
assignment in the no-new-standards
case reflects the limits that constrain
consumer decision-making. A full lifecycle analysis requires a variety of
inputs, such as product prices, product
energy consumption, energy prices,
maintenance and repair costs, product
lifetime, and discount rates. All of these
figures are—by their nature—forward
looking, predictive, and, therefore,
subject to uncertainty. To account for
uncertainty and variability in specific
inputs, such as equipment lifetime and
discount rate, DOE uses a distribution of
values, with probabilities attached to
each value.
In terms of how consumers make
purchase decisions in the real world, a
typical consumer has neither the
expertise nor the time to review
information about discount rates,
projected price trends, or the host of
other variables included in DOE’s own
calculations. Instead, consumers
generally rely on the appliances
recommended by contractors, who
typically prefer to install appliances that
are in stock and with which they are
familiar. That is particularly true in
emergency replacement situations, such
as when an appliance and a replacement
must be obtained and installed quickly.
Consumer decisions, therefore, do not
necessarily involve an exhaustive
review of all variables that may affect
long-run costs, but instead primarily
reflect the prevalence of existing units
in the relevant market.
There are many reasons to conclude
that this imperfect decision-making
environment leads consumers to
purchase fewer condensing gas-fired
instantaneous water heaters than would
be economically justified. Studies show
that consumers tend to undervalue
energy efficiency and that a subset
appear to purchase appliances without
taking into account their energy
efficiency and operating costs at all.
The market failures that generally
affect energy-related decisions are
particularly pernicious in the context of
consumer water heaters. As discussed
elsewhere in this document, landlords,
contractors, and developers often make
the choice of what appliance to install
but do not benefit from the lower
operating costs associated with
condensing units (or suffer from the
higher utility bills associated with noncondensing units).
As courts have found, EPCA itself
recognizes that consumers do not
invariably select appliances that are
cost-justified in the long-term, but
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instead, the statute reflects Congress’s
‘‘concern[] over the tendency of
consumers to reject efficiencyimproving appliances with long
payback periods.’’ Natural Res. Def.
Council, Inc. v. Herrington, 768 F.2d
1355, 1405 (D.C. Cir. 1985). Indeed,
‘‘[n]umerous witnesses [before
Congress] . . . testified that the average
consumer looks for a payback from
higher purchase prices within 3 years.’’
Id. (quotation marks omitted). This
propensity to focus on the short term is
especially unfortunate here, where the
benefits of condensing units extend for
two decades or more. By authorizing
DOE to amend efficiency standards,
Congress acted in part to rectify this and
other distortions in appliance markets.
See id. (noting that ‘‘Congress viewed
this consumer behavior as a kind of
market failure’’).
In promulgating EPCA (Pub. L. 94–
163, 89 Stat. 871 (1975)), Congress itself
expressed a view that markets are not
perfect, enacting the statute to promote
national ‘‘energy conservation,’’
including by improving the energy
efficiency of certain ‘‘major appliances’’
and ‘‘consumer products.’’ (42 U.S.C.
6201(4), (5)) Congress initially
established a voluntary, market-based
program for achieving that goal (see
§ 325, 89 Stat. 923–26), but it soon
amended EPCA to require mandatory
energy conservation standards (see
National Energy Conservation Policy
Act, Pub. L. 95–619, tit. IV, pt. 2, § 422,
92 Stat. 3206, 3259–62 (1978)), and
Congress has continued to amend EPCA
over time to revise those standards and
to advance the goal of energy
conservation.
The use of the efficiency assignment
methodology of the gas-fired
instantaneous water heater efficiency in
the no-new-standards case in the LCC
model is a methodological approach
that reflects the full range of consumer
behaviors in this market, including
consumers who make informed and
beneficial cost-minimizing decisions
and other consumers who, due to the
market failures discussed, do not or
cannot make such perfectly beneficial
decisions. The methodology is further
constrained by shipments data by
efficiency level; it must produce an
overall distribution that matches the
available market data. For example, for
the gas-fired instantaneous water heater
consumer sample at the adopted
standard level (EL 2), DOE’s
methodology results in the following
groups of consumers:
(1) Consumers who, in the absence of
standards, choose a lower efficiency
product with a lower life-cycle cost
based on their surveyed hot water usage.
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These consumers are making an optimal
choice from the perspective of cost
savings in the model in the no-newstandards case. These are consumers
who are choosing a baseline noncondensing gas-fired instantaneous
water heater (EL 0) or consumers
choosing a condensing gas-fired
instantaneous water heater with the
lowest efficiency (EL 1). With amended
standards, they are made to purchase a
more efficient product at EL 2 and
therefore experience a net cost in the
standards case. (15 percent of the gasfired instantaneous water heater
sample.) These consumers represent
nearly half of all consumers choosing EL
0 in the no-new-standards case,
therefore the efficiency assignment
model is already assigning minimumcost choices to this fraction of
consumers in the no-new-standards
case.
(2) Consumers who, in the absence of
standards, choose a higher efficiency
product that also lowers their life-cycle
cost compared to the baseline efficiency
product. These are consumers who are
choosing a condensing gas-fired
instantaneous water heater with higher
efficiency, including at the adopted
standard level (EL 2, EL 3, and EL 4).
These consumers are making a costminimizing choice in the model in the
no-new-standards case. With amended
standards, these consumers are not
impacted because they are already
purchasing a standards-compliant
product. (34 percent of the gas-fired
instantaneous water heater sample.) The
efficiency assignment model is already
assigning minimum-cost choices to this
fraction of consumers in the no-newstandards case.
(3) Consumers who, in the absence of
standards, choose a lower efficiency
product that does not minimize the lifecycle cost. These are consumers who are
choosing a baseline non-condensing gasfired instantaneous water heater (EL 0)
or consumers choosing a condensing
gas-fired instantaneous water heater
with the lowest efficiency (EL 1). The
market failures discussed above apply to
these consumers, preventing them from
making the choice that minimizes their
life-cycle costs in the no-new-standards
case. With amended standards, they are
made to purchase a more efficient
product at EL 2 that ultimately results
in a lower life-cycle cost. These
consumers experience a net benefit as a
result of the standard. (23 percent of the
gas-fired instantaneous water heater
sample)
(4) Consumers who, in the absence of
standards, choose a higher efficiency
product that does not lower their lifecycle cost compare to the baseline or
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lower efficiency product. These are
consumers who are choosing a
condensing gas-fired instantaneous
water heater with higher efficiency,
including at the adopted standard level
(EL 2, EL 3, and EL 4). Although these
consumers are choosing a higher
efficiency product in the no-newstandards case, they may have
incomplete knowledge of the energy
consumption of the equipment or may
value environmental features such as
efficiency more heavily, resulting in a
choice of a higher efficiency product
that does not lower life-cycle cost
compared to a baseline or lower
efficiency product. With amended
standards, these consumers are not
impacted because they are already
purchasing a standards-compliant
product. (29 percent of the gas-fired
instantaneous water heater sample)
DOE’s methodological approach is a
proxy that ultimately reflects a diversity
of scenarios for consumers and therefore
the range of outcomes that will result
from this diversity. The approach
already reflects market share outcomes
with some degree of market efficiency
and optimal decision-making among
some consumers, but the approach also
acknowledges a number of factors that
hinder perfect decision-making for
others. Furthermore, the model
produces an overall distribution of
efficiency that matches the available
shipments data.
Although DOE’s efficiency assignment
methodology does not explicitly model
consumer decision making, nor does it
take a stance on the rationality or
irrationality of specific consumers, DOE
believes that the approach would be
consistent with a model in which some
share of consumers make optimal costminimizing decisions, and some
consumers—in the face of market
failures—do not. The use of an
assignment of gas-fired instantaneous
water heater efficiency is a
methodological approach that reflects
the full range of consumer behaviors in
this market, including consumers who
make beneficial decisions that minimize
their costs and consumers who, due to
market failures, do not or cannot make
such beneficial decisions, both of which
occur in reality. Within those
constraints, DOE then assigns product
efficiencies to consumers in the LCC,
consistent with the economics literature
discussed above, to reflect neither
purely rational nor purely irrational
decision-making.
DOE’s analytical approach reflects
some degree of market efficiency. An
alternative approach which assumes
consumer behavior is based solely on
cost outcomes, for example by ranking
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LCCs and using those to assign
efficiencies, is not evidenced by the
scientific literature surveyed above or
by any data submitted in the course of
this rulemaking. This approach depends
on the assumption, for example, that
homeowners know—as a rule—the
efficiency of their homes’ water heater
and water heating energy use, such that
they always make water heating
investments accordingly. Similarly, this
approach assumes that, faced with a
water heater failure, homeowners will
always select as a replacement the most
economically beneficial available
model. Given the work documenting
market failures in the energy efficiency
contexts described above, DOE believes
that such assumptions would bias the
outcome of the analysis to the least
favorable results. 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 assignment, some
households or buildings with large
water heating loads will be assigned
higher-efficiency water heaters in the
no-new-standards case, and some
households or buildings with
particularly low water heating loads
will be assigned baseline water
heaters—i.e., the lowest cost
investments.
Regarding the role of contractors, DOE
notes that they can exert a high degree
of influence over the type of water
heater purchased. DOE acknowledges
that they can serve as an information
mediator. However, it is possible for a
contractor to also influence the decision
toward a familiar like-for-like
replacement, for example, or perhaps
the quickest replacement option
available (e.g., based on equipment
availability). Ultimately, there are
multiple actors involved in the
decision-making process which results
in complex purchasing behavior.
As DOE has noted, there is a complex
set of behavioral factors, with
sometimes opposing effects, affecting
the water heater 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
would be very scattered with high
variability. It is for this reason DOE
utilizes a probability distribution (after
accounting for market share constraints)
to approximate these effects. This is the
standard methodological approach used
on all of DOE’s prior rules. The
methodology is not an assertion of
economic irrationality, but instead, it is
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a methodological approximation of
complex consumer behavior. The
analysis is neither necessarily biased
toward high or low energy savings. The
methodology does not preferentially
assign lower-efficiency gas-fired
instantaneous water heaters to
households in the no-new-standards
case where savings from the rule would
be greatest, nor does it preferentially
assign lower-efficiency gas-fired
instantaneous water heaters to
households in the no-new-standards
case where savings from the rule would
be smallest. However, it is worth noting
that energy use could be improperly
estimated if preferences for energy
efficiency are correlated with demand
for hot water. Some consumers were
assigned the water heaters that they
would have chosen if they had engaged
in perfect economic thinking. Others
were assigned less-efficient water
heaters even where a more-efficient
water heater 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 water heaters 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 in other
appliance markets which would give
rise to such a distribution, and has
requested more data or studies on this
topic in the May 2020 RFI, March 2022
preliminary analysis, and July 2023
NOPR. DOE is not aware of any specific
study regarding how consumer water
heaters (and their efficiency) are
purchased.
DOE acknowledges that in the LCC,
there are a handful of outcomes with
large benefits as a consequence of the
assignment methodology. Nevertheless,
the median results (instead of the
average results) from the LCC continue
to show positive LCC savings at the
adopted standard levels. However, for
gas-fired instantaneous water heaters,
DOE considered a sensitivity analysis
that eliminated these outcomes with
large benefits. Under certain
combinations of parameters, particularly
in new construction, the total installed
cost of a condensing, higher efficiency
gas-fired instantaneous water heater can
be lower than a non-condensing
baseline gas-fired instantaneous water
heater (due to the differing vent lengths
and material costs). With assignment
methodology used by DOE (and the
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constraints of the market data by
efficiency level), there are a handful of
individual gas-fired instantaneous water
heater LCC consumers assigned a
baseline non-condensing gas-fired
instantaneous water heater even though
a higher efficiency product would cost
less. This is a rare outcome and only
occurs for approximately 2.5 percent of
the sample. In the sensitivity analysis,
DOE removed these outlier consumers
from the analysis in case they may be
overly biasing the overall results. This
sensitivity scenario therefore eliminates
any instance of a consumer assigned EL
0 even though EL 2 would cost less to
install. The resulting average LCC
savings are reduced to $87 across the
rest of the entire gas-fired instantaneous
water heater consumer sample, with 15
percent of consumers experiencing a net
cost, 20 percent experiencing a net
savings, and 65 percent of consumers
not impacted by the rule. Although the
average LCC savings are reduced in this
sensitivity analysis, and slightly more
consumers are negatively impacted by
the adopted standards, the average (and
median) LCC savings remain positive
and there continue to be significant
energy and environment savings. DOE
continues to conclude that the adopted
standard level for gas-fired
instantaneous water heaters is
economically justified even in this
sensitivity analysis that eliminates
outlier results.124
In summary, DOE’s efficiency
assignment methodology produces
overall results that are consistent with
the observed distribution of efficiency
across products as seen in the
shipments data. The methodology also
results in a share of consumers being
assigned product efficiencies that
minimize their life-cycle costs in the
absence of standards. This represents
consumers making informed decisions
regarding the efficiency of their
products, without amended standards.
These consumers will be negatively
impacted by the adopted standard levels
and the analysis accounts for these
impacts. However, the methodology also
acknowledges that some consumers are
unable to minimize the life-cycle costs
of their products for a variety of reasons
discussed in the economics literature
(e.g., renters with no say in the products
purchased for their household). Even for
motivated and informed consumers, the
information and data required to
ultimately make the best product choice
that minimizes life-cycle cost is
124 These sensitivity results can be found in the
LCC Results spreadsheet, available at
www.regulations.gov/docket/EERE-2017-BT-STD0019 (docket reference).
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complex and time-consuming. As a
result, there are a subset of consumers
for whom adopting more stringent
standard levels will result in life-cycle
savings. DOE’s methodology reflects
some degree of market efficiency in
terms of consumer choice of product
efficiency, but it also reflects a variety
of observed effects that inhibit perfect
market efficiency. This is representative
of the water heater market. On the
whole, when accounting for both
consumers negatively impacted by, as
well as those benefiting from, amended
standards, DOE’s analysis demonstrates
that there are economically justified
savings.
9. 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. DOE refers to this as a ‘‘simple
PBP’’ because it does not consider
changes over time in operating cost
savings. The PBP calculation uses the
same inputs as the LCC analysis when
deriving first-year operating costs.
As noted previously, 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.
10. Accounting for Product Switching
For the preliminary analysis, DOE did
not account for product switching under
potential standards. For the July 2023
NOPR and this final rule, DOE
maintained the same approach and did
not include any product switching with
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respect to gas-fired instantaneous water
heaters in its analysis. DOE assumes
that any product switching as a result of
the adopted standards is likely to be
minimal.
As discussed in the specific examples
in the following paragraphs and in
section 9.4 of the final rule TSD, the
costs to switch to another product class
can be higher than simply purchasing a
standards-compliant product in the
same product class. When faced with
the need to replace a gas-fired
instantaneous water, a consumer can
either install a standards-compliant
product of the same product class as
they originally had, or consider a switch
to a standards-compliant product of an
alternative product class. Similarly,
when faced with the need to install a
consumer water heater in new
construction, the consumer can choose
from available standards-compliant
products across various product classes.
As part of considering which water
heater to purchase, consumers look at
the first cost, the installation cost,
expected energy savings, and the
amenities provided by the water heaters
such as the location within the
residence and the amount of hot water
the water heater could deliver.
In consumer hot water heater
replacement scenarios, shipments data
demonstrate purchasers mostly replace
their existing water heater with the
same product class when purchase price
is similar (see section 9.3.1 of chapter 9
of the TSD for details). In the case of
gas-fired instantaneous water heaters,
other product classes often cost more to
switch to and install than a standardscompliant gas-fired instantaneous water
heater (as discussed below). Even if, for
a given household, another product
class costs less, DOE expects other
factors (including logistical barriers,
lower LCC savings, shorter product
lifetimes, and other attributes
consumers value in instantaneous water
heaters) to limit product-switching.
Because of the higher cost in some
scenarios, consumer preferences, and
other limitations on product-switching,
DOE concludes it is extremely unlikely
that consumers would choose to switch
product classes specifically in response
to these amended standards. In the
absence of amended standards, some
consumers choose to switch for reasons
other than simply cost, and that is
reflected in historical market trends that
are incorporated into the analysis.
However, for the purposes of the
analysis, the issue is whether more
consumers would switch due to the
higher incremental costs of standardscompliant products. DOE concludes that
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this is very unlikely and therefore
market trends will be unaffected.
DOE compared the costs of a
consumer switching from a baseline
non-condensing gas-fired instantaneous
water heater to three potential
replacement options (standardscompliant gas-fired instantaneous water
heater, baseline gas-fired storage water
heater under the recently updated
standard, and baseline electric storage
water heater under the recently updated
standard), in both residential new
construction and replacement scenarios
for existing households. In the new
construction scenario, the analysis
shows that average total installed costs
are typically lowest for a standardscompliant gas-fired instantaneous water
heater. In the replacement scenario, the
factors considered in DOE’s analysis
show that average total installed costs
are lower in some cases and marginally
higher in others. However, switching to
an alternative option also involves
several additional costs to accommodate
the alternative water heater, including
new venting, electrical upgrades, and
potential relocation of the water heater.
Accordingly, even if, for a given
household, a potential replacement
option other than a standards-compliant
gas-fired instantaneous water heater is
cheaper to install, DOE expects that
other factors will limit consumer
incentives for product switching:
logistical barriers arising from different
physical and space requirements as
described below, the greater LCC
savings of a gas-fired instantaneous
water heater, the longer lifetime of a gasfired instantaneous water heater, and
consumer preferences for instantaneous
water heater attributes such as limitless
hot water supply. DOE notes many
consumers have already switched from
a gas-fired storage to a gas-fired
instantaneous water heater despite the
high costs of doing so (to replace all the
venting and potentially relocate the
water heater), and does not expect this
trend to reverse as a result of the
amended standards.
In the hypothetical case of a consumer
switching from a gas-fired instantaneous
water heater to an electric storage water
heater when replacing a water heater in
an existing household, there are likely
additional installation costs necessary to
add an electrical connection since this
type of water heater typically requires
high wattage. These are costs above and
beyond the normal equipment and
installation costs. In some cases, it may
be possible to install a 120-volt heat
pump storage water heater with
minimal additional installation costs,
particularly if there is a standard
electrical outlet nearby already. In most
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cases, however, a standard 240-volt
electrical storage water heater would be
installed. To do so, the consumer would
need to add a 240-volt circuit to either
an existing electrical panel or upgrade
the entire panel if there is insufficient
room for the additional amperage. The
installation of a new 240-volt circuit by
a qualified electrician will be at least
several hundred dollars. Panel upgrade
costs are significant and can be
approximately $750–$2,000 to upgrade
to a 200-amp electrical panel.125 Older
homes and homes with gas-fired space
heating (e.g., homes with gas furnaces)
are more likely to need an electrical
panel upgrade in order to install an
electric storage water heater, given the
relatively modest electrical needs of the
home at the time of construction. The
average total installed cost of a
replacement standards-compliant
electric storage water heater is
$1,913,126 therefore the average total
costs to switch to an electric storage
water heater, after accounting for
electrical upgrade costs, easily exceed
the average replacement cost of a
standards-compliant gas-fired
instantaneous water heater ($2,499).
Given the significant additional
installation costs for nearly all homes
potentially switching to an electric
water heater, DOE estimates that very
few consumers would switch from gasfired instantaneous water heaters to
electric water heaters as a result of an
energy conservation standard, especially
at the adopted standard at TSL 2. When
including the above additional costs, the
average total installed cost to switch to
an electric water heater is higher than
the standards-compliant gas-fired
instantaneous water heater.
Instantaneous water heaters also
provide differing utility to consumers
compared to storage water waters (e.g.,
limitless hot water) and thus these
products are not perfect substitutes.
Additionally, storage water heaters
require more space than a gas-fired
instantaneous water heater and may
require relocating the water heater,
incurring even greater costs. Switching
from a gas-fired instantaneous water
heater to an electrical water heater is
especially unlikely in the case of an
emergency replacement where time is a
critical factor. When a water heater fails,
125 For
example, see: www.homeadvisor.com/
cost/electrical/upgrade-an-electrical-panel/
#upgrade (last accessed August 29, 2024).
126 These results are available in the May 2024
final rule LCC Results spreadsheet (EERE–2017–
BT–STD–0019–1424), where LCC results are
available separately for replacements and new
construction. Available at: www.regulations.gov/
document/EERE-2017-BT-STD-0019-1424 (last
accessed: Aug. 29, 2024).
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consumers typically have limited time
to make a decision on what new water
heater to purchase and rely upon
replacing the water heater with one that
is similar to the one that failed.
Consumers are unlikely to invest in
switching fuels to a water heater that
utilizes a different fuel source in the
emergency replacement scenario. See
section 9.4 of the final rule TSD for a
summary comparison of costs.
In the hypothetical case of a consumer
switching from a gas-fired instantaneous
water heater to a gas-fired storage water
heater when replacing a water heater in
an existing household, there are
additional installation costs necessary
as well. The vast majority of gas-fired
storage water heaters (‘‘GSWHs’’) utilize
non-condensing technology that utilizes
Category I type B metal vent material,
whereas gas-fired instantaneous water
heaters require Category III or Category
IV venting material, depending on the
existing efficiency level. Regarding
existing non-condensing gas-fired
instantaneous water heaters, A.O. Smith
and Rinnai noted that these utilize
Category III venting (A.O. Smith, No.
1182 at p. 15; Rinnai, No. 1443 at p. 12).
Condensing gas-fired instantaneous
water heaters require Category IV
venting. Switching from a gas-fired
instantaneous water heater to a baseline
GSWH would therefore require
replacing the venting regardless of the
existing efficiency of the gas-fired
instantaneous water heater. Replacing
the venting system would result in
significant additional installation costs
if a consumer opted to switch to a
GSWH. The most comparable cost for
this scenario is the average cost to
install a GSWH in new construction
($2,095),127 which requires all-new
venting, however this estimate does not
include removal and disposal costs for
the old equipment or potentially
relocating the water heater. GSWHs and
gas-fired instantaneous water heaters
have very different physical dimensions
and space requirements, with GSWHs
being significantly larger water heaters.
Switching from a gas-fired
instantaneous water heater to a GSWH
may not always be possible in the
available space and may require even
larger costs to accommodate a GSWH
(e.g., relocating the water heater in the
home). This may be particularly acute in
smaller households where space is at a
premium (e.g., townhomes). All of these
127 These results are available in the May 2024
final rule LCC Results spreadsheet (EERE–2017–
BT–STD–0019–1424), where LCC results are
available separately for replacements and new
construction. Available at: www.regulations.gov/
document/EERE-2017-BT-STD-0019-1424 (last
accessed: Aug. 29, 2024).
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additional costs can easily exceed many
hundreds of dollars, if not higher,
depending on need to relocate the water
heater.128 Therefore, the total cost to
switch to a GSWH can exceed the cost
to simply replace with a standardscompliant gas-fired instantaneous water
heater ($2,499). This situation is the
same as exists today, prior to the
amendment of standards for either gasfired instantaneous water heaters or for
GSWHs. The cost differential is very
similar between the two and the market
share of instantaneous water heaters is
growing relative to storage tank water
heaters, not the reverse. See section 9.4
of the final rule TSD for a summary
comparison of costs.
Furthermore, the average lifetime of a
gas-fired instantaneous water heater is
approximately 20 years, compared to
approximately 14.5 years for GSWHs,
which results in a total annualized cost
of ownership for instantaneous water
heaters that is even lower compared to
GSWHs. Instantaneous water heaters
also provide differing utility to
consumers (e.g., limitless hot water) and
thus these products are not perfect
substitutes. These attributes are clearly
valued by consumers, given the recent
increasing market share of gas-fired
instantaneous water heaters. Consumers
that have already paid the costs to
switch from an existing GSWH to a gasfired instantaneous water heater in the
absence of any amended standard are
highly unlikely to switch back to a
GSWH due to amended standards and
pay all of those extra costs again.
As a result of all the cost and other
considerations above, DOE estimates
that it is highly unlikely that consumers
would switch from gas-fired
instantaneous water heaters to GSWHs
when needing to replace their existing
water heater, specifically as a result of
the incremental costs of an energy
conservation standard, particularly in
the case of an emergency replacement.
Even if some small subset of existing
gas-fired instantaneous water heater
consumers opt to switch to GSWHs
instead of replacing their gas-fired
instantaneous water heaters with a more
efficient unit as a result of the adopted
standards, despite the additional costs
in doing so, those consumers would still
need to switch to a more efficient
128 As an example of such costs, table 8D.5.66 in
the final rule TSD estimates permitting, removal,
and disposal costs of $260. Section 8D.3.5.3 (3) of
the May 2024 final rule TSD estimates that
relocation costs in the case of electric storage water
heaters could range up to $2,000. Relocating
GSWHs would incur similar costs to accommodate
all-new water and gas lines in a relocation.
Available at: www.regulations.gov/document/EERE2017-BT-STD-0019-1416 (last accessed: Aug. 29,
2024).
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GSWH at the newly adopted standard
level. 89 FR 37778. While this would
result in a marginal increase in energy
consumption and life-cycle costs for
these consumers, those increases are
smaller than if the consumers switched
to a previous baseline GSWH.
Furthermore, these marginal increases
would be outweighed by the energy
savings and life cycle savings of the
remaining consumers of gas-fired
instantaneous water heaters. For
example, even if 10 percent of gas-fired
instantaneous water heater consumers
elected to switch to GSWHs despite the
costs, the percentage of consumers
experiencing a net cost would increase
by at most 10 percent and the average
LCC savings for gas-fired instantaneous
water heater consumers would still be
positive, which would not change the
conclusion of economic justification. It
would likely take approximately half of
the GIWH purchasers to choose a gas
storage water heater instead of a GIWH
in order for the economic justification to
come into question, which is not a
plausible scenario given the facts and
analysis concerning the costs associated
with switching as presented above.
In new construction, the average total
installed costs are different because new
venting is always required if installed
indoors, however the location of the
water heater can be optimized to limit
those venting costs for gas-fired
instantaneous water heaters. Water
heaters can also be installed outdoors in
some cases. In today’s market, the total
installed cost of a gas-fired
instantaneous water heater in new
construction is typically less than a
GSWH, a factor in the increasing market
share of gas-fired instantaneous water
heaters seen in recent historical
shipments (as described in section IV.G)
and projected in the no-new-standards
case. With newly adopted standards for
both GSWHs and gas-fired
instantaneous water heaters, the average
total installed cost (including all
venting) of a minimally standardscompliant GSWH in residential new
construction is $2,095,129 which is
similar to and slightly higher than a
minimally compliant gas-fired
instantaneous water heater in
residential new construction at the
amended standard level ($2,070). The
129 These results are available in the May 2024
final rule LCC Results spreadsheet (EERE–2017–
BT–STD–0019–1424), where LCC results are
available separately for replacements and new
construction. The total installed costs for baseline
models (reflecting the current minimally compliant
models) are similarly less for gas-fired
instantaneous water heaters compared to GSWHs.
Available at: www.regulations.gov/document/EERE2017-BT-STD-0019-1424 (last accessed: Aug. 29,
2024).
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adopted standard levels for both GSWHs
and gas-fired instantaneous water
heaters therefore preserve this market
dynamic and gas-fired instantaneous
water heaters will continue to have total
installed costs that are similar to or
lower on average in new construction
compared to GSWHs. Furthermore, gasfired instantaneous water heaters have
longer lifetimes (representing a more
cost-effective investment) and
additional features (such as a smaller
footprint and endless hot water supply)
that will continue to be attractive to
some builders and consumers. As a
result, DOE estimates that the existing
trend of increasing gas-fired
instantaneous water heater market share
in new construction will continue.
In existing installations of GSWHs,
there are significant costs to switch from
a GSWH to a gas-fired instantaneous
water heater, since new venting is
required. In today’s market, however,
some consumers are electing to make
that switch despite the extra costs,
because instantaneous water heaters
have certain attributes that consumers
value (e.g., smaller footprint, endless
supply of hot water). Even with the
adopted standard for gas-fired
instantaneous water heaters, the relative
incremental cost will be similar because
DOE also recently adopted a revised
standard for GSWH in a May 2024 final
rule, so costs for both product classes
will increase. 89 FR 37778. For
example, the average total installed cost
of a pre-standard baseline GSWH in a
residential replacement installation was
estimated to be $1,376 in the May 2024
final rule, whereas the average total
installed cost of a baseline gas-fired
instantaneous water heater in a
residential replacement installation is
estimated to be $2,282.130 Therefore,
switching to baseline gas-fired
instantaneous water heaters in existing
GSWH installations in today’s market
already represents a significant
additional cost, estimated to be $906 on
average, nearly twice the cost of simply
replacing a GSWH with another GSWH.
Despite this extra cost, the market share
of gas-fired instantaneous water heaters
in replacement installations is
increasing. With newly adopted
standards for both product classes, the
average installed costs in residential
replacement installations for minimally
compliant products are estimated to be
$1,523 and $2,499 for GSWHs and gas130 Separate LCC results for residential vs.
commercial buildings and replacement installations
vs. new construction are available in the LCC
results spreadsheets. The May 2024 final rule LCC
results spreadsheet is available at:
www.regulations.gov/document/EERE-2017-BTSTD-0019-1424 (last accessed Sept. 17, 2024).
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fired instantaneous water heaters,
respectively, with a difference of $976.
Therefore, there is still a significant
additional cost to switch after the
adoption of new standards, just as in
today’s market. However, instantaneous
water heaters will continue to have the
same attributes and features that some
consumers prefer and those consumers
will continue to make the switch when
replacing their existing storage water
heaters, despite the costs of doing so.
The adopted standard level for gas-fired
instantaneous water heaters is unlikely
to significantly disrupt this existing
market dynamic because there was
already a high cost to switch from
existing GSWHs to gas-fired
instantaneous water heaters.
Even if a small subset of existing
GSWH consumers, who would have
switched to gas-fired instantaneous
water heaters in the no-new-standards
case, instead remain with GSWHs as a
result of the adopted standards, the
adopted rule for gas-fired instantaneous
water heaters will still result in
significant energy savings even though
the overall energy savings might be
incrementally lower than estimated in
this final rule analysis. In this
hypothetical scenario, even if the
market growth of gas-fired
instantaneous water heaters slows down
and more consumers remain with
GSWHs, there are still energy and LCC
savings for gas-fired instantaneous water
heaters, the rule as a whole saves a
significant amount of energy, and
therefore the conclusion of economic
justification remains unchanged.
DOE received comments from
stakeholders who were concerned that,
if DOE were to adopt more stringent
standards for gas-fired instantaneous
water heaters compared to the standards
adopted for gas-fired storage water
heaters, consumers would opt for gasfired storage water heaters instead of
gas-fired instantaneous water heaters,
which could have negative impacts to
the outcome of this rulemaking.
TPPF stated that consumers recognize
the differences between condensing and
non-condensing products, which leads
consumers to purchase products at
different price points. Because
condensing products are more
expensive, TPPF stated, consumers will
instead opt for non-condensing gas-fired
storage water heaters, and these
economic tradeoffs illustrate that
condensing and non-condensing water
heaters are not interchangeable. (TPPF,
No. 1153 at pp. 3–4)
Rinnai stated their expectation that
most would-be consumers of noncondensing tankless water heaters
would instead purchase less efficient
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gas-fired storage water heaters if the
proposed standards are finalized. Rinnai
asserted that, because DOE does not
adequately account for such product
switching, DOE’s analysis overstates
LCC and energy savings for gas-fired
instantaneous water heaters. Rinnai
estimated that at least 80 percent of
their current non-condensing gas-fired
instantaneous water heater sales would
switch to non-condensing gas-fired
storage water heaters as a result of the
proposed rule. Rinnai added that based
on their calculations, if 31 percent of the
market switched, there would be a net
loss of 0.4 percent in energy savings and
0.04 percent in emissions reductions as
compared to the manufacturer’s analysis
of a no-new-standards case scenario
over the first 20 years the proposed rule
goes into effect. (Rinnai, No. 1186 at pp.
2–18)
The Attorney General of GA
commented that condensing and noncondensing gas-fired tankless water
heaters are highly efficient and reduce
standby heat loss as compared to
traditional storage-type units. The
Attorney General of GA commented that
both types (condensing and noncondensing) of tankless water heaters
require less energy and have higher
lifespans than units with tanks, and
both types currently satisfy DOE’s
minimum efficiency requirement.
(Attorney General of GA, No. 1026 at p.
1) In response to the July 2024 NODA,
Commenters from the U.S. House of
Representatives claimed that the
‘‘unique design’’ of non-condensing gasfired instantaneous water heaters yields
a longer appliance life-cycle by heating
water only on demand, limiting
exposure to corrosive elements. (U.S.
House of Representatives, No. 1445 at p.
1)
DOE agrees with the commenters that
instantaneous water heaters are different
from storage water heaters because they
heat water on demand; however, this
ability is not unique to non-condensing
gas-fired products. ‘‘Tankless’’ models
are instantaneous water heaters with
very little storage volume. They are
equipped with sensors that activate the
heating process based on water flow to
produce hot water on demand. Endless
hot water is a feature that is valued by
some consumers, as indicated by the
recent increasing market share of gasfired instantaneous water heaters.
Furthermore, DOE’s analysis shows that
gas-fired instantaneous water heaters
can have longer lifetimes than gas-fired
storage water heaters. The estimated
average lifetime for a gas-fired
instantaneous water heater is about 20
years, whereas gas-fired storage water
heaters operate for about 14 to 15 years.
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This is one reason why there has been
a historical trend of increasing
shipments of gas-fired instantaneous
water heaters—both non-condensing
and condensing—and why it is
reasonable to expect consumers to
continue opting for gas-fired
instantaneous water heaters in a
scenario where standards are set at a
condensing efficiency level.
Rinnai noted that the efficiency levels
for gas-fired instantaneous water heaters
proposed in the July 2023 NOPR
represent a much larger increase from
existing standards than the proposed
efficiency levels for gas-fired storage
water heaters. (Rinnai, No. 1186 at pp.
6–7) Commenters from the U.S. House
of Representatives expressed concern
that the efficiency level for the proposed
standards for gas-fired storage water
heaters are less stringent than the
efficiency level proposed for gas
tankless water heaters. Commenters
from the U.S. House of Representatives
asserted that this efficiency difference
would restrict consumer choice and
increase prices. (U.S. House of
Representatives, No. 1025 at pp. 1–2)
Commenters from the U.S. House of
Representatives reiterated these
concerns in response to the July 2024
NODA, claiming that the proposed
standards would eliminate noncondensing gas-fired instantaneous
water heaters from the market. The U.S.
House of Representatives stated that the
proposed standards would leave
condensing gas-fired instantaneous
water heaters, which are significantly
more expensive, and gas-fired storage
water heaters, which have significantly
higher emissions profiles, on the
market. (U.S. House of Representatives,
No. 1445 at p. 1) Commenters from the
U.S. House of Representatives claimed
that the proposed standards would harm
consumers who rely on the size, cost,
and flexibility of gas-fired instantaneous
water heaters. (U.S. House of
Representatives, No. 1445 at p. 1)
CNGC urged DOE to reconsider the
implications on both consumers and
manufacturers, stating that if efficiency
standards exceed 91 percent, it becomes
technologically infeasible to produce
non-condensing gas-fired tankless water
heaters at their current affordable price,
leaving consumers to choose lessefficient storage water heaters and
undermine environmental goals. (CNGC,
No. 648 at p. 1) CHPK and Huntsville
Utilities also stated that the unattainable
energy efficiency requirements for gasfired instantaneous water heaters
utilizing non-condensing technology
would discourage consumers from
investing in tankless models, and
instead they would purchase less-
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105241
efficient water heaters. (CHPK, No. 1008
at pp. 1–2; Huntsville Utilities, No. 1176
at p. 1) The Attorney General of GA
commented that the proposed standards
are feasible only for condensing units
and would make tankless water heaters
unaffordable for many consumers. The
Attorney General of GA added that the
proposed rulemaking will effectively
eliminate non-condensing gas-fired
tankless water heaters and leave
consumers with a choice between lessefficient storage water heaters, or more
expensive condensing tankless water
heaters, and suggested that if consumers
are incentivized to purchase inefficient
storage water heaters, the rule will
violate DOE’s requirement that any new
or amended standards must result in a
significant conservation of energy.
(Attorney General of GA, No. 1026 at
pp. 1–2)
DOE recognizes that total installed
cost is a significant factor in consumer
decision-making when purchasing a
new water heater. In this final rule, DOE
has incorporated specific feedback from
stakeholders to improve its life-cycle
cost analysis with respect to installation
cost estimates. As discussed above, DOE
concludes that, based on costs,
consumers who already have gas-fired
instantaneous water heaters would not
switch to a gas-fired storage water heater
when making a replacement. Secondly,
in new construction, installing a gasfired instantaneous water heater is still
less expensive on average than
installing a gas-fired storage water
heater with the adoption of amended
standards. Thirdly, consumers
switching from gas-fired storage water
heaters to gas-fired instantaneous water
heaters in the no-new-standards case
will require a change to the venting
configuration regardless of whether the
gas-fired instantaneous water heater is
non-condensing or condensing. The
choice to switch from a storage water
heater to an instantaneous water heater
in the no-new-standards case is
influenced by other factors beyond just
cost. Based on its assessments of total
installed costs in the life-cycle cost
analysis, DOE has determined that it is
unlikely for consumers to stop
switching from gas-fired storage water
heaters to gas-fired instantaneous water
heaters only as a result of the adopted
rule. Even if that premise was true,
where a fraction of consumers in the
amended standards case, as compared to
the no-new-standards case, opted to stay
with storage water heaters instead of
switching to instantaneous water
heaters, DOE would still find economic
justification with the adopted rule. A
majority of consumers would have to
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forgo adopting instantaneous water
heaters in the standards case for the rule
to result in an increase in energy
consumption, a scenario DOE has
determined to not be remotely plausible
given the discussion of total installed
costs above.
The Attorney General of TN
commented that the proposed
rulemaking does not consider the loss of
consumer utility that could occur from
the implementation of these standards,
particularly consumers’ needs for
different types of water heaters (i.e.,
condensing versus non-condensing)
depending on the configuration of their
home. The Attorney General of TN
commented that by reducing market
availability for non-condensing, gasfired, instantaneous water heaters in
favor of less affordable electric-powered
water heaters, the proposed rulemaking
would lead consumers to purchase lessefficient non-condensing gas-storage
water heaters. (Attorney General of TN,
No. 1149 at p. 3)
In the July 2023 NOPR, DOE
explained why non-condensing versus
condensing gas-fired appliances do not
constitute a consumer utility for which
the Department can justify separate
standards. 88 FR 49058, 49079. This
determination is discussed further in
section IV.A.1 of this document.
NPGA, APGA, AGA, and Rinnai
stated that DOE misunderstands the
consumer water heater market due to its
claim that consumers do not make
decisions based on rational economic
terms, but conceded that many water
heater decisions are made in
emergencies where price and immediate
availability are the strongest factors in
decision-making. According to NPGA,
APGA, AGA, and Rinnai, DOE rejects
the idea that consumers would switch
products across various product classes
and does not evaluate associated market
shifts, and by failing to understand that
by limiting or eliminating the market for
non-condensing instantaneous water
heaters, consumers may choose to
switch to a non-condensing gas-fired
storage water heaters, resulting in a
lower UEF and enhanced emissions
from their water heater and has not
accounted for installation costs of this
potential product class switch. (NPGA,
APGA, AGA, and Rinnai, No. 441 at p.
3)
In response, DOE notes that its
assessment is based on the comparison
of total installed costs needed to switch
from product class to product class, as
noted above. The total costs to switch
product classes in response to an
amended standard are higher than
simply purchasing a compliant product
in the same product class. Therefore,
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DOE estimates no switching in response
to an amended standard as a result of
incremental costs. DOE does not reject
the idea that this may happen in the nonew-standards case for reasons other
than just total cost. Indeed, the
shipments projection accounts for
recent market trends that show growing
consumer demand for gas-fired
instantaneous water heaters compared
to GSWHs. Consumers are valuing
instantaneous water heater features
beyond just cost. DOE estimates that
this trend will not substantively change
in the standards case, given that cost
comparison between GSWHs and gasfired instantaneous water heaters is
similar, whether at baseline ELs or at
the adopted ELs.
Commenting on the July 2023 NOPR,
Ecotemp commented that product
switching, from tankless to tank water
heaters is likely to happen as a result of
this rule and DOE not modeling that
possibility is missing a huge consumer
base doing exactly that. (Ecotemp, No.
1092 at p. 2) NMHC and NAA stated
that DOE fails to properly evaluate the
impacts of market unavailability that
forces product switching with the
example of the elimination of noncondensing tankless water heaters from
the proposed standard potentially
requiring a non-condensing gas storage
water heater over a traditional
replacement of non-condensing tankless
water heaters, and the 25 percent drop
in efficiency associated with these
products. NMHC and NAA stated that
this rule will result in greater use of
electric water heaters in replacement of
existing gas water heaters which will
require more interconnectivity, changes
to power systems, and upgrades to
electrical infrastructure. (NMHC and
NAA, No. 996 at p. 5)
In response, DOE notes that existing
market trends are incorporated into the
shipments analysis and projection. To
the extent that some product classes are
becoming more prevalent in certain
types of buildings, that is reflected in
the no-new-standards case shipments
projection. With respect to switching
from a tankless to storage tank water
heater, as summarized above, DOE
determines that minimal switching
would happen to either a gas-fired
storage or electric storage water heater.
As DOE has discussed above, the costs
to switch product classes in response to
amended standards are larger than
simply purchasing standards-compliant
products within the same product
classes. Therefore, DOE estimates that
no additional switching will occur
beyond existing market trends.
Atmos Energy argued that because the
cost to fuel switch is high, DOE fails to
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‘‘acknowledge the equally prohibitive
costs that will be associated with high
efficiency gas appliances as a result of
this proposal and the lack of gas-fired
replacements in the market.’’ (Atmos
Energy, No. 1183 at p. 6). Rinnai argued
that DOE has failed to take into account
substitution effects in replacement
markets, especially in regards to noncondensing gas-fired instantaneous
water heater. Rinnai argued that in
particular the lack of consideration of
non-condensing gas-fired instantaneous
water heater to gas storage water heater
(due to lack of condensing gas-fired
instantaneous water heater option) is
not being represented. (Rinnai, No. 1186
at pp. 30–31) As discussed above, DOE
estimates that switching away from gasfired instantaneous water heaters as a
result of the rule is likely to be
negligible, due to the high installation
costs of such switching, (costs that are
acknowledged to be high by Atmos
Energy in their comment). DOE finds no
evidence that there would be a lack of
condensing gas-fired instantaneous
water heater models available in the
standards case for replacements. Many
such models for gas-fired instantaneous
water heaters are currently available on
the market by multiple manufacturers.
See chapter 8 and appendix 8D of the
final rule TSD for detailed description
of the installation costs.
Rinnai stated that the July 2024
NODA declares that no consumers
would switch between product
categories, including to gas storage
water heaters, an assumption that
Rinnai stated would contradict historic
market data and evidence of consumer
purchasing behavior. According to
Rinnai, gas tankless water heaters are
taking market share from gas tank sales,
with GSWH sales declining at the same
time gas-fired instantaneous water
heater sales have increased. Rinnai
speculated that this may be due to
consumer purchasing decisions due to
the increased cost to purchase and
install gas-fired instantaneous water
heater. Rinnai also note that by
removing non-condensing gas-fired
instantaneous water heater options,
consumers may be less inclined to
replace an existing GWSH with an even
more expensive condensing gas-fired
instantaneous water heater unit. Rinnai
stated that DOE’s position that
consumers purchasing gas tankless
water heaters will never consider
buying a gas tank in contrary to
observable market behavior. (Rinnai,
No. 1443, at p. 2 and pp. 5–8)
In contrast, the Joint Advocates
supported DOE’s conclusion that the
proposed standards for gas-fired
instantaneous water heaters would not
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result in any significant product
switching among consumers. The Joint
Advocates commented that, contrary to
one manufacturer’s assumption, such an
outcome is highly unlikely for the
following reasons: (1) gas-fired
instantaneous water heaters are already
significantly more expensive than gas
storage water heaters and that the total
installed cost of a gas-fired
instantaneous water heater that just
meets the current standard is 41 percent
higher than that of a gas storage water
heater; (2) the cost differential between
gas storage and gas-fired instantaneous
water heaters would remain essentially
unchanged at the proposed standard
level (i.e., the estimated total installed
cost of gas-fired instantaneous water
heaters would remain at 41 percent
higher than gas storage water heaters);
(3) consumers with an existing gas-fired
instantaneous water heater would be
unlikely to replace it with a gas storage
water heater due to space and venting
issues; and (4) DOE data show that 70
percent of current gas-fired
instantaneous water heater sales are
already at condensing levels and more
than 60 percent of current sales meet EL
2. For these reasons, the Joint Advocates
supported DOE’s determination that
additional consumer product switching
is unlikely as a result of amended
standards for gas-fired instantaneous
water heaters. (Joint Advocates, No.
1444 at pp. 2–3)
A.O. Smith agreed with DOE’s
conclusion that condensing standards
for gas-instantaneous water heaters
would not shift shipments away from
tankless products due to significant cost
for changing venting system. The
commenter also noted that
approximately 65 percent of shipments
are already condensing products and it
suggests that consumers are already
voluntarily opting for condensing
tankless products despite their higher
initial costs over non-condensing
tankless products. (A.O. Smith, No.
1440 at p. 6)
In response, DOE acknowledges that
historic and present-day market trends
show an increasing demand for gas-fired
instantaneous water heaters over
GSWHs. This overall trend is
incorporated into the shipments
analysis and shipment projections, as
discussed in section IV.G of this
document. However, this market
dynamic is occurring in the absence of
any new energy conservation standard
for gas-fired instantaneous water
heaters. In new construction,
instantaneous water heaters are
becoming popular in large part because
the total installed cost of a gas-fired
instantaneous water heater is, on
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average, similar to or less than a GSWH,
since new venting is required in either
case and the venting length can be very
short for gas-fired instantaneous water
heaters. Even with the adopted standard
level, gas-fired instantaneous water
heaters will continue to be similar to or
less expensive to install in new
construction, on average, and therefore
the standard is highly unlikely to cause
significant product switching to
GSWHs. Furthermore, instantaneous
water heaters also provide differing
utility to consumers (e.g., limitless hot
water, smaller footprint) compared to
storage water heaters. These attributes
are clearly valued by consumers, given
the recent increasing market share of
gas-fired instantaneous water heaters.
11. Analytical Results
Rinnai stated that the Department has
proposed new minimum efficiency
standards for twelve separate categories
of consumer gas-fired instantaneous
water heaters but the Department
provided only one life-cycle-cost
analysis for them. (Rinnai, No. 1186 at
p. 34)
In response, DOE clarifies that for two
types of gas-fired instantaneous water
heaters (and each of their four their
associated draw patterns), DOE is only
updating the rating metric to the UEF
descriptor and the adopted standards do
not constitute an increase in stringency.
This applies to 8 of the 12 categories the
commenter identified. For gas-fired
instantaneous water heaters with less
than 2 gallons of effective storage
volume and rated inputs greater than
50,000 Btu/h, DOE conducted an
analysis, as presented in this final rule,
to determine whether amended UEF
standards would be appropriate and
justified. Two of the four draw patterns
have no products and no market share
in today’s market and thus there is no
analysis to conduct. For the remaining
two draw patterns (medium and high
draw), they are fully analyzed as part of
DOE’s rulemaking analysis and
incorporated into the LCC consumer
sample. DOE assigned a draw pattern to
the sampled household or building
based on the market split of two draw
patterns. The analytical results are a
weighted average representing the
economic impact to the market as a
whole combing the two draw patterns.
Additionally, the published analytical
results spreadsheet contains the
breakdown of the results by draw
patterns.
Commenting on the July 2023 NOPR,
Rinnai argued that the density
distribution of its LCC analysis for gasfired instantaneous water heaters shows
heavily skewed distributions which can
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105243
be attributed to high impact outliers.
Rinnai argued that because the mean is
being used to determine feasibility, it
moves the LCC results away from its
central tendencies and typical savings/
costs for consumers. Rinnai argued that
DOE should do a sensitivity analysis on
gas-fired instantaneous water heater to
defend the impact of the proposal.
(Rinnai, No. 1186 at p. 21) Rinnai
argued that small changes in estimates
of installation costs or maintenance
costs for condensing gas-fired
instantaneous water heaters could result
in negative average LCC savings. Rinnai
argued this sensitivity warrants not
enacting the standard for gas-fired
instantaneous water heaters. (Rinnai,
No. 1186 at p. 22)
Rinnai noted that the LCC probability
distribution contains a long tail with
many consumers experiencing higher
LCC values than the average value.
Rinnai suggested that DOE should
produce results using ‘‘different
averaging’’ to better understand the
impact of different data populations.
Rinnai stated that DOE should consider
the distribution in consumer trade-offs
between upfront costs and long-term
savings, as well as the overall costs that
many consumers will face across
different scenarios, to provide more
accurate insights on consumer behavior,
purchasing decisions, and impacts on
cost savings and energy savings.
(Rinnai, No. 1443 at pp. 20–21) In
response, DOE clarifies that it 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 and are representative of the
real world. 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 (e.g.,
high/low economic growth and energy
price scenarios, alternative price trend
scenarios, alternative mean lifetime
scenarios). 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. Furthermore, DOE provides
a range of statistics in the LCC
spreadsheet, including median values
and values at various percentiles for
many intermediate variables, as well as
the full data output table for all 10,000
samples. For example, the 25th and 75th
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percentiles of average LCC savings for
all ELs are available in the LCC
spreadsheet. DOE also provides a
distribution of impacts, including
consumers with a net benefit, net cost,
and not impacted by the rule in the LCC
spreadsheet and in chapter 8 of the final
rule TSD.
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.
The installation and maintenance cost
estimates are the result of a significant
research and cite multiple sources, as
discussed at length in section IV.F.2 and
appendix 8D of the final rule TSD. DOE
has incorporated feedback from various
stakeholders and revised those costs for
this final rule. There is no basis to
expect installation costs are under- or
overestimated and therefore creating
sensitivity scenarios based on
hypothetical adjustments to those costs
is unwarranted.
As discussed in section IV.F.8, DOE
also conducted a sensitivity analysis for
gas-fired instantaneous water heaters in
which certain positive outlier outcomes
were replaced. While the average (and
median) LCC savings are reduced in this
sensitivity analysis, they are still
positive.131
DOE provides stakeholders with the
opportunity to provide accurate data to
represent a breadth of operating
conditions, prices, and use cases. In the
absence of stakeholder provided
information, DOE makes a good-faith
effort to collect reliable data from
various sources and summarize
assumptions on the missing parameters.
The Monte Carlo simulation and its
large number of samples (10,000 for
each product class) ensures that the
results converge to a representative
average. For some inputs whose
uncertainty is not well characterized,
such as future equipment prices or
economic growth conditions, DOE
performed a series of sensitivity
analyses to ensure that the results of the
analysis are not strongly dependent on
those inputs and that the conclusions of
the analysis remain the same. As a
131 This sensitivity result can be found in the LCC
Results spreadsheet, available at XXXX.
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result, DOE’s conclusion of economic
justification is robust to a broad range of
sensitivity scenarios which capture the
uncertainty inherent in economic
projections.
Rinnai claimed that the LCC savings
at the EL 2 in the July 2024 NODA are
minimal (approximately $5 a year),
while imposing substantial costs on a
large percentage of consumers. Rinnai
claimed that the July 2024 NODA
results are based on flawed and
inaccurate data and assumptions and
Rinnai’s analysis shows the LCC savings
would be negative at the proposed EL if
DOE adjusted venting installation costs.
(Rinnai, No. 1443 at pp.10, 18–19 and
25) In response, DOE has individually
responded to Rinnai’s specific
comments to the venting installation
cost methodology in section IV.F.2. DOE
reviewed the analytical method for this
final rule and based on the results the
LCC savings are still in support of the
proposed efficiency level.
G. Shipments Analysis
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.132 The
shipments model takes an accounting
approach, tracking market shares of
products 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 inservice 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 consumer gas-fired
instantaneous water heater shipments
by projecting shipments in three market
segments: (1) replacement of existing
consumer gas-fired instantaneous water
heaters; (2) new housing; and (3) new
owners in buildings that did not
previously have a consumer gas-fired
instantaneous water heater or existing
gas-fired instantaneous water heater
owners that are adding an additional
consumer gas-fired instantaneous water
heater.133
132 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.
133 The new owners primarily consist of
households that add or switch to a different water
heater option during a major remodel. Because DOE
calculates new owners as the residual between its
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To project gas-fired instantaneous
water heater replacement shipments,
DOE developed retirement functions
from gas-fired instantaneous water
heater 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 lifetime estimates. Annual
historical shipments sources are: (1)
AHRI data submittals; 134 (2) the BRG
Building Solutions 2023 report; 135 (3)
ENERGY STAR unit shipments data; 136
and (4) the 2010 Heating Products Final
Rule. 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 used the AEO2023
housing starts and commercial building
floor space projections to estimate
future numbers of new homes and
commercial building floor space. DOE
then used data from U.S. Census
Characteristics of New Housing,137 138
Home Innovation Research Labs Annual
Builder Practices Survey,139 RECS 2020,
AHS 2021, and CBECS 2018 to estimate
new construction water heater
saturations for consumer gas-fired
instantaneous water heaters.140
DOE estimated shipments to the new
owners’ market based on residual
shipments from the calculated
replacement and new construction
shipments compared to historical
shipments in the last 5 years (2018–
shipments model compared to historical shipments,
new owners also include shipments that
historically switch away from water heater product
class to another.
134 AHRI. Confidential Instantaneous Gas-fired
Water Heater Shipments Data from 2004–2007 to
LBNL. March 3, 2008.
135 BRG Building Solutions. The North American
Heating & Cooling Product Markets (2023 Edition).
2023.
136 ENERGY STAR. Unit Shipments data 2010–
2021. multiple reports. Available at
www.energystar.gov/partner_resources/products_
partner_resources/brand_owner_resources/unit_
shipment_data (last accessed August 29, 2024).
137 U.S. Census. Characteristics of New Housing
from 1999–2022. Available at www.census.gov/
construction/chars/ (last accessed August 29, 2024).
138 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 29, 2024).
139 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 29,
2024).
140 Note that DOE does not project housing
regionally. New housing is therefore assumed to
grow in the same regional distribution as the
current data would suggest.
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2023 for this final rule). DOE compared
this with data from the Decision
Analysts’ 2002 to 2022 American Home
Comfort Study 141 and 2023 BRG data,
which showed similar historical
fractions of new owners. DOE used the
last 10 years (2013–2022) of modeled
new owner data to project trend into
future years from 2023–2059. 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).
For the preliminary analysis and July
2023 NOPR, assumptions regarding
future policies encouraging
electrification of households and
electric water heating were speculative
at that time, so such policies were not
incorporated into the shipments
projection.
DOE acknowledges, however, that
ongoing electrification policies at the
Federal, State, and local levels are likely
to encourage installation of electric
water heaters in new homes and
adoption of electric water heaters in
homes that currently use gas-fired water
heaters. For example, the Inflation
Reduction Act includes incentives for
heat pump water heaters and electrical
panel upgrades. However, there are
many uncertainties about the timing and
impact of these policies that make it
difficult to fully account for their likely
impact on gas and electric water heater
market shares in the time frame for this
analysis (i.e., 2030 through 2059).
Nonetheless, DOE’s shipments
projections 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 in gas-fired instantaneous
water heater shipments in the no-newstandards case in 2030 compared to the
preliminary analysis. DOE
acknowledges that electrification
policies may result in a larger decrease
in shipments of gas-fired instantaneous
water heaters 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 adopted rule. For example, if
incentives and rebates shifted 5 percent
of shipments in the no-new amended
standards case from gas-fired
instantaneous water heaters to heat
pump electric storage water heaters,
then the energy savings estimated for
gas-fired instantaneous water heaters in
this adopted rule would decline by
approximately 5 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. DOE notes that the economic
justification for the adopted rule would
not change if DOE included the impact
of incentives and rebates in the no-newstandards case, even if the absolute
magnitude of the savings were to
decline.
DOE does not estimate that a
significant market shift away from
instantaneous water heaters would
occur, given that the relative
comparison of prices between gas-fired
instantaneous and storage water heaters
will remain similar. See section IV.F.10
for a detailed discussion.
1. Impact of Repair vs. Replace
DOE estimated a fraction of consumer
gas-fired instantaneous water heater
replacement installations that choose to
repair their equipment, rather than
replace their equipment in the new
standards case. The approach captures
not only a decrease in consumer gasfired instantaneous water heater
replacement shipments, but also the
energy use from continuing to use the
existing consumer gas-fired
instantaneous water heater and the cost
of the repair. DOE assumes that the
demand for water heating is inelastic
and, therefore, that no household or
commercial building will forgo either
repairing or replacing their equipment
(either with a new consumer gas-fired
instantaneous water heater or a suitable
water heating alternative).
For details on DOE’s shipments
analysis 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
105245
national perspective of total consumer
costs and savings that would be
expected to result from new or amended
standards at specific efficiency levels.142
(‘‘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. For the present
analysis, DOE projected the energy
savings, operating cost savings, product
costs, and NPV of consumer benefits
over the lifetime of consumer gas-fired
instantaneous water heaters sold from
2030 through 2059.
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
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.
DOE uses a spreadsheet model to
calculate the energy savings and the
national consumer costs and savings
from each TSL. 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.12 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.
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TABLE IV.12—SUMMARY OF INPUTS AND METHODS FOR THE NATIONAL IMPACT ANALYSIS
Inputs
Method
Shipments .......................................
Compliance Date of Standard ........
Annual shipments from shipments model.
2030.
141 Decision Analysts, 2002, 2004, 2006, 2008,
2010, 2013, 2016, 2019, and 2022 American Home
Comfort Study. Available at
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www.decisionanalyst.com/syndicated/
homecomfort/ (last accessed August 29, 2024).
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142 The NIA accounts for impacts in the United
States and U.S. territories.
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TABLE IV.12—SUMMARY OF INPUTS AND METHODS FOR THE NATIONAL IMPACT ANALYSIS—Continued
Inputs
Method
Efficiency Trends ............................
No-new-standards case: Based on historical data.
Standard cases: Roll-up in the compliance year and then DOE estimated growth in shipment-weighted efficiency in all the standards cases.
Annual weighted-average values are a function of energy use at each TSL.
Annual Energy Consumption per
Unit.
Total Installed Cost per Unit ...........
Annual Energy Cost per Unit ..........
Repair and Maintenance Cost per
Unit.
Energy Price Trends .......................
Energy Site-to-Primary and FFC
Conversion.
Discount Rate .................................
Present Year ...................................
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 as a function of the annual energy consumption per unit and energy
prices.
Annual values do not change with efficiency level.
AEO2023 projections (to 2050) and extrapolation thereafter.
A time-series conversion factor based on AEO2023.
Three and seven percent.
2024.
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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 the year of
anticipated compliance with an
amended standard. To project the trend
in efficiency absent amended standards
for consumer gas-fired instantaneous
water heaters over the entire shipments
projection period, DOE used available
historical shipments data and
manufacturer input. The approach is
further described in 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 (2030). 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.
To develop standards case efficiency
trends after 2030, DOE used historical
shipment data and current consumer
gas-fired instantaneous water heater
model availability by efficiency level
(see chapter 8). DOE estimated growth
in shipment-weighted efficiency by
assuming that the implementation of
ENERGY STAR’s performance criteria
and other incentives would gradually
increase the market shares of higher
efficiency water heaters. Using
historical BRG shipments data and
ENERGY STAR criteria, DOE estimated
the annual increase in market share for
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condensing units between 2015—2022
and assumed the increasing trend would
continue would continue over the
shipments projection period. DOE notes
that at present, most gas-fired
instantaneous water heater models
already achieve EL 2 or higher.
2. National Energy Savings
The national energy savings analysis
involves a comparison of national
energy consumption of the considered
products between each potential
standards case (‘‘TSL’’) 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 higher
efficiency standard case. DOE estimated
energy consumption and savings based
on site energy and converted the
electricity consumption 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, primary energy is the same
as site energy. Cumulative energy
savings are the sum of the NES for each
year over the timeframe of the analysis.
Use of higher-efficiency products is
sometimes associated with a direct
rebound effect, which refers to an
increase in utilization of the product
due to the increase in efficiency. DOE
examined a 2009 review of empirical
estimates of the rebound effect for
various energy-using products.143 This
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/
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review concluded that the econometric
and quasi-experimental studies suggest
a mean value for the direct rebound
effect for household water heating of
around 10 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 water
heating products in the 1-percent to 15percent range, while Nadel concludes
that a more likely range is 1 to 12
percent, with rebound effects sometimes
higher for low-income households that
could not afford to adequately heat their
homes prior to weatherization. DOE
applied a rebound effect of 10 percent
for consumer gas-fired instantaneous
water heaters used in residential
applications based on studies of other
residential products and the value used
for consumer water heaters in the 2010
Final Rule for Heating Products, and 0
percent for consumer water heaters in
commercial applications, which also
matches EIA’s National Energy
S0301421508007131 (last accessed August 29,
2024).
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
29, 2024).
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 29, 2024).
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 29,
2024).
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Modeling System (‘‘NEMS’’) for
residential and commercial water
heating and is consistent with other
recent energy conservation standards
rulemakings.147 148 149 150 The calculated
NES at each efficiency level is therefore
reduced by 10 percent in residential
applications. DOE also included the
rebound effect in the NPV analysis by
accounting for the additional net benefit
from increased consumer gas-fired
instantaneous water heaters usage, as
described in section IV.H.3 of this
document.
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
(Aug. 18, 2011). After evaluating the
approaches discussed in the August 18,
2011 notice, 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
(Aug. 17, 2012). NEMS is a public
domain, multi-sector, partial
equilibrium model of the U.S. energy
sector 151 that EIA uses to prepare its
Annual Energy Outlook. The FFC factors
in corporate 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
147 See www.eia.gov/outlooks/aeo/nems/
documentation/ (last accessed August 29, 2024).
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 29, 2024).
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-BTSTD-0047-0078 (last accessed August 29, 2024).
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 29,
2024).
151 For more information on NEMS, refer to The
National Energy Modeling System: An Overview
2018, DOE/EIA–0581(2019), April 2019. Available
at www.eia.gov/outlooks/aeo/nems/documentation/
(last accessed August 29, 2024).
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FFC measures of energy use and
emissions is described in appendix 10B
of the final rule TSD.
Rinnai claimed that DOE has not
adequately explained how national
energy savings at the proposed level
increased to 0.52 quads in the July 2024
NODA from 0.4 quads in the NOPR.
(Rinnai, No. 1443 at p. 8)
For the July 2023 NOPR, DOE
incorporated RECS 2015 as the basis of
the building sample development and
energy use determination, while for July
2024 NODA, DOE incorporated RECS
2020 as the basis of the building sample
development and energy use
determination and updated the analyses
accordingly (see section IV.E of this
document). The updated RECS includes
a much larger sample size and higher
water usage and energy consumption
estimates on average for consumer gasfired instantaneous water heaters. Using
RECS 2020 for the sample development
and energy use determination therefore
results in larger differences in annual
energy consumption between higher
efficiency levels and lower efficiency
levels. Because the estimates of national
energy savings are based on the
differences in annual energy
consumption between higher efficiency
levels and lower efficiency levels, the
estimated national primary energy
savings increased from approximately
0.45 quads to approximately 0.52 quads.
Rinnai claims the national energy
savings and associated emission
reductions are overstated because DOE
did not properly account for consumers
switching to gas-fired storage water
heaters as a response to the standard
which would increase overall energy
consumption of water heaters. Rinnai
projects that an additional savings of
0.61 quads and reductions of 39 million
metric tons in CO2 emissions are
possible if non-condensing gas-fired
instantaneous water heaters are allowed
to stay on the market. Rinnai requested
DOE analyze product substitution and
the impact of various scenarios on
energy savings and emission reductions
(Rinnai, No. 1443 at pp. 8–9, 26) Rinnai
believes that would-be purchasers of
non-condensing gas-fired instantaneous
water heaters would likely purchase
gas-fired storage water heaters rather
than condensing gas-fired instantaneous
water heaters. Rinnai states that if 30
percent of would-be purchasers opted
for gas-fired storage water heaters
instead, there would be no energy
savings by the standard. Rinnai believes
that fewer people are purchasing gasfired instantaneous water heater in 2023
due to inflation, implying that gas-fired
instantaneous water heater purchasers
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are price-sensitive. (also Rinnai, No.
1435, at p. 2, 4, 10–11, 14–15)
DOE estimates that it is highly
unlikely that consumers would switch
from gas-fired instantaneous water
heaters to gas-fired storage water heaters
specifically as a result of the
incremental costs of an energy
conservation standard because the
differential costs between the two
products will remain similar (see
section IV.F.10 for an expanded
discussion). Therefore, product
switching as a result of the proposed
standards is likely to be negligible.
DOE’s estimates of national energy
savings and associated emission
reductions appropriately reflect current
data and market trends. Any potential
energy savings that might occur from
consumers switching from gas-fired
storage water heaters to gas-fired
instantaneous water heaters, in the
absence of new standards, is already
incorporated into the no-new-standards
case. And because DOE estimates that
switching is unlikely to be impacted as
a result of amended standards, these
potential energy savings are present in
both the standards and no-newstandards cases. The commenter’s
projection of additional energy savings
and emissions reduction if noncondensing gas-fired instantaneous
water heaters are allowed to stay on the
market is a misunderstanding of DOE’s
estimates of national energy savings and
associated emission reductions.
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-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 used constant prices as
the default price assumption to project
future consumer gas-fired instantaneous
water heater prices. However, DOE also
developed consumer gas-fired
instantaneous water heater price trends
based on historical PPI data. 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 consumer gas-
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fired instantaneous water heaters. In
addition to the default constant price
trend, DOE considered two product
price sensitivity cases: (1) a price
decline case and (2) price increase case
based on PPI data. The derivation of
these price trends and the results of
these sensitivity cases are described in
appendix 10C of the final rule TSD.
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, the 2046–2050 average was used
for all years. As part of the NIA, DOE
also analyzed scenarios that used inputs
from variants of the AEO2023 Reference
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 10C 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 water
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 10E 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.152 The discount
rates for the determination of NPV are
152 U.S. Office of Management and Budget.
Circular A–4: Regulatory Analysis. Available at
www.whitehouse.gov/omb/information-foragencies/circulars (last accessed Mar. 5, 2024). DOE
used the prior version of Circular A–4 (September
17, 2003) in accordance with the effective date of
the November 9, 2023 version. Available at
www.whitehouse.gov/wp-content/uploads/legacy_
drupal_files/omb/circulars/A4/a-4.pdf (last
accessed August 29, 2024).
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in contrast to the discount rates used in
the LCC analysis, which are designed to
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.
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
and CBECS 2018 sample composed of
commercial buildings that meet the
criteria for the three subgroups. DOE
used the LCC and PBP spreadsheet
model to estimate the impacts of the
considered efficiency levels on these
subgroups. Chapter 11 of the final rule
TSD describes the consumer subgroup
analysis.
1. Low-Income Households
Low-income households, as defined
by the poverty thresholds from the U.S.
Bureau of the Census, are significantly
more likely to be renters or live in
subsidized housing units and less likely
to be 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.153 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
153 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.
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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. By contrast, for
the main LCC results for the whole
consumer sample, all costs and benefits
are accrued by the user of the product.
DOE finds no evidence that
significant rental cost increases would
occur due to an amended standard.
Rental prices are largely dictated by
supply and demand of housing in
individual locations, not the sum of
equipment costs in those rentals, such
that two similar rentals could have
widely differing prices. Furthermore, a
landlord would be responsible for
replacing an end-of-life gas-fired
instantaneous water heater in the nonew-standards case as well yet the rent
is unlikely to increase simply because of
this regular maintenance. The
installation costs estimated in the LCC
already include any potential
replacement of venting for gas-fired
instantaneous water heaters. Finally,
even if a landlord were to fully pass on
the incremental costs due to amended
standards, those costs would
presumably be spread out over a
monthly rent spanning many years,
possibly the lifetime of the water heater,
resulting in relatively small monthly
rent increases. It is for these reasons that
the low-income subgroup analyzes
impacts assuming renters do not bear
installation and equipment costs.
However, as described in section IV.F,
for the overall LCC analysis, DOE makes
the simplifying assumption that all
installation and equipment costs are
paid for by the consumer of the
equipment, including renters. Therefore,
the main LCC results do assume that
landlords pass on all costs and yet the
analysis still finds that the rule is
economically justified. The main LCC
and the consumer subgroup analysis are
therefore two boundary conditions with
respect to costs and benefits accrued by
renters.
The majority of low-income
households that experience a net cost at
higher efficiency levels are homeowner
households, as opposed to renters.
These households typically have lower
hot water use. Unlike renters,
homeowners would bear the full cost of
installing a new water heater. For these
households, a potential rebate program
to reduce the total installed costs would
be effective in lowering the percentage
of low-income consumers with a net
cost. DOE understands that the
landscape of low-income consumers
with a gas-fired instantaneous water
heater may change before the
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compliance date of amended energy
conservation standards, if finalized. For
example, point-of-sale rebate programs
are being considered that may moderate
the impact on low-income consumers to
help offset the total installed cost of a
higher efficiency gas-instantaneous
water heater. Currently, DOE is aware
that the Inflation Reduction Act will
likely include incentives for certain
water heaters, although the specific
implementation details have yet to be
finalized. Point-of-sale rebates or
weatherization programs could also
reduce the total number of low-income
consumers that would be impacted
because the household no longer has a
water heater to upgrade.
Responding to the July 2023 NOPR,
Atmos Energy argued the elimination of
non-condensing instantaneous water
heaters will cause consumers to switch
to less efficient options. Atmos Energy
and ECSC argued that non-condensing
instantaneous water heaters require less
space and changing to a condensing
alternative (or electric alternatives) will
cost significantly more. Atmos Energy
and ECSC argued that this elimination
will impact low-income/multi-family/
small home consumers
disproportionately. (Atmos Energy, No.
1183 at pp. 2–3; ECSC, No. 1185 at pp.
1–2) As DOE has discussed in section
IV.F.10 of this document, it is very
unlikely that consumers would switch
from existing non-condensing
instantaneous water heaters to storage
water heaters in response to amended
standards. The costs to do so would
exceed the costs of simply installing a
standards-compliant condensing
instantaneous water heater.
Furthermore, both a standardscompliant instantaneous water heater
and a non-condensing instantaneous
water heater require less space
compared to a storage water heater.
Additionally, DOE does not expect
the existing market trends of consumers
switching from storage to instantaneous
water heaters (in the no-new-standards
case) would be impacted by an amended
standard, as any incremental cost for a
condensing instantaneous water heater
would be small compared to the overall
costs to switch from a storage to an
instantaneous water heater.
Commenters from the U.S. House of
Representatives stated that the proposed
rulemaking imposes an unattainable
standard for non-condensing, gas-fired
tankless water heaters, and expressed
concern that it would discourage
budget-conscious consumers from
investing in tankless models, negatively
impacting Georgia manufacturing
companies. (U.S. House of
Representatives, No. 1205 at p. 1)
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Commenters from the U.S. House of
Representatives reiterated these
comments in response to the July 2024
NODA. (U.S. House of Representatives,
No. 1445 at p. 1)
In response to the affordability
concerns, DOE acknowledges that the
average installed cost of gas-fired
instantaneous water heaters at EL 2 is
estimated to increase by $231 compared
to current baseline efficiency levels.
However, as discussed in chapter 11 of
the TSD, low-income households make
up only 3.2 percent of the market for
gas-fired instantaneous water heaters,
and of these approximately 38 percent
are renters who would likely benefit
from the increased efficiency through
energy savings without bearing the full
burden of installation costs. DOE
estimates that at EL 2 low-income
consumers of gas-fired instantaneous
water heaters will experience on average
lifecycle cost savings of $248, with only
6.5 percent of low-income consumers
experiencing a net cost. DOE
acknowledges that a small proportion of
low-income homeowners may
experience higher installation costs for
condensing gas-fired instantaneous
water heaters. However, DOE estimates
that the energy savings benefits across
the low-income subgroup outweigh
these costs. See section V.B.1.b for
detailed results.
2. Senior-Only Households
Senior-only households are
households with occupants who are all
at least 65 years of age. RECS 2020
includes information on the age range of
household occupants, allowing for the
identification of senior-only households
from the sample Senior-only households
comprised 23.5 percent of the country’s
households. In estimating the LCC
impacts to senior-only households, it is
assumed that any residual value of a
long-lived product is capitalized in the
value of the home.
3. Small Business Subgroup
DOE identified small businesses in
CBECS 2018 using threshold levels for
maximum number of employees within
each building principal building
activity.
GRA commented that the proposed
standards will discourage restaurants
from investing in tankless models and
instead choose less efficient water
heating solutions and add constraints
for restaurant operating with limited
space availability. GRA stated that many
restaurants rely on gas-fired tankless
water heaters due to their space saving
attributes and the proposed standards
would disproportionately limit the
options of small businesses, resulting in
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higher costs and reduced efficiency.
(GRA, No. 449 at p. 1)
As DOE has discussed in section
IV.F.10, it is very unlikely that
businesses would switch from existing
non-condensing instantaneous water
heaters to storage water heaters in
response to amended standards. The
costs to do so would exceed the costs of
simply installing a standards-compliant
condensing instantaneous water heater.
Additionally, DOE does not expect the
existing market trends of businesses
investing in or switching from storage to
instantaneous water heaters (in the nonew-standards case) would be impacted
by an amended standard, as any
incremental cost for a condensing
instantaneous water heater would be
small compared to the overall costs to
switch from a storage to an
instantaneous water heater. If a business
is considering investing in a tankless
model, they are doing so for spacesaving or energy saving reasons that
remain valid with a condensing tankless
water heater.
J. Manufacturer Impact Analysis
1. Overview
DOE performed an MIA to estimate
the financial impacts of amended energy
conservation standards on
manufacturers of gas-fired instantaneous
water heaters and to estimate the
potential impacts of such standards on
direct employment and manufacturing
capacity. The MIA has both quantitative
and qualitative aspects and includes
analyses of projected industry cash
flows, the INPV, investments in research
and development (‘‘R&D’’) and
manufacturing capital, and domestic
manufacturing employment.
Additionally, the MIA seeks to
determine how amended energy
conservation standards might affect
manufacturing employment, capacity,
and competition, as well as how
standards contribute to 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 GRIM, 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
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cost of capital, and the impact to
domestic manufacturing employment.
The model uses standard accounting
principles to estimate the impacts of
more-stringent energy conservation
standards on a given industry by
comparing changes in INPV between a
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 manufacturer markup
scenarios.
The qualitative part of the MIA
addresses manufacturer characteristics
and market trends. Specifically, the MIA
considers such factors as a potential
standard’s impact on manufacturing
capacity, competition within the
industry, the cumulative 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 gas-fired instantaneous water heater
manufacturing industry based on the
market and technology assessment,
preliminary manufacturer interviews,
and publicly-available information. This
included a top-down analysis of gasfired instantaneous water heater
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’’); and R&D expenses).
DOE also used public sources of
information to further calibrate its
initial characterization of the gas-fired
instantaneous water heater
manufacturing industry, including
company filings of form 10–K from the
SEC,154 corporate annual reports, the
U.S. Census Bureau’s Quarterly Survey
of Plant Capacity Utilization,155 U.S.
Census Bureau’s Annual Survey of
Manufactures (‘‘ASM’’),156 and reports
from D&B Hoovers.157
In Phase 2 of the MIA, DOE prepared
a framework industry cash-flow analysis
154 U.S. Securities and Exchange Commission.
Company Filings. Available at www.sec.gov/searchfilings (last accessed August 29, 2024).
155 The U.S. Census Bureau. Quarterly Survey of
Plant Capacity Utilization. (2007–2019). Available
at www.census.gov/programs-surveys/qpc/data/
tables.html (last accessed August 29, 2024).
156 U.S. Census Bureau’s Annual Survey of
Manufactures. (2021). Available at:
www.census.gov/programs-surveys/asm/data/
tables.html (last accessed January 18, 2024).
157 The D&B Hoovers login is available at
app.dnbhoovers.com (last accessed August 29,
2024).
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to quantify the potential impacts of
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 gas-fired
instantaneous water heaters in order to
develop other key GRIM inputs,
including product and capital
conversion costs, and to gather
additional information on the
anticipated effects of energy
conservation standards on revenues,
direct employment, capital assets,
industry competitiveness, and subgroup
impacts.
In Phase 3 of the MIA, DOE
conducted structured, detailed
interviews with representative
manufacturers. During these interviews,
DOE discussed engineering,
manufacturing, procurement, and
financial topics to validate assumptions
used in the GRIM and to identify key
issues or concerns. 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. DOE identified one
subgroup for a separate impact analysis:
small business manufacturers. The
small business subgroup is discussed in
section VI.B of this document, ‘‘Review
under the Regulatory Flexibility Act’’
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 flow due to new or
amended standards that result in a
higher or lower industry value. The
GRIM uses a standard, annual
discounted cash-flow analysis that
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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 2024 (the base year of the analysis)
and continuing to 2059. DOE calculated
INPVs by summing the stream of annual
discounted cash flows during this
period. For manufacturers of gas-fired
instantaneous water heaters, DOE used
a real discount rate of 9.6 percent,
which was derived from industry
financials and then modified according
to feedback received during
manufacturer interviews.
The GRIM calculates cash flows using
standard accounting principles and
compares changes in INPV between the
no-new-standards case and each
standards case. The difference in INPV
between the no-new-standards case and
a standards case represents the financial
impact of the new or amended energy
conservation standard on
manufacturers. As discussed previously,
DOE developed critical GRIM inputs
using a number of sources, including
publicly available data, results of the
engineering analysis, results of the
shipments analysis, and information
gathered from industry stakeholders
during the course of manufacturer
interviews. 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 revenues, gross
margins, and cash flow of the industry.
As discussed in section IV.C.1 of this
document, DOE conducted a market
analysis of currently available models
listed in DOE’s CCD to determine which
efficiency levels were most
representative of the current
distribution of gas-fired instantaneous
water heaters available on the market.
DOE also completed physical teardowns
of commercially available units to
determine which design options
manufacturers may use to achieve
certain efficiency levels. In this final
rule, DOE developed efficiency levels
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with a combination of the efficiencylevel and design-option approaches.
DOE requested comments from
stakeholders and conducted interviews
with manufacturers in advance of the
July 2023 NOPR concerning these initial
efficiency levels, which have been
updated based on the feedback DOE
received. For a complete description of
the MPCs, see section IV.C.1 of this
document and chapter 5 of the final rule
TSD.
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b. Shipments Projections
The GRIM estimates manufacturer
revenues based on total unit shipment
projections and the distribution of those
shipments by efficiency level. 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 2024 (the base
year) to 2059 (the end year of the
analysis period). See section IV.G of this
document and chapter 9 of the final rule
TSD for additional details.
c. Capital and Product Conversion Costs
New or amended energy conservation
standards could cause manufacturers to
incur 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 for gas-fired instantaneous water
heaters. 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 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 investments in
research, development, testing,
marketing, and other non-capitalized
costs necessary to make product designs
comply with new or amended energy
conservation standards.
In the July 2023 NOPR and the July
2024 NODA, DOE relied on
manufacturer feedback to evaluate the
level of capital and product conversion
costs that gas-fired instantaneous water
heater manufacturers would likely incur
to meet each analyzed efficiency level.
88 FR 49058, 49127–49128; 89 FR
59692, 59699–59700. During
confidential interviews, DOE asked
manufacturers to estimate the capital
conversion costs (e.g., changes in
production processes, equipment, and
tooling), needed to meet the various
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efficiency levels. DOE also asked
manufacturers to estimate the redesign
effort and engineering resources
required at various efficiency levels to
quantify the product conversion costs.
DOE then estimated industry-level
conversion costs by scaling feedback
from OEMs by the estimated number of
manufacturers that would need to make
these investments at each TSL.
At lower TSLs, manufacturer feedback
and a review of the market indicate that
most manufacturers already have
sufficient condensing production
capacity and offer range of models that
meet the required efficiency levels.
Thus, DOE modeled low-levels of
capital and product conversion costs for
most manufacturers at TSL 1 and TSL
2. As TSLs increase in stringency, DOE
expects most manufacturers would need
to add production capacity as fewer
shipments currently meet the required
levels and product designs increase in
complexity. DOE also expects product
conversion costs would increase at
higher TSLs since fewer manufacturers
currently offer fewer models that meet
the efficiency levels required. For the
July 2024 NODA, DOE refined its
conversion cost estimates to reflect
feedback submitted by Rinnai in
response to the July 2023 NOPR.
(Rinnai, No. 1186 at p. 23) DOE
incorporated Rinnai’s estimate of $15
million 158 required to retrofit its Griffin,
GA factory to produce condensing gasfired instantaneous water heaters into
its conversion cost estimates at TSL 1
and modeled additional incremental
investments to reach higher TSLs,
consistent with manufacturer feedback
from confidential interviews. DOE
incorporated Rinnai’s estimate to
convert its U.S. production facility in its
analysis to avoid underestimating the
potential investments required to meet
potential amended standards.
Alternatively, Rinnai could choose to
maintain condensing capabilities in its
existing facilities in Japan, in which
case industry conversion costs would be
lower.
For this final rule, DOE updated its
conversion cost estimates from 2022$ to
2023$ but otherwise maintained its
conversion cost methodology used in
the July 2024 NODA.
In general, DOE assumes all
conversion-related investments occur
between the year of publication of the
158 Rinnai’s public comment in response to the
July 2023 NOPR (Rinnai No. 1186 at p. 23 and p.
51, which corresponds to p. 13 of Attachment A)
cited two different estimates: $15 million (p. 23)
and a range of $3 and $9 million (p. 51). To avoid
underestimating potential investments, DOE
incorporated the higher estimate of $15 million
provided by Rinnai.
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final rule and the year by which
manufacturers must comply with the
amended 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 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
manufacturer markup 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 preservation of
operating profit scenario. These
scenarios lead to different manufacturer
markup values that, when applied to the
MPCs, result in varying revenue and
cash flow impacts.
Under the preservation of gross
margin percentage scenario, DOE
applied a single uniform ‘‘gross margin
percentage’’ across all efficiency levels,
which assumes that 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 MPCs increase with
efficiency, this scenario implies that the
per-unit dollar profit will increase. DOE
estimated a gross margin percentage of
31 percent for gas-fired instantaneous
water heaters.159 Manufacturers tend to
believe it is optimistic to assume that
they would be able to maintain the same
gross margin percentage as their
production costs increase, particularly
for minimally efficient products.
Therefore, this scenario represents a
high bound to industry profitability
under an amended energy conservation
standard.
Under the preservation of operating
profit scenario, DOE modeled a
situation in which manufacturers are
not able to increase per-unit operating
profit in proportion to increases in
MPCs. In the preservation of operating
159 The gross margin percentage of 31 percent is
based on a manufacturer markup of 1.45.
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profit scenario, as the cost of production
goes up under a standards case,
manufacturers are generally required to
reduce their manufacturer markups to a
level that maintains base-case operating
profit. DOE implemented this scenario
in the GRIM by lowering the
manufacturer markups at each TSL to
yield approximately the same earnings
before interest and taxes in the
standards case as in the no-newstandards case in the year after the
compliance date of the amended
standards. The implicit assumption
behind this scenario is that the industry
can only maintain its operating profit in
absolute dollars after the standard.
A comparison of industry financial
impacts under the two manufacturer
markup scenarios is presented in
section V.B.2.a of this document.
3. Discussion of MIA Comments
In response to the July 2023 NOPR,
Rinnai stated that DOE’s review of
manufacturer impacts did not account
for the direct impact of the rulemaking
on Rinnai’s manufacturing facility
located in Griffin, Georgia, which is
tooled and optimized for production of
non-condensing gas-fired instantaneous
water heaters. Rinnai commented that
the Griffin facility cost $70 million to
build. Rinnai estimates that should the
Griffin plant close, it would lead to a
loss of gross profit between $30 million
to $36 million, annually, and a write-off
of $2 million in capital expenditures
that could not be repurposed. Rinnai
asserted that it would require more than
$15 million 160 to repurpose its Griffin
facility to produce condensing gas-fired
instantaneous water heaters, which may
be cost prohibitive given current
product capacity in Japan. Additionally,
Rinnai asserted that it was not contacted
by DOE as part of this rulemaking.
Rinnai commented that the levels
proposed in the July 2023 NOPR would
make its new Griffin production facility
largely obsolete and lead to eliminating
122 jobs. (Rinnai No. 1186 at pp. 22–23)
Rinnai noted that of its roughly 72 gasfired instantaneous models on the
market, 32 meet the proposed 0.91 UEF
standard for gas-fired instantaneous
water heaters, meaning that more than
half of its models would be eliminated
from the market. (Rinnai, No. 1186 at
pp. 4–5)
In response to the July 2024 NODA,
Rinnai questioned DOE’s assumption
160 Rinnai’s submission (Rinnai No. 1186 at p. 23
and p. 51, which corresponds to p. 13 of
Attachment A) cited two different estimates: $15
million (p. 23) and a range of $3 and $9 million (p.
51). To avoid underestimating potential
investments, DOE references the higher estimate
provided by Rinnai.
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that it would convert its Griffin, Georgia
manufacturing facility to produce
condensing gas-fired instantaneous
water heaters. Rinnai restated that it has
overseas manufacturing capacity for
condensing gas-fired instantaneous
water heaters, and the need to expand
that capacity would depend on an
assessment of market demand. Rinnai
commented that under a condensinglevel standard, it is not realistic to
assume Rinnai would maintain current
sales levels (i.e., prospective purchasers
may choose condensing products from
competitors rather than Rinnai). Rinnai
requested that DOE publish a GRIM to
support and substantiate its MIA.
(Rinnai No. 1443 at pp. 21–22)
The Governor of Georgia stated that
the standards proposed in the July 2023
NOPR could negatively impact the noncondensing gas-fired instantaneous
water heater industry in the State of
Georgia and could harm domestic
manufacturing jobs. (Governor of
Georgia, No. 1157 at pp. 1–3) The
Attorney General of GA stated that the
standards proposed in the July 2023
NOPR, if adopted, would have a
negative economic impact on the State
of Georgia, which is host to a large new
facility optimized for manufacturing
non-condensing units. The Attorney
General of GA added that the proposed
rulemaking could eliminate
manufacturing jobs in Georgia,
particularly jobs held by female and
minority workers. (Attorney General of
GA, No. 1026 at pp. 1–2) Commenters
from the U.S. House of Representatives
added that the proposed rulemaking
would have a negative economic impact
on the State of Georgia, which is home
to the largest domestic assembly facility
for non-condensing gas-fired
instantaneous water heaters. (U.S.
House of Representatives, No. 1205 at p.
1) Commenters from the U.S. House of
Representatives reiterated this comment
in response to the July 2024 NODA.
(U.S. House of Representatives, No.
1445 at p. 1)
CNGC noted that investments made
by Rinnai, a member of its coalition,
would be put at risk if the standards
were adopted as proposed in the July
2023 NOPR. (CNGC No. 648 at p. 1) Gas
Association Commenters further
highlighted Rinnai’s concerns, citing
Rinnai’s recently opened facility in
Griffin, Georgia, which exclusively
makes non-condensing gas-fired
instantaneous water heaters, as
potentially being off-shored.
Regarding the potential impact to
domestic production employment due
to amended standards, DOE
understands that Rinnai recently
invested approximately $70 million to
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develop its new Georgia manufacturing
facility dedicated to non-condensing
gas-fired instantaneous water heaters.161
DOE acknowledges that converting the
manufacturing facility to produce
condensing gas-fired instantaneous
water heaters is feasible but would
require additional investment.
Currently, Rinnai imports their
condensing gas-fired instantaneous
water heaters from Japan, while
producing only the non-condensing
models domestically. Rinnai’s decision
of whether to repurpose its Georgia
facility likely depends on a range of
factors, such as its parent company’s
(Rinnai Corporation) willingness to
make further capital investments, the
role of the U.S. water heater market in
Rinnai Corporation’s overall business
strategy, and U.S. demand for gas-fired
instantaneous water heaters. A review of
Rinnai Corporation’s public financial
statements indicates that it has invested
approximately $823 million in capital
expenditures globally in fiscal year 2021
through fiscal year 2024, projecting a
further outlay of approximately $148
million in capital expenditures globally
in fiscal year 2025.162 Based on
information detailed in Rinnai’s
corporate annual report, Rinnai
identifies the United States as a key
foreign market for growth.163 In fiscal
year 2024, U.S. water heater sales
accounted for nearly 20 percent of
Rinnai Corporation’s worldwide water
heater sales.164 Consistent with
historical trends and market data cited
by stakeholders,165 DOE projects that
the domestic gas-fired instantaneous
water heater market will continue to
161 Rinnai cites a total investment of $70 million
in the Georgia facility in its public comment in
response to the July 2023 NOPR (Rinnai, No. 1186
at p. 23), stating the facility opened in 2022 (Id. at
p. 1). Construction of the Georgia facility began in
2020. Press Release available at: www.rinnai.us/
announcements/rinnai-america-breaks-ground-onnew-factory (last accessed August 6, 2024).
162 Rinnai Corporation’s public financial
statements are available at: www.rinnai.co.jp/en/ir/
(last accessed September 27, 2024). DOE converted
these values from Japanese Yen to U.S. Dollars
using the U.S. Department of the Treasury’s
exchange rate as of June 30, 2024, available at:
https://fiscaldata.treasury.gov/datasets/treasuryreporting-rates-exchange/treasury-reporting-ratesof-exchange (last accessed September 27, 2024).
163 Rinnai’s Medium-Term Business Plan 2021–
2025 is available at: www.rinnai.co.jp/en/ir/
document/pdf/202103outlook.pdf. (p. 15) (last
accessed August 6, 2024).
164 Rinnai Corporation’s ‘‘Financial Results of
Fiscal 2024, ended March 31, 2024 Reference Data’’
is available at: www.rinnai.co.jp/en/ir/document/
pdf/202403reference.pdf. (p. 4) (May 9, 2024) (Last
accessed September 27, 2024).
165 Rinnai commented in response to the July
2024 NODA ‘‘Since their introduction in 2004, gas
tankless water heaters have grown to 10 percent of
the water heater market in the U.S. and are
projected to grow to 12 percent by 2027.’’ (See
Rinnai, No. 1443 at p. 1)
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grow in the no-new-standards and
standards cases. Furthermore, DOE
expects that the portion of condensing
gas-fired instantaneous water heater will
increase. In 2024 (the reference year),
DOE estimates that domestic gas-fired
instantaneous water heater shipments
totaled 1.26 million (representing
approximately 12 percent of the overall
domestic consumer water heater
market), with condensing gas-fired
instantaneous water heaters accounting
for 67 percent of shipments. In 2030 (the
compliance year), in the absence of the
amended standards, DOE expects that
shipments of gas-fired instantaneous
water heaters would total 1.43 million
(representing approximately 14 percent
of the overall domestic consumer water
heater market), with condensing gasfired instantaneous water heaters
accounting for 70 percent of shipments.
In 2030, with the amended standards in
place (i.e., TSL 2), DOE expects that
shipments of gas-fired instantaneous
water heaters would still total
approximately 1.43 million, with the
share of condensing gas-fired
instantaneous water heaters rising to
100 percent. As discussed in section
IV.F.10 of this document, DOE did not
include any product switching with
respect to gas-fired instantaneous water
heaters in its analysis as DOE
determined that any product switching
as a result of the adopted standards is
likely to be minimal. As discussed in
section IV.G.1 of this document, DOE’s
shipments analysis accounts for the
fraction of consumers that would choose
to repair their gas-fired instantaneous
water heater rather than replace their
gas-fired instantaneous water heater in
the standards cases.
DOE previously analyzed the
potential changes in direct employment
in the July 2023 NOPR. 88 FR 49058,
49145–49147. For the July 2024 NODA,
DOE revised its direct employment
analysis to account for Rinnai’s new
domestic production facility dedicated
to manufacturing gas-fired
instantaneous water heaters. 89 FR
59692, 59697. (See Rinnai, No. 1186 at
p. 1) DOE is not currently aware of other
domestic production facilities of gasfired instantaneous water heaters.
Therefore, in the July 2024 NODA, DOE
estimated that approximately 20 percent
of gas-fired instantaneous water heaters
are currently produced in the United
States. DOE derived this value by using
its shipments analysis and market share
feedback from Rinnai’s comments to the
July 2023 NOPR.166 (Id.) DOE
166 In 2023, DOE estimates that approximately
0.41 million out of the 1.22 million gas-fired
instantaneous water heater unit shipments are non-
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maintained the 20 percent estimate for
this final rule analysis. For the July 2024
NODA, DOE relied on the employment
figures provided in Rinnai’s comments
in response to the July 2023 NOPR to
estimate the potential range of direct
employment impacts in 2030 (the
analyzed compliance year) at higher
efficiency levels. In the July 2024
NODA, DOE modeled the domestic
employment impacts ranging from a
reduction of 128 production workers to
an increase of 75 production workers at
TSL 1 through TSL 4 in 2030. Based on
revised employment estimates provided
by Rinnai in response to the July 2024
NODA, DOE updated its estimate of
domestic production workers from 128
to 190 167 in 2030 but otherwise
maintained its direct employment
methodology. (Rinnai No. 1443 at p. 1)
Therefore, for this final rule, DOE
models a lower-bound decrease of 190
domestic production workers and an
upper-bound increase in domestic direct
employment of 62 percent (an increase
of approximately 117 production
workers, for a total of 307 domestic
production workers) at TSL 1 through
TSL 4 in 2030. DOE notes that the direct
employment analysis is intended to
establish a realistic range of potential
impacts to domestic employment under
amended standards, given the best
public information available at this
time. As Rinnai noted in their comment,
if Rinnai does not maintain current sales
levels under a condensing-level
standard, the change in employment
may be lower than the maximum
increase estimated. See section V.B.2.b
of this document for additional details
on the direct employment analysis.
Regarding the potential investment
required to convert Rinnai’s newly built
domestic production facility, DOE
incorporated Rinnai’s feedback
provided in response to the July 2023
NOPR into its conversion cost model for
the July 2024 NODA and this final rule.
Although DOE cannot be certain
whether or not Rinnai would invest in
repurposing its U.S. manufacturing
facility, DOE incorporated Rinnai’s
feedback into its industry conversion
cost estimates to avoid underestimating
condensing. In response to the July 2023 NOPR,
Rinnai commented that its domestic market share
of non-condensing gas-fired instantaneous water
heaters is 60 percent: (60% × 0.41 million) ÷ 1.22
million = 20%.
167 Rinnai commented that it currently employes
183 full-time employees and 49 temporary
employees at its Griffin, Georgia plant. DOE’s
shipments analysis indicates shipments of noncondensing gas-fired instantaneous water heaters in
the no-new-standards case will increase by
approximately 4 percent from 2024 to 2030 (the
compliance year). (183 employees × 1.04) = 190
employees.
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the potential investments industry
would incur as a result of amended
standards. Should Rinnai choose to
maintain condensing capabilities in its
existing facilities in Japan, the industry
conversion costs would be lower. DOE
updated its conversion cost estimates
from 2022$ to 2023$ for this final rule
but otherwise maintained its
methodology from the July 2024 NODA.
See section IV.J.2.c and section V.B.2.a
of this document and chapter 12 of the
final rule TSD for additional
information on conversion costs.
Regarding Rinnai’s assertion that it
was not contacted to provide feedback
in advance of the July 2023 NOPR, DOE
notes that manufacturer outreach and
interviews are conducted by DOE’s
contractors under nondisclosure
agreements. As such, information
surrounding manufacturer outreach and
participation is kept as confidential by
DOE’s contractors and cannot be
disclosed.
Regarding Rinnai’s request to review
the GRIM, DOE notes that a copy of the
GRIM developed for this final rule
analysis is available for download at:
www.regulations.gov/docket/EERE2017-BT-STD-0019/document.
In response to the July 2023 NOPR,
AHRI stated that it supported the
inclusion of amortization of product
conversion costs under standards into
the projected MSP in a recent
rulemaking for microwave ovens, and
urges DOE to use this methodology in
all rulemakings.168 AHRI further asked
DOE to explain the justification for
amortizing conversion costs in one
instance but not in all. (AHRI, No. 1167
at pp. 20–21)
DOE models different manufacturer
markup scenarios to assess the potential
impacts on prices and profitability for
manufacturers following the
implementation of amended energy
conservation standards. The analyzed
scenarios lead to different manufacturer
markup values that, when applied to the
manufacturer production costs, result in
varying revenue and cash flow impacts.
These scenarios are meant to reflect the
potential range of financial impacts for
manufacturers of the specific covered
product or equipment. The analyzed
manufacturer markup scenarios vary by
rulemaking because they are informed
by manufacturer feedback and reflect
the market for the specific product type.
For the July 2023 NOPR and the July
2024 NODA, DOE applied a
preservation of gross margin percentage
168 Technical Support Document: Energy
Efficiency Program For Commercial And Industrial
Equipment: Microwave Ovens. Available at
www.regulations.gov/document/EERE-2017-BTSTD-0023-0022.
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scenario to reflect an upper bound to
industry profitability under amended
standards and a preservation of
operating profit scenario to reflect a
lower bound of industry profitability
under amended standards. 88 FR 49058,
49128; 89 FR 59692, 59700. For gasfired instantaneous water heaters,
manufacturing more efficient products
is generally more expensive than
manufacturing baseline or minimally
efficient products, as reflected by the
MPCs estimated in the engineering
analysis (see section IV.C.1 of this
document). Under the preservation of
gross margin scenario for gas-fired
instantaneous water heaters,
incremental increases in MPCs at higher
efficiency levels result in an increase in
per-unit dollar profit per unit sold. As
shown in table V.6, under the
preservation of gross margin scenario,
the standards case INPV increases
relative to the no-new-standards case
INPV at all analyzed TSLs, resulting in
a positive change in INPV at TSL 1–TSL
4. This implies that the increase in
cashflow from the higher MSP
outweighs the estimated conversion
costs at each of the considered TSLs. In
other words, under the preservation of
gross margin scenario, the gas-fired
instantaneous water heater industry
more than recovers conversion costs
incurred as a result of amended
standards. The approach used in the
microwave ovens rulemaking (i.e., a
conversion cost recovery scenario)
modeled a scenario in which
manufacturers recover investments such
that INPV in the standards cases are
equal to the INPV in the no-newstandards case, resulting in no change in
INPV at the considered TSLs. 88 FR
39912, 39935. Thus, if DOE applied a
conversion cost recovery scenario in
this rulemaking, the potential change in
INPV at each considered TSL would be
within the range of estimated impacts
resulting from the preservation of gross
margin scenario and preservation of
operating profit scenario. As such, DOE
maintained the two standards-case
manufacturer markup scenarios used in
the July 2023 NOPR for this final rule
as they most appropriately reflect the
upper (least severe) and lower (more
severe) impacts to manufacturer
profitability under amended standards.
In response to the July 2023 NOPR,
AHRI submitted written comments
regarding cumulative regulatory burden.
AHRI urged DOE to consider the high
volume of regulatory activity that
directly affects manufacturers of
consumer water heaters, including gasfired instantaneous water heaters, and
expressed concern that DOE was
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rushing to publish recent rulemakings,
risking significant revision that will
prolong uncertainty, confuse
consumers, and potentially undermine
broader policy goals. AHRI cited
standards and test procedure
rulemakings for other covered products
and equipment, as well as low and zero
NOx actions by California Air Resources
Board (‘‘CARB’’) and individual air
quality management districts. (AHRI,
No. 1167 at pp. 7–9)
In response to the July 2023 NOPR,
BWC commented that the impact of
cumulative regulatory burden
experienced by manufacturers is not
limited to conversion costs, but also to
the preparations manufacturers must
undergo in order to respond to proposed
rules. BWC further stated that DOE has
promulgated several major rulemakings
that will directly impact the products
that BWC manufactures, in addition to
actions undertaken by other
governments and programs, and that the
ability of manufacturers to draw on
outside resources for assistance will be
severely limited by the concurrent
needs of many manufacturers across
rulemakings, particularly in the case of
third-party laboratories. BWC stated that
due to the burden this rulemaking will
place on third-party laboratories, as well
as the general burden of multiple
concurrent ongoing regulatory actions,
BWC strongly disagreed with DOE’s
decision not to consider test
rulemakings as part of its analysis.
(BWC, No. 1164 at pp. 24–26) BWC also
stated that, due to concurrent regulatory
actions regarding energy efficiency at
both the State and Federal levels, it
disagreed with DOE’s conclusion in
section VI.B.5 of the July 2023 NOPR
that there are no rules or regulations
that duplicate, overlap, or conflict with
this proposed rule and encouraged DOE
to account for all of these issues, ideally
allowing manufacturers more time to
review and respond to DOE rulemakings
when requested. (BWC, No. 1164 at p.
24)
With respect to comments regarding
the regulatory burden, DOE recognizes
that the gas-fired instantaneous water
heater industry is subject to regulations
from Federal, State, and local entities.
DOE analyzes and considers the impact
on manufacturers of multiple product/
equipment-specific Federal regulatory
actions. Specifically, DOE analyzes
cumulative regulatory burden pursuant
to section 13(g) of appendix A. 10 CFR
part 430, subpart C, appendix A, section
13(g); 10 CFR 431.4. DOE notes that
regulations that are not yet finalized are
not considered as cumulative regulatory
burden, as the timing, cost, and impacts
of unfinalized rules are speculative.
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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. The results of this analysis
can be found in section V.B.2.e of this
document.
Regarding AHRI’s comment about
ultra-low NOx and zero NOx
regulations, DOE notes that in its
analysis of cumulative regulatory
burden, DOE considers Federal, product
specific regulations that have
compliance dates within 3 years of one
another. DOE is not aware of any
Federal or State ultra-low NOx or zero
NOx regulations specific to gas-fired
instantaneous water heaters with
compliance dates within the 7-year
cumulative regulatory burden timeframe
(2027–2033).169 DOE notes that certain
localities (i.e., California Air Districts)
have adopted regulations requiring
ultra-low NOx consumer water heaters.
DOE accounts for the portion of ultralow NOx shipments in its analysis. DOE
notes that two California Air Districts—
the Bay Area 170 and South Coast 171 Air
Quality Management Districts have
adopted amendments to eliminate NOx
emissions from certain gas-fired
instantaneous water heaters beginning
in 2031 and 2026, respectively. There
are currently no natural gas-fired
instantaneous water heaters on the
market that would meet the zero NOx
standards, though manufacturers may
choose to develop them.
Regarding BWC’s request that DOE
not discount the costs for stakeholders
to review rulemakings, although DOE
appreciates that monitoring and
responding to rulemakings does impose
costs for stakeholders, DOE believes that
this is outside the scope of analysis for
individual product rulemakings.
Because EPCA requires DOE to establish
and maintain the energy conservation
program for consumer products and to
169 CARB has stated that it is committed to
explore developing and proposing zero-emission
GHG standards for new space and water heaters
sold in California as part of the 2022 State Strategy
for the State Implementation Plan adopted in
September 2022. However, at the time of issuance,
CARB has not adopted such standards for gas-fired
instantaneous water heaters. Additional
information is available at: https://ww2.arb.ca.gov/
our-work/programs/building-decarbonization/zeroemission-space-and-water-heater-standards/
meetings-workshops. (Last accessed Aug. 7, 2024).
170 Available at: www.baaqmd.gov/∼/media/
dotgov/files/rules/reg-9-rule-4-nitrogen-oxidesfrom-fan-type-residential-central-furnaces/2021amendments/documents/20230315_rg0906pdf.pdf?rev=436fcdb037324b0b8f0c981d869
e684d&sc_lang=en. (Last accessed Aug. 7, 2024).
171 Available at: www.aqmd.gov/docs/defaultsource/rule-book/recent-rules/r1146_2060724.pdf?sfvrsn=8 (Last accessed Aug. 29, 2024).
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periodically propose new and amended
standards (or propose that standards for
products do not need to be amended)
and test procedures, DOE considers this
rulemaking activity to be part of the
analytical baseline (i.e., in the no-newstandards case and the standards case).
That is, these activities (e.g., reviewing
proposed rules or proposed
determinations) would exist regardless
of the regulatory option that DOE adopts
through a rulemaking and would be
independent from the conversion costs
required to adapt product designs and
manufacturing facilitates to meet an
amended standard.
In response to the July 2024 NODA,
Rheem stated that they agreed with a 70
percent market share estimate for
condensing gas-fired instantaneous
water heaters and gradual shift towards
condensing models. Rheem indicated
that most manufacturers already possess
the design and manufacturing
capabilities necessary to produce
products across the full range of
efficiencies. Rheem stated that while a
condensing-level standard at EL 2 or EL
3 would require manufactures to
repurpose and retool assembly lines, a
standard consistent with EL 2 (i.e., TSL
2) would be less disruptive compared to
higher efficiency levels, which would
require a fully modulating burner design
and higher investment. Rheem generally
agreed with the conclusions of the
manufacturer impact analysis but stated
that they did not believe the additional
energy savings at EL 3 compared to EL
2 were great enough to justify the greater
cost to manufacturers. (Rheem No. 1436
at p. 3)
Regarding the need for manufacturers
to repurpose and retool assembly lines,
DOE accounted for the capital and
product conversion costs associated
with increasing production of
condensing gas-fired instantaneous
water heaters in its analysis. Consistent
with Rheem’s comment, DOE’s analysis
estimates that conversion costs would
be higher at EL 3 and EL 4 compared to
EL 2. See section IV.J.2.c and section
V.B.2.a of this document and chapter 12
of the final rule TSD for additional
information on conversion costs. In this
final rule, DOE is adopting TSL 2. See
section V.C of this document for a
discussion of the benefits and burdens
of the TSLs considered.
The Joint Advocates commented that
DOE’s analysis for the July 2024 NODA
shows that the potential impacts on gasfired instantaneous water heater
manufacturers at EL 2 and higher would
be modest and that, specifically, the
potential impact on INPV at EL 2 ranges
from a loss of 2.7 percent to a gain of
3.2 percent. (Joint Advocates, No. 1444
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at pp. 1–2) The Joint Advocates
commented that the proposed standards
for gas-fired instantaneous water heaters
could increase U.S. manufacturing jobs
because the labor content required to
produce a condensing gas-fired
instantaneous water heater is
approximately 59 percent more than
that required to produce a noncondensing gas-fired instantaneous
water heater. (Joint Advocates, No. 1444
at p. 2)
Regarding the potential impacts on
gas-fired instantaneous water heater
manufacturers, for this final rule, the
estimated change in INPV at TSL 2
ranges from a loss of 2.8 percent to a
gain of 3.4 percent. See section V.B.2.a
of this document for additional
information on the MIA results.
Regarding the potential impacts to
direct employment, for this final rule,
DOE models a lower-bound decrease of
190 production workers and an upperbound increase in domestic direct
employment of 62 percent (an increase
of approximately 117 production
workers, for a total of 307 domestic
production workers) at TSL 1 through
TSL 4 in 2030. See section V.B.2.b of
this document for additional
information on DOE’s direct
employment analysis.
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 final rule uses
projections from AEO2023. Power sector
emissions of CH4 and N2O from fuel
combustion are estimated using
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Emission Factors for Greenhouse Gas
Inventories published by the EPA.172
The on-site operation of consumer
gas-fired instantaneous water heaters
involves 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.173
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.
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
reflects, to the extent possible, laws and
regulations adopted through midNovember 2022, including the
emissions control programs discussed in
the following paragraphs the emissions
control programs discussed in the
following paragraphs, and the Inflation
Reduction Act.174
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
172 Available at www.epa.gov/sites/production/
files/2021-04/documents/emission-factors_
apr2021.pdf (last accessed August 29, 2024).
173 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
29, 2024).
174 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
29, 2024).
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seq.) SO2 emissions from numerous
States in the eastern half of the United
States are also limited under the CrossState Air Pollution Rule (‘‘CSAPR’’). 76
FR 48208 (Aug. 8, 2011). CSAPR
requires these States to reduce certain
emissions, including annual SO2
emissions, and went into effect as of
January 1, 2015.175 The AEO
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.176 77 FR
9304 (Feb. 16, 2012). The final rule
establishes power plant emission
standards for mercury, acid gases, and
non-mercury metallic toxic pollutants.
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
175 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-Sept.) 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 (Aug. 8, 2011).
EPA subsequently issued a supplemental rule that
included an additional five States in the CSAPR
ozone season program; 76 FR 80760 (Dec. 27, 2011)
(Supplemental Rule), and EPA issued the CSAPR
Update for the 2008 ozone NAAQS. 81 FR 74504
(Oct. 26, 2016).
176 In order to continue operating, coal power
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.
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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.
Standards would be expected to reduce
NOX emissions in the States not covered
by CSAPR. 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
Order 12866, DOE considered the
estimated monetary benefits from the
reduced 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
during 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, the July 2023 NOPR
used the interim social cost of
greenhouse gases (‘‘SC–GHG’’) 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
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Interagency Working Group on the SC–
GHG (‘‘IWG’’) (‘‘2021 Interim SC–GHG
estimates’’). As a member of the IWG
involved in the development of the
February 2021 SC–GHG TSD, DOE
agreed that the 2021 interim SC–GHG
estimates represented the most
appropriate estimate of the SC–GHG
until revised estimates were developed
reflecting the latest, peer-reviewed
science. See 87 FR 78382, 78406–78408
for discussion of the development and
details of the 2021 interim SC–GHG
estimates. The IWG has continued
working on updating the interim
estimates, but has not published final
estimates.
Accordingly, in the regulatory
analysis of its December 2023 Final
Rule, ‘‘Standards of Performance for
New, Reconstructed, and Modified
Sources and Emissions Guidelines for
Existing Sources: Oil and Natural Gas
Sector Climate Review,’’ the EPA
estimated climate benefits using a new,
updated set of SC–GHG estimates
(‘‘2023 SC–GHG estimates’’). EPA
documented the methodology
underlying the new estimates in the RIA
for the December 2023 Final Rule and
in greater detail in a technical report
entitled ‘‘Report on the Social Cost of
Greenhouse Gases: Estimates
Incorporating Recent Scientific
Advances’’ that was presented as
Supplementary Material to the RIA.177
The 2023 SC–GHG estimates
incorporate recent research addressing
recommendations of the Natural
Academies of Science, Engineering, and
Medicine (National Academies),
responses to public comments on an
earlier sensitivity analysis using draft
SC–GHG estimates included in EPA’s
December 2022 proposal in the oil and
natural gas sector standards of
performance rulemaking, and comments
from a 2023 external peer review of the
accompanying technical report.178
On December 22, 2023, the IWG
issued a memorandum directing that
when agencies ‘‘consider applying the
SC–GHG in various contexts . . .
agencies should use their professional
judgment to determine which estimates
of the SC–GHG reflect the best available
evidence, are most appropriate for
particular analytical contexts, and best
facilitate sound decision-making’’
177 https://www.epa.gov/system/files/documents/
2023-12/eo12866_oil-and-gas-nsps-eg-climatereview-2060-av16-final-rule-20231130.pdf; https://
www.epa.gov/system/files/documents/2023-12/epa_
scghg_2023_report_final.pdf (last accessed July 3,
2024).
178 https://www.epa.gov/system/files/documents/
2023-12/epa_scghg_2023_report_final.pdf (last
accessed July 3, 2024).
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consistent with OMB Circular A–4 and
applicable law.179
DOE has been extensively involved in
the IWG process and related work on
the SC–GHGs for over a decade. This
involvement includes DOE’s role as the
federal technical monitor for the
seminal 2017 report on the SC–GHG
issued by the National Academies,
which provided extensive
recommendations on how to strengthen
and update the SC–GHG estimates.180
DOE has also participated in the IWG’s
work since 2021. DOE technical experts
involved in this work reviewed the 2023
SC–GHG methodology and report in
light of the National Academies’
recommendations and DOE’s
understanding of the state of the
science.
Based on this review, in the July 2024
NODA, DOE proposed for public
comment its preliminary determination
that the updated 2023 SC–GHG
estimates, including the approach to
discounting, represent a significant
improvement in estimating the SC–GHG
through incorporating the most recent
advancements in the scientific literature
and by addressing recommendations on
prior methodologies. That NODA
presented climate benefits using both
the 2023 SC–GHG values and the 2021
interim SC–GHG estimates. 89 FR
59693, 59700. In this final rule, DOE has
not made a final decision regarding that
preliminary assessment or adoption of
the updated 2023 SC–GHG estimates, as
such a decision is not necessary for
purposes of this rule. DOE will continue
to decide, for each particular analytical
context, whether to rely on, present for
presentation purposes, or use in some
other way, the updated 2023 SC–GHG
values, the 2021 interim SC–GHG
estimates, or both. In this final rule,
DOE is presenting estimates using both
the updated 2023 SC–GHG values and
the 2021 interim SC–GHG estimates, as
DOE believes itis appropriate to give the
public more complete information
regarding the benefits of this rule. DOE
notes, however, that the adopted
standards would be economically
justified using either set of SC–GHG
values, and even without inclusion of
the estimated monetized benefits of
reduced GHG emissions. In future
rulemakings, DOE will continue to
evaluate the applicability in context and
179 https://www.whitehouse.gov/wp-content/
uploads/2023/12/IWG-Memo-12.22.23.pdf (last
accessed July 3, 2024).
180 Valuing Climate Damages: Updating
Estimation of the Social Cost of Carbon Dioxide |
The National Academies Press. (available at:
nap.nationalacademies.org/catalog/24651/valuingclimate-damages-updating-estimation-of-the-socialcost-of) (last accessed July 3, 2024).
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use our professional judgment to apply
the SC–GHG estimates that are most
appropriate to use at that time.
The 2023 EPA technical report
presents SC–GHG values for emissions
years through 2080; therefore, DOE did
not monetize the climate benefits of
GHG emissions reductions occurring
after 2080 when using the 2023
estimates for the SC–GHG. DOE expects
additional climate impacts to accrue
from GHG emissions changes post 2080,
but due to a lack of readily available
SC–GHG estimates for emissions years
beyond 2080 and the relatively small
emission effects expected from those
years, DOE has not monetized these
additional impacts in this analysis.
Similarly, the interim 2021 interim SC–
GHG estimates include values through
2070. DOE expects additional climate
benefits to accrue for products still
operating after 2070, but a lack of
available SC–GHG estimates published
by the IWG for emissions years beyond
2070 prevents DOE from monetizing
these potential benefits in this analysis.
The overall climate benefits are
generally greater when using the higher,
updated 2023 SC–GHG estimates,
compared to the climate benefits using
the older 2021 interim SC–GHG
estimates, which were used in the July
2023 NOPR. The net benefits of the rule
are positive, however, under either SC–
GHG calculation methodology; in fact,
the net benefits of the rule are positive
without including any monetized
climate benefits at all. The adopted
standards would be economically
justified even without inclusion of the
estimated monetized benefits of reduced
GHG emissions using either
methodology, therefore the conclusions
of the analysis (as presented in section
V.C of this document) are not dependent
on which set of estimates of the SC–
GHG are used in the analysis or on the
use of the SC–GHG at all. The adopted
standard level would remain the same
under either SC–GHG calculation
methodology (or without using the SC–
GHG at all).
DOE received several comments
regarding its preliminary determination
on the use of the 2023 SC–GHG
methodologies in the July 2024 NODA.
As noted above, DOE is not making a
final determination regarding which of
the two sets of SC–GHG is most
appropriate to apply here or across all
DOE analyses. Accordingly, DOE is not
addressing in this rule comments
regarding such a final determination.
Because DOE is presenting results using
both sets of estimates, however, to the
extent that commenters raised concerns
about any reference to the 2023 SC–
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GHG methodologies, DOE is responding
to that limited set of comments here.
AHRI disagreed with DOE’s use of
2023 SC–GHG estimates in its analysis
to justify proposed energy conservation
standards. AHRI stated that adoption of
2023 SC–GHG methodologies
introduces complexity, uncertainty, and
traceability issues. AHRI recommended
that DOE provide guidance on how 2023
SC–GHG methodologies were applied
and offer comparison to the analysis
performed in the July 2023 NOPR
(AHRI, No. 1437 p. 3).
Rinnai disagreed with DOE’s
preliminary decision to adopt 2023 SC–
GHG methodologies, which they claim
introduce challenges regarding the
traceability of the data, the complexity
and uncertainty of the new estimates,
validation of the long-term costs and
benefits of GHG emissions and the
ability to compare the July 2024 NODA
and July 2023 NOPR results. Rinnai
further states that if the DOE updates
the SC–GHG methodology, the update
should be performed for all water heater
product classes to reflect a fair
comparison. (Rinnai, No. 1443 at p. 10)
In response, DOE reiterates that it
would promulgate the same standards
in this final rule even in the absence of
the benefits of the GHG reductions
achieved by the rule because the
adopted standards for gas-fired
instantaneous water heaters are
economically justified even without
including such benefits. DOE would
also promulgate the same standards in
this final rule using either the 2021
interim SC–GHG estimates or the 2023
SC–GHG estimates. In this rule, DOE is
presenting SC–GHG results using both
the interim 2021 SC–GHG estimates and
the updated 2023 SC–GHG estimates.
In the July 2024 NODA, DOE
preliminarily agreed with EPA’s
assessment that the updates
implemented in the 2023 SC–GHG
estimates reflect the best available
science and address recommendations
from the National Academies. DOE
acknowledges commenters’ concerns
regarding uncertainty of the new
estimates, but notes that the 2021
interim SC–GHG estimates are also
uncertain and that uncertainty is
inherent in all complex cost estimates
that quantify physical impacts and
translate them into dollar values.
DOE further notes that EPA accounted
for uncertainty in various aspects of the
2023 SC–GHG estimates in each of the
modules and comprehensively
discussed these sources of uncertainty
in the Final SC–GHG Report and
supporting literature. (See, e.g., EPA
Report at p. 77; EPA RTC A–1–7).
According to EPA, the updated
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approaches taken in the methodology
behind the 2023 SC–GHG estimates
were specifically chosen because they
allow for a more explicit representation
of uncertainty. Moreover, the treatment
of uncertainty was a key focus of the
peer review process. Several peer
reviewers commended EPA on its
comprehensive approach to
incorporating uncertainty (EPA Peer
Review Summary Report, pgs. 26, 31,
33, etc.). and EPA responded to peer
review comments on remaining
questions about uncertainty by
expanding and clarifying the discussion
around uncertainty in each module
(throughout section 2) and added
appendix A.8 and table A.8.1 to further
account for uncertainty.
Because, in this rule, DOE is
presenting both the interim 2021 SC–
GHG estimates and the 2023 SC–GHG
estimates, the comment contending that
the updated 2023 SC–GHG estimates are
less traceable or less transparent than
the 2021 interim SC–GHG estimates are
no longer relevant. Insofar as this
comment objects to DOE even referring
to the 2023 SC–GHG methodologies and
using them for presentation purposes,
however, we note that EPA developed
these estimates through a process that
included an initial draft with sensitivity
analyses, independent peer review,
responses to peer review and comments,
available documentation associated
with the underlying inputs and a public
docket that includes all the studies and
reports cited in the analysis. (See e.g.,
EPA’s ‘‘Report on the Social Cost of
Greenhouse Gases: Estimates
Incorporating Recent Scientific
Advances’’ | US EPA; EPA RTC A–7–4).
Because, in this rule, DOE is
presenting both the interim 2021 SC–
GHG estimates and the 2023 SC–GHG
estimates, the comments that adding an
additional, updated estimate of the SC–
GHG benefits impairs the public or the
industry’s ability to compare the July
2024 NODA and July 2023 NOPR results
with the final rule are not relevant.
Finally, the commenter asserted that
DOE should update the SC–GHG values
for all water heater product classes to
reflect a fair comparison. As stated
above, because DOE is presenting both
the interim 2021 SC–GHG estimates and
the 2023 SC–GHG estimates for this
rule, this comment is not relevant.
BWC stated that the 2023 SC–GHG
estimates are a significant step forward
in quantifying the social cost of
greenhouse gases. BWC further
commented that given the permanence
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of any minimum energy conservation
standards that are established by DOE
under EPCA, it is essential that the
Department first finalize a robust,
consistent, and objective approach
towards accurately calculating SC–GHG
before allowing this metric to
economically justify more stringent
standards that would otherwise not
yield a positive net present value. BWC
also questioned the consistency of the
methodologies going forward and the
extent that peer experts were able to
review and participate in the process.
(BWC, No. 1441 at p. 3–4)
DOE appreciates commenter’s
statement that the 2023 SC–GHG
estimates are an important step forward
in the monetization of greenhouse gas
emissions.
With respect to the commenter’s
concerns about peer review, DOE notes
again that the 2023 SC–GHG estimates
were subjected to independent peer
review in line with EPA’s Peer Review
Handbook 4th Edition, 2015. This
process was conducted by an
independent contractor and involved
two separate comment periods for
outside experts. EPA reported that the
peer reviewers commended the agency
on its development of this update and
labeled it a much-needed improvement
in estimating the SC–GHG. (EPA Report
at p. 3; EPA RTC A–7–11).
Regarding the commenter’s concerns
about the consistency of the
methodologies going forward (BWC, No.
1441 at p. 3–4), DOE reiterates that it is
presenting climate benefits using both
sets of SC–GHG estimates and that, in
future rulemakings, DOE will continue
to evaluate the applicability in context
and use its professional judgment to
apply the SC–GHG estimates that are
most appropriate to use at that time.
Finally, DOE reiterates that it would
promulgate the same standards in this
final rule even in the absence of the
benefits of the GHG reductions achieved
by the rule. DOE would also promulgate
the same standards in this final rule,
using either the 2021 interim SC–GHG
estimates, rather than the 2023 SC–GHG
estimates. Thus, DOE did not, in fact,
rely on either the 2023 SC–GHG
estimates or the 2021 interim SC–GHG
estimates ‘‘to economically justify more
stringent standards that would
otherwise not yield a positive net
present value,’’ as the commenter
suggests because the adopted standards
for gas-fired instantaneous water heaters
are economically justified even without
including such benefits.
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DOE’s derivations of the 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.6 of this
document.
a. Social Cost of Carbon
The SC–CO2 values used for this final
rule are presented using two sets of SC–
GHG estimates. One set is the 2023 SC–
GHG estimates published by the EPA,
which are shown in table IV.13 in 5-year
increments from 2020 to 2050. The set
of annual values that DOE used is
presented in appendix 14A of the final
rule TSD. These estimates include
values out to 2080. DOE expects
additional climate benefits to accrue for
products still operating after 2080, but
a lack of available SC–CO2 estimates for
emissions years beyond 2080 prevents
DOE from monetizing these potential
benefits in this analysis.
TABLE IV.13—ANNUAL SC–CO2 VALUES BASED ON 2023 SC–GHG ESTIMATES, 2020–2050
[2020$ per Metric Ton CO2]
Emissions year
2020
2025
2030
2035
2040
2045
2050
........................
........................
........................
........................
........................
........................
........................
Near-term Ramsey
discount rate
2.5%
2.0%
1.5%
117
130
144
158
173
189
205
193
212
230
248
267
287
308
337
360
384
408
431
456
482
DOE also presents results using
interim SC–CO2 values based on the
values developed for the February 2021
SC–GHG TSD, which are shown in table
IV.14 in 5-year increments from 2020 to
2050. The set of annual values that DOE
used, which was adapted from estimates
published by EPA in 2021,181 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.
181 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
Dec. 03, 2024).
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TABLE IV.14—ANNUAL SC–CO2 VALUES BASED ON 2021 INTERIM SC–GHG ESTIMATES, 2020–2050
[2020$ per Metric Ton CO2]
Discount rate and statistic
Year
2020
2025
2030
2035
2040
2045
2050
5%
average
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
DOE multiplied the CO2 emissions
reduction estimated for each year by the
SC–CO2 value for that year in all of the
cases. DOE adjusted the values to 2023$
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
3%
average
14
17
19
22
25
28
32
2.5%
average
51
56
62
67
73
79
85
values in all of the cases using the
specific discount rate that had been
used to obtain the SC–CO2 values in
each case.
b. Social Cost of Methane and Nitrous
Oxide
The SC–CH4 and SC–N2O values used
for this final rule are presented using
3%
95th percentile
76
83
89
96
103
110
116
152
169
187
206
225
242
260
two sets of SC–GHG estimates. One set
is the 2023SC–GHG estimates published
by the EPA. table IV.15 shows the
updated sets of SC–CH4 and SC–N2O
estimates in 5-year increments from
2020 to 2050. The full set of annual
values used is presented in appendix
14A of the final rule TSD. These
estimates include values out to 2080.
TABLE IV.15—ANNUAL SC–CH4 AND SC–N2O VALUES BASED ON 2023 SC–GHG ESTIMATES, 2020–2050
[2020$ per Metric Ton]
Emissions year
SC–CH4
SC–N2O
Near-term Ramsey discount rate
Near-term Ramsey discount rate
2.5%
2020
2025
2030
2035
2040
2045
2050
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
2.0%
1,257
1,590
1,924
2,313
2,702
3,124
3,547
DOE also presents results using
interim SC–CH4 and SC–N2O values
based on the values developed for the
February 2021 SC–GHG TSD. Table
1.5%
1,648
2,025
2,403
2,842
3,280
3,756
4,231
2.5%
2,305
2,737
3,169
3,673
4,177
4,718
5,260
2.0%
35,232
39,972
44,712
49,617
54,521
60,078
65,635
IV.16 shows the updated sets of SC–CH4
and SC–N2O estimates from the latest
interagency update in 5-year increments
from 2020 to 2050. The full set of
1.5%
54,139
60,267
66,395
72,644
78,894
85,945
92,996
87,284
95,210
103,137
111,085
119,032
127,916
136,799
annual unrounded values used in the
calculations is presented in appendix
14A of the final rule TSD. These
estimates include values out to 2070.
TABLE IV.16—ANNUAL SC–CH4 AND SC–N2O VALUES BASED ON 2021 INTERIM SC–GHG ESTIMATES, 2020–2050
[2020$ per Metric Ton]
SC–CH4
Discount rate and statistic
Year
ddrumheller on DSK120RN23PROD with RULES2
5%
average
2020
2025
2030
2035
2040
2045
2050
..................................
..................................
..................................
..................................
..................................
..................................
..................................
3%
average
670
800
940
1,100
1,300
1,500
1,700
22:46 Dec 23, 2024
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2.5%
average
1,500
1,700
2,000
2,200
2,500
2,800
3,100
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 2023$
VerDate Sep<11>2014
SC–N2O
Discount rate and statistic
3%
95th percentile
2,000
2,200
2,500
2,800
3,100
3,500
3,800
5%
average
3,900
4,500
5,200
6,000
6,700
7,500
8,200
5,800
6,800
7,800
9,000
10,000
12,000
13,000
using the implicit price deflator for 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
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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
cases using the specific discount rate
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that had been used to obtain the SC–CH4
and SC–N2O estimates in each case.
2. Monetization of Other Emissions
Impacts
ddrumheller on DSK120RN23PROD with RULES2
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.182 Table 5 of the EPA TSD
provides a summary of the health
impact endpoints quantified in the
analysis. 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, 2035, 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 period; for years
beyond 2040, the values are held
constant (rather than extrapolated) to be
conservative. 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 consumer gas-fired instantaneous
water heaters 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.183 The EPA
document provides high and low
estimates for 2025 and 2030 at 3- and 7percent discount rates.184 DOE used the
same linear interpolation and
extrapolation as it did with the values
for electricity generation.
182 U.S. Environmental Protection Agency.
Estimating the Benefit per Ton of Reducing DirectlyEmitted PM2.5, PM2.5 Precursors and Ozone
Precursors from 21 Sectors. Available at
www.epa.gov/benmap/estimating-benefit-tonreducing-directly-emitted-pm25-pm25-precursorsand-ozone-precursors (last accessed August 29,
2024.
183 ‘‘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.
184 ‘‘Area sources’’ are a category in the 2018
document from EPA but are not used in the 2021
document cited above. See: www.epa.gov/sites/
default/files/2018-02/documents/
sourceapportionmentbpttsd_2018.pdf.
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20:37 Dec 23, 2024
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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.
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
chapter 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.
BWC expressed concerns that DOE
overestimated the impact of this metric
in the analysis presented in the July
2024 NODA pointing to table III.9,
which demonstrates electric utility
impact results indicating a substantial
decrease in electric load for both
installed capacity, as well as electric
generation. BWC contended that since
gas-fired instantaneous water heaters
utilize very little electric energy, they
question how adopting more stringent
energy conservation standards for these
products could impact electric load
demand to such a significant extent.
(BWC, No. 1441 at p. 4)
In response, DOE notes that the
changes listed in table III.9 of the July
2024 NODA in installed capacity and
generation are significantly smaller than
total US electric capacity which is over
a million Megawatts. Additionally, DOE
notes that results for EL 1 through 3
results in an increase in installed
capacity as denoted by parentheses.
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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.185 Bureau of Economic
Analysis input-output multipliers also
show a lower labor intensity per million
dollars of activity for utilities as
compared to other industries.186 There
are many reasons for these differences,
including wage differences and the fact
that the utility sector is more capitalintensive 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
185 See U.S. Bureau of Labor Statistics. Industry
Output and Employment. Available at:
www.bls.gov/emp/data/industry-out-and-emp.htm
(last accessed August 19, 2024).
186 See U.S. Department of Commerce–Bureau of
Economic Analysis. Regional Input-Output
Modeling System (RIMS II) User’s Guide. Available
at: www.bea.gov/resources/methodologies/RIMSIIuser-guide (last accessed Jan. 18, 2024).
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sectors of the economy, the general
effect of efficiency standards is to shift
economic activity from a less laborintensive sector (i.e., the utility sector)
to more labor-intensive sectors (e.g., the
retail and service sectors). Thus, these
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’’).187
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
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 (2030–2034), 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 consumer
gas-fired instantaneous water heaters. It
addresses the TSLs examined by DOE,
the projected impacts of each of these
levels if adopted as energy conservation
standards for consumer gas-fired
instantaneous water heaters, and the
standards levels that DOE is adopting in
this final rule. Additional details
regarding DOE’s analyses are contained
in the final rule TSD supporting this
document.
A. Trial Standard Levels
In general, DOE typically evaluates
potential new or amended standards for
products and equipment by grouping
individual efficiency levels for each
class into TSLs. 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 price elasticity of
consumer purchasing decisions that
105261
may change when different standard
levels are set.
In the analysis conducted for this
final rule, DOE analyzed the benefits
and burdens of four TSLs for consumer
gas-fired instantaneous water heaters.
These TSLs are equivalent to each of the
ELs analyzed by DOE with results
presented in this document. TSL 1
represents a transition from noncondensing to condensing technology
(i.e., through the addition of a secondary
condensing heat exchanger). TSL 2
represents an intermediate condensing
efficiency which can be achieved using
larger heat exchangers. TSL 3 represents
a further improvement by the use of a
heat exchanger with even more surface
area, such as a flat-plate heat exchanger
design, and is the efficiency level
required to meet the EPA’s ENERGY
STAR specification criteria. Finally,
TSL 4 represents the max-tech
efficiency, which may be achieved by
use of fully modulating burners and
further improvements to the heat
exchanger. 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. Table
V.1 presents the TSLs and the
corresponding efficiency levels that
DOE has identified for potential
amended energy conservation standards
for consumer gas-fired instantaneous
water heaters.
TABLE V.1—TRIAL STANDARD LEVELS FOR CONSUMER GAS-FIRED INSTANTANEOUS WATER HEATERS
Trial standard level
Product class
1
I
2
I
3
I
4
3
I
4
Efficiency level
Gas-fired Instantaneous Water Heaters (Veff <2 gal, Rated Input >50,000
Btu/h) ............................................................................................................
B. Economic Justification and Energy
Savings
ddrumheller on DSK120RN23PROD with RULES2
DOE analyzed the economic impacts
on consumer gas-fired instantaneous
water heaters consumers by looking at
the effects that potential 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.
187 Livingston, O.V., S.R. Bender, M.J. Scott, and
R.W. Schultz. ImSET 4.0: Impact of Sector Energy
20:37 Dec 23, 2024
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I
a. Life-Cycle Cost and Payback Period
1. Economic Impacts on Individual
Consumers
VerDate Sep<11>2014
1
In general, higher-efficiency products
affect consumers in two ways: (1)
purchase price increases, and (2) annual
operating costs decrease. Inputs used for
calculating the LCC and PBP include
total installed 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. Chapter 8 of the
final rule TSD provides detailed
information on the LCC and PBP
analyses.
Technologies Model Description and User’s Guide.
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2
I
Table V.2 and table V.3 show the LCC
and PBP results for the TSLs
considered. In the first table, 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 no-newstandards case in the compliance year
(see section IV.F.8 of this document).
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
2015. Pacific Northwest National Laboratory:
Richland, WA. PNNL–24563.
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Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations
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.2—AVERAGE LCC AND PBP RESULTS FOR GAS-FIRED INSTANTANEOUS WATER HEATERS
[Veff <2 gal, rated input >50,000 Btu/h]
Average costs
2023$
Simple
payback
(years)
Efficiency level
Installed cost
0
1
2
3
4
...............................................................
...............................................................
...............................................................
...............................................................
...............................................................
First year’s
operating cost
Lifetime
operating cost
303
285
277
273
270
4,571
4,339
4,210
4,154
4,107
2,087
2,304
2,318
2,334
2,424
LCC
6,659
6,644
6,528
6,487
6,531
Average
lifetime
(years)
........................
12.6
8.9
8.3
10.3
20.0
20.0
20.0
20.0
20.0
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.3—AVERAGE LCC SAVINGS RELATIVE TO THE NO-NEW-STANDARDS CASE FOR GAS-FIRED INSTANTANEOUS
WATER HEATERS
[Veff <2 gal, rated input >50,000 Btu/h]
Life-cycle cost savings
Trial standard level
1
2
3
4
Efficiency level
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
1
2
3
4
Average LCC
savings *
(2023)
.......................................................
.......................................................
.......................................................
.......................................................
(1)
112
90
39
Percent of
consumers
that
experience net
cost
17.5
15.2
25.0
56.2
* The savings represent the average LCC for affected consumers.
Parentheses indicate negative (-) values.
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. Table V.4
compares the average LCC savings and
PBP at each efficiency level for the
consumer subgroups with similar
metrics for the entire consumer sample
for consumer gas-fired instantaneous
water heaters. In most cases, the average
LCC savings and PBP for low-income
households and senior-only households
at the considered efficiency levels are
not substantially different from the
average for all households. Chapter 11
of the final rule TSD presents the
complete LCC and PBP results for the
subgroups.
TABLE V.4—COMPARISON OF LCC SAVINGS AND PBP FOR CONSUMER SUBGROUPS AND ALL HOUSEHOLDS; GAS-FIRED
INSTANTANEOUS WATER HEATERS
[Veff <2 gal, rated input >50,000 Btu/h]
Low-income
households
TSL
Senior-only
households
Small
businesses
All households
Average LCC Savings (2023$)
1
2
3
4
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
141
248
152
123
(38)
80
75
18
(158)
(51)
10
(44)
(1)
112
90
39
9.9
7.1
6.6
7.9
13.5
9.6
8.9
10.9
10.2
7.2
6.6
7.8
12.6
8.9
8.3
10.3
8.2
6.5
20.0
16.6
24.5
25.7
17.5
15.2
ddrumheller on DSK120RN23PROD with RULES2
Simple Payback Period (years)
1
2
3
4
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
Consumers with Net Cost (%)
1 .......................................................................................................................
2 .......................................................................................................................
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105263
TABLE V.4—COMPARISON OF LCC SAVINGS AND PBP FOR CONSUMER SUBGROUPS AND ALL HOUSEHOLDS; GAS-FIRED
INSTANTANEOUS WATER HEATERS—Continued
[Veff <2 gal, rated input >50,000 Btu/h]
Low-income
households
TSL
3 .......................................................................................................................
4 .......................................................................................................................
Senior-only
households
11.0
31.8
Small
businesses
All households
26.4
57.5
43.1
67.0
25.0
56.2
8.9
21.4
57.5
33.7
7.1
17.1
44.9
27.6
12.5
22.5
59.9
35.6
Consumers with Net Benefit (%)
1
2
3
4
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
17.1
26.2
67.0
55.0
Note: Numbers in parentheses indicate a negative number.
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 consumer gas-fired
instantaneous water heaters. In contrast,
the PBPs presented in section V.B.1.a of
this document use averages that were
calculated using distributions that
reflect the range of energy use in the
field.
Table V.5 presents the rebuttablepresumption payback periods for the
considered TSLs for consumer gas-fired
instantaneous water heaters. While DOE
examined the rebuttable-presumption
criterion, it considered 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.5—REBUTTABLE-PRESUMPTION PAYBACK PERIODS
TSL
1
I
2
I
3
I
4
7.4
I
9.2
(years)
Gas-fired Instantaneous Water Heaters ..........................................................
2. Economic Impacts on Manufacturers
DOE performed an MIA to estimate
the impact of amended energy
conservation standards on
manufacturers of gas-fired instantaneous
water heaters. 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.
ddrumheller on DSK120RN23PROD with RULES2
a. Industry Cash Flow Analysis Results
In this section, DOE provides GRIM
results from the analysis, which
examines changes in the industry that
would result from a standard. The
following tables summarize the
estimated financial impacts (represented
by changes in INPV) of potential
amended energy conservation standards
on manufacturers of gas-fired
instantaneous water heaters, as well as
the conversion costs that DOE estimates
manufacturers of gas-fired instantaneous
water heaters would incur at each TSL.
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11.0
I
As discussed in section IV.J.2.d of this
document, DOE modeled two scenarios
to evaluate a range of cash flow impacts
on the gas-fired instantaneous water
heater industry: (1) the preservation of
gross margin percentage scenario and (2)
the preservation of operating profit
scenario. Under the preservation of
gross margin percentage scenario, DOE
applied a single uniform ‘‘gross margin
percentage’’ across all efficiency levels.
As MPCs increase with efficiency, this
scenario implies that the per-unit dollar
profit would also increase. DOE
assumed a ‘‘gross margin percentage’’ of
31 percent for gas-fired instantaneous
water heaters.188 This gross margin
percentage (and the corresponding
manufacturer markup) is the same as the
one that DOE used in the engineering
analysis and the no-new-standards case
of the GRIM. Because this scenario
assumes that a manufacturer’s absolute
dollar markup would increase as MPCs
188 The gross margin percentage of 31 percent is
based on a manufacturer markup of 1.45.
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7.9
I
increase in the standards cases, it
represents the upper bound to industry
profitability under potential amended
energy conservation standards.
The preservation of operating profit
scenario reflects manufacturers’
concerns about their inability to
maintain margins as MPCs increase to
reach more-stringent efficiency levels.
In this scenario, while manufacturers
make the necessary investments
required to convert their facilities to
produce compliant products, operating
profit does not change in absolute
dollars and decreases as a percentage of
revenue.
Each of the modeled manufacturer
markup scenarios 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 industry value
between the no-new-standards case and
each standards case resulting from the
sum of discounted cash flows from 2024
through 2059. To provide perspective
on the short-run cash flow impact, DOE
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includes in the discussion of results a
comparison of free cash flow between
the no-new-standards case and the
standards case at each TSL in the year
before amended standards are required.
TABLE V.6—MANUFACTURER IMPACT ANALYSIS FOR GAS-FIRED INSTANTANEOUS WATER HEATERS UNDER THE
PRESERVATION OF GROSS MARGIN SCENARIO
No-newstandards
case
Units
INPV ....................................
Change in INPV ..................
Free Cash Flow (2029) .......
Change in Free Cash Flow
(2029).
Product Conversion Costs ..
Capital Conversion Costs ...
Total Investment Required **.
Trial standard level *
1
2
3
4
2023$ millions ....................
2023$ millions ....................
% ........................................
2023$ millions ....................
2023$ millions ....................
1,193.9
........................
........................
91.7
........................
1,234.0
40.1
3.4
84.6
(7.1)
1,234.4
40.5
3.4
82.9
(8.8)
1,217.6
23.7
2.0
65.2
(26.5)
1,275.2
81.2
6.8
65.2
(26.5)
% ........................................
2023$ millions ....................
2023$ millions ....................
........................
........................
........................
(7.8)
2.5
13.9
(9.6)
3.7
16.7
(28.9)
4.8
55.3
(28.9)
4.8
55.3
2023$ millions ....................
........................
16.5
20.4
60.1
60.1
* Numbers in parentheses indicate a negative number.
** Numbers may not sum exactly due to rounding.
TABLE V.7—MANUFACTURER IMPACT ANALYSIS FOR GAS-FIRED INSTANTANEOUS WATER HEATERS UNDER THE
PRESERVATION OF OPERATING PROFIT SCENARIO
No-newstandards
case
Units
INPV ....................................
Change in INPV ..................
Free Cash Flow (2029) .......
Change in Free Cash Flow
(2029).
% .........................................
Product Conversion Costs ..
Capital Conversion Costs ...
Total Investment Required **.
Trial standard level *
1
2
2
4
2023$ millions ....................
2023$ millions ....................
% ........................................
2023$ millions ....................
2023$ millions ....................
1,193.9
........................
........................
91.7
........................
1,171.1
(22.9)
(1.9)
84.6
(7.1)
1,160.2
(33.7)
(2.8)
82.9
(8.8)
1,132.1
(61.8)
(5.2)
65.2
(26.5)
1,119.5
(74.5)
(6.2)
65.2
(26.5)
.............................................
2023$ millions ....................
2023$ millions ....................
2023$ millions ....................
(7.8)
........................
........................
........................
(9.6)
2.5
13.9
16.5
(28.9)
3.7
16.7
20.4
(28.9)
4.8
55.3
60.1
4.8
55.3
60.1
ddrumheller on DSK120RN23PROD with RULES2
* Numbers in parentheses indicate a negative number.
** Numbers may not sum exactly due to rounding.
At TSL 1, DOE estimates that impacts
on INPV would range from ¥$22.9
million to $40.1 million, or a change in
INPV of –1.9 percent to 3.4 percent. At
TSL 1, industry free cash flow is $84.6
million, which is a decrease of $7.1
million, or a drop of 7.8 percent,
compared to the no-new-standards case
value of $91.7 million in 2029, the year
leading up to the standards year.
Approximately 70 percent of gas-fired
instantaneous water heater shipments
are expected to meet TSL 1 by the
analyzed 2030 compliance date in the
no-new-standards case.
TSL 1 would set the energy
conservation standard for gas-fired
instantaneous water heaters at EL 1.
Compared to the non-condensing design
considered at baseline, the design
options analyzed at TSL 1 includes a
tube design condensing heat exchanger.
Out of the 12 gas-fired instantaneous
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water heater OEMs identified, 11 offer
models that meet TSL 1. These 11
manufacturers currently offer 84 unique
basic models, accounting for 61 percent
of model listings, that meet this TSL.
Based on feedback from manufacturer
interviews and a review of the market,
DOE does not expect that most
manufacturers would need to add
production capacity or incur significant
capital conversion costs to meet this
level. However, in response to the July
2023 NOPR, one manufacturer
commented that its U.S. production
facility is currently optimized to
produce non-condensing models.
Converting this U.S. production facility
to produce condensing gas-fired
instantaneous water heaters would
require significant investment. To avoid
underestimating the potential
investments required to meet levels that
may necessitate condensing technology
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(i.e., TSL 1 through TSL 4), DOE
incorporated the expected investments
required to convert its U.S. production
facility to accommodate production of
condensing gas-fired instantaneous
water heaters. DOE does not expect that
there would be notable product
conversion costs at this TSL since most
manufacturers offer a range of models
that already meet this level. DOE
estimates that industry would incur
approximately $13.9 million in capital
conversion costs and $2.5 million in
product conversions at TSL 1. Industry
conversion costs total $16.5 million.
At TSL 1, the shipment-weighted
average MPC for gas-fired instantaneous
water heaters increases by 9.4 percent
relative to the no-new-standards case
shipment-weighted average MPC for
gas-fired instantaneous water heaters in
2030. In the preservation of gross
margin percentage scenario, the increase
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in cashflow from the higher MSP
outweighs the $16.5 million in
conversion costs, causing a positive
change in INPV at TSL 1 under this
scenario.
Under the preservation of operating
profit scenario, manufacturers earn the
same per-unit operating profit as would
be earned in the no-new-standards case,
but manufacturers do not earn
additional profit from their investments.
In this scenario, the manufacturer
markup decreases in 2030. This
reduction in the manufacturer markup
and the $16.5 million in conversion
costs incurred by manufacturers cause a
slightly negative change in INPV at TSL
1 under the preservation of operating
profit scenario. See section IV.J.2.d of
this document for a discussion of the
manufacturer markup scenarios.
At TSL 2, DOE estimates that impacts
on INPV would range from ¥$33.7
million to $40.5 million, or a change in
INPV of –2.8 percent to 3.4 percent. At
TSL 2, industry free cash flow is $82.9
million, which is a decrease of $8.8
million, or a drop of 9.6 percent
compared to the no-new-standards case
value of $91.7 million in 2029, the year
leading up to the standards year.
Approximately 62 percent of gas-fired
instantaneous water heater shipments
are expected to meet TSL 2 by the
analyzed 2030 compliance date in the
no-new-standards case.
TSL 2 would set the energy
conservation standard for gas-fired
instantaneous water heaters at EL 2. The
design options analyzed at TSL 2
include increasing the tube design
condensing heat exchanger area relative
to TSL 1. Of the 12 gas-fired
instantaneous water heater OEMs, 10
manufacturers offer models that meet
TSL 2. These 10 OEMs currently offer
71 unique basic models, accounting for
51 percent of model listings, that meet
this TSL. As with TSL 1, DOE does not
expect that most manufacturers would
need to add production capacity (or
incur notable capital conversion costs)
to meet this level. However, the larger
condensing heat exchanger that
manufacturers may implement to meet
TSL 2 could necessitate some capital
investments to optimize production
lines. Similar to TSL 1, DOE does not
expect that there would be significant
product conversion costs at this level
since most manufacturers already offer
a range of models that meet TSL 2. DOE
estimates that industry would incur
approximately $16.7 million in capital
conversion costs and $3.7 million in
product conversions at TSL 2. Industry
conversion costs total $20.4 million.
At TSL 2, the shipment-weighted
average MPC for gas-fired instantaneous
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water heaters increases by 9.8 percent
relative to the no-new-standards case
shipment-weighted average MPC for
gas-fired instantaneous water heaters in
2030. In the preservation of gross
margin percentage scenario, the increase
in cashflow from the higher MSP
outweighs the $20.4 million in
conversion costs, causing a positive
change in INPV at TSL 2 under this
scenario.
Under the preservation of operating
profit scenario, manufacturers earn the
same per-unit operating profit as would
be earned in the no-new-standards, but
manufacturers do not earn additional
profit from their investments. In this
scenario, the manufacturer markup
decreases in 2030. This reduction in the
manufacturer markup and the $20.4
million in conversion costs incurred by
manufacturers cause a slightly negative
change in INPV at TSL 2 under the
preservation of operating profit
scenario.
At TSL 3, DOE estimates that impacts
on INPV would range from ¥$61.8
million to $23.7 million, or a change in
INPV of –5.2 percent to 2.0 percent. At
TSL 3, industry free cash flow is $65.2
million, which is a decrease of $26.5
million, or a drop of 28.9 percent,
compared to the no-new-standards case
value of $91.7 million in 2029, the year
leading up to the standards year.
Approximately 16 percent of gas-fired
instantaneous water heater shipments
are expected to meet TSL 3 by the
analyzed 2030 compliance date in the
no-new-standards case.
TSL 3 would set the energy
conservation standard for gas-fired
instantaneous water heaters at EL 3. The
design options analyzed at TSL 3
include a more efficient heat exchanger
design (i.e., replacing a tube condensing
heat exchanger with a flat plate
condensing heat exchanger) and
increasing the condensing heat
exchanger area relative to TSL 2. Of the
12 gas-fired instantaneous water heater
OEMs, 10 manufacturers offer models
that meet TSL 3. These 10
manufacturers currently offer 48 unique
basic models, accounting for 34 percent
of model listings, that meet this TSL.
Based on feedback from manufacturer
interviews and public comments, DOE
understands that implementing the
larger, improved condensing heat
exchanger technology would increase
the complexity of the manufacturing
process compared to the tube design
condensing heat exchanger technology
analyzed at TSL 1 and TSL 2.
At this level, most manufacturers
would need to add additional assembly
lines to meet demand, which would
require a large capital investment. The
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105265
investment required to add production
capacity would vary by manufacturer as
it depends on floor space availability in
and around existing manufacturing
plants. Compared to TSL 1 and TSL 2,
manufacturers offer fewer models that
meet the required efficiency levels.
Manufacturers without any models that
meet TSL 3 would need to develop new
gas-fired instantaneous water heater
products with more complex, efficient
condensing heat exchanger designs.
Manufacturers with gas-fired
instantaneous water heaters that meet
TSL 3 may need to allocate technical
resources to provide a full range of
product offerings since most
manufacturers currently only offer a
handful of models that meet TSL 3. DOE
estimates that manufacturers would
incur approximately $55.3 million in
capital conversion costs and $4.8
million in product conversions at TSL 3.
Industry conversion costs total $60.1
million.
At TSL 3, the shipment-weighted
average MPC for gas-fired instantaneous
water heaters increases by 11.2 percent
relative to the no-new-standards case
shipment-weighted average MPC for
gas-fired instantaneous water heaters in
2030. In the preservation of gross
margin percentage scenario, the increase
in cashflow from the higher MSP
outweighs the $60.1 million in
conversion costs, causing a slightly
positive change in INPV at TSL 3 under
this scenario.
Under the preservation of operating
profit scenario, manufacturers earn the
same per-unit operating profit as would
be earned in the no-new-standards case,
but manufacturers do not earn
additional profit from their investments.
In this scenario, the manufacturer
markup decreases in 2030. This
reduction in the manufacturer markup
and the $60.1 million in conversion
costs incurred by manufacturers cause a
negative change in INPV at TSL 3 under
the preservation of operating profit
scenario.
At TSL 4, DOE estimates that impacts
on INPV would range from ¥$74.5
million to ¥$81.2 million, or a change
in INPV of ¥6.2 percent to 6.8 percent.
At TSL 4, industry free cash flow is
$65.2 million, which is a decrease of
$26.5 million, or a drop of 28.9 percent,
compared to the no-new-standards case
value of $91.7 million in 2029, the year
leading up to the standards year.
Approximately 8 percent of gas-fired
instantaneous water heater shipments
are expected to meet TSL 4 by the
analyzed 2030 compliance date in the
no-new-standards case.
TSL 4 would set the energy
conservation standard for gas-fired
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instantaneous water heaters at EL 4 (i.e.,
max-tech). The design options analyzed
at TSL 4 include replacing the stepmodulating burner with a fully
modulating burner and increasing the
condensing heat exchanger area relative
to TSL 3. Of the 12 gas-fired
instantaneous water heaters, five
manufacturers offer models that meet
this TSL. These five manufacturers
currently offer 19 unique basic models,
accounting for 14 percent of model
listings, that meet this TSL. As with TSL
3, DOE understands that implementing
the larger, improved condensing heat
exchanger design would add a
significant amount of complexity to the
manufacturing process compared to the
tube design condensing heat exchanger
technology at TSL 1 and TSL 2. As such,
DOE expects similar capital conversion
costs at TSL 3 and TSL 4. At max-tech,
fewer manufacturers offer fewer models
that meet the required efficiencies
compared to TSL 3. DOE estimates that
manufacturers would incur
approximately $55.3 million in capital
conversion costs and $4.8 million in
product conversions at TSL 4. Industry
conversion costs total $60.1 million.
At TSL 4, the shipment-weighted
average MPC for gas-fired instantaneous
water heaters increases by 20.1 percent
relative to the no-new-standards case
shipment-weighted average MPC for
gas-fired instantaneous water heaters in
2030. The increase in cashflow from the
higher MSP outweighs the $60.1 million
in conversion costs, causing a positive
change in INPV at TSL 4 under this
scenario.
Under the preservation of operating
profit scenario, manufacturers earn the
same per-unit operating profit as would
be earned in the no-new-standards, but
manufacturers do not earn additional
profit from their investments. In this
scenario, the manufacturer markup
decreases in 2030. This reduction in the
manufacturer markup and the $60.1
million in conversion costs incurred by
manufacturers cause a negative change
in INPV at TSL 4 under the preservation
of operating profit scenario.
b. Direct Impacts on Employment
To quantitatively assess the potential
impacts of amended energy
conservation standards on direct
employment in the gas-fired
instantaneous water heater industry,
DOE used feedback from stakeholder
comments, the engineering analysis, and
shipments analysis to estimate the
domestic labor expenditures and
number of direct employees in the nonew-standards case and in each of the
standards cases during the analysis
period.
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In the July 2023 NOPR, DOE
estimated that approximately 70 percent
of consumer water heaters subject to the
proposed amended standards were
produced domestically. Of that 70
percent, DOE estimated that all gas-fired
instantaneous water heaters, which
currently account for 12 percent of the
overall consumer water heater market,
were produced outside of the United
States. For the July 2024 NODA, DOE
revised its direct employment analysis
to account for Rinnai’s new domestic
production facility dedicated to
manufacturing non-condensing gas-fired
instantaneous water heaters. In the July
2024 NODA, DOE estimated that
approximately 20 percent of gas-fired
instantaneous water heaters were
produced domestically. DOE derived
this value by using its shipments
analysis and public market share
feedback.189 (Rinnai No. 1186 at p. 1)
DOE maintained the 20 percent estimate
from the July 2024 NODA for this final
rule.
In addition to Rinnai’s market share
feedback, DOE relied on the
employment figures provided in
Rinnai’s comments in response to the
July 2023 NOPR to estimate the
potential range of direct employment
impacts in 2030 (the analyzed
compliance year) in the July 2024
NODA. Rinnai’s comments indicated
that there were 122 domestic production
workers dedicated to manufacturing
non-condensing gas-fired instantaneous
water heaters in 2023. (Rinnai No. 1186
at p. 1) Using results of the shipments
analysis, DOE projected that there
would be approximately 128 domestic
production workers in 2030 (the
analyzed compliance year) in the nonew-standards case.
To establish a conservative lower
bound, DOE assumed domestic
manufacturers would shift production
to foreign countries at efficiency levels
that would likely necessitate
condensing technology. The upper
bound domestic direct employment
estimate corresponds to a potential
increase in the number of domestic
workers that would result from
amended energy conservation standards
if manufacturers continue to produce
the same scope of covered products
within the United States after
compliance takes effect (i.e., 20 percent
of gas-fired instantaneous water heater
189 In 2023, DOE estimates that approximately
0.41 million out of the 1.22 million gas-fired
instantaneous water heater unit shipments are noncondensing. In response to the July 2023 NOPR,
Rinnai commented that its domestic market share
of non-condensing gas-fired instantaneous water
heaters is 60 percent: (60% × 0.41 million) ÷ 1.22
million = 20%.
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shipments continue to be manufactured
domestically). Results of DOE’s
engineering and product teardown
analyses indicate that additional labor is
required (on a per-unit basis) to produce
a condensing gas-fired instantaneous
water heater compared to a noncondensing gas-fired instantaneous
water heater. As such, DOE modeled an
increase in domestic direct employment
in the upper bound scenario.
For this final rule, DOE updated its
estimate of domestic production
workers of gas-fired instantaneous water
heaters from 128 to 190 190 in 2030
based on stakeholder comments in
response to the July 2024 NODA but
otherwise maintained its direct
employment methodology. (Rinnai No.
1443 at p. 1) DOE estimates that in the
absence of new or amended energy
conservation standards for consumer
water heaters there would be 3,859
domestic production employees for the
overall consumer water heater market in
2030.191
For the conservative lower bound of
direct employment impacts for this final
rule, DOE models a decrease of
domestic direct employment of 190
production workers at TSL 1 through
TSL 4 in 2030. This lower bound
reflects the scenario where Rinnai
chooses to continue to source
condensing gas-fired instantaneous
water heaters from Japan. In response to
the July 2023 NOPR and July 2024
NODA, Rinnai commented that due to
the large upfront investment required to
repurpose its Georgia facility to
accommodate production of condensing
gas-fired instantaneous water heaters
and its current production capacity of
condensing gas-fired instantaneous
water heaters in Japan, it is possible that
manufacturing could shift overseas.
(Rinnai No. 1186 at p. 23; Rinnai No.
1443 at pp. 21–22)
For the upper bound of direct
employment impacts, using a shipmentweighted average, DOE estimates that
the labor content required to produce a
190 Rinnai commented that it currently employes
183 full-time employees and 49 temporary
employees at its Griffin, Georgia plant. DOE’s
shipments analysis indicates shipments of noncondensing gas-fired instantaneous water heaters in
the no-new-standards case will increase by
approximately 4 percent from 2024 to 2030 (the
compliance year).
191 In support of the May 2024 Final Rule, DOE
estimated that the total domestic direct employment
for gas-fired storage, oil-fired storage, and electric
storage water heaters would be 4,110 in 2030 in the
no-new-standards case, representing 3,669
production workers and 441 non-production
workers. 89 FR 37778, 37900–37901. See the May
2024 Final Rule GRIM available for download at:
www.regulations.gov/document/EERE-2017-BTSTD-0019-1422. (3,669 + 190 = 3,859 domestic
production workers in 2030, absent standards).
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condensing gas-fired instantaneous
water heater is approximately 62
percent more than the labor content
required to produce a non-condensing
gas-fired instantaneous water heater.
See chapter 12 of the final rule TSD for
the estimated labor content by efficiency
level. Therefore, DOE models an upperbound increase in domestic direct
employment of 62 percent (an increase
of approximately 117 production
workers, for a total of 307 domestic
production workers) at TSL 1 through
TSL 4 in 2030.
Additional details on the analysis of
direct employment, as well as the
estimated labor content for each
efficiency level, 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 16 of the final rule TSD.
c. Impacts on Manufacturing Capacity
Nearly all gas-fired instantaneous
water heater OEMs currently offer
condensing gas-fired instantaneous
water heater models. Of the 12
manufacturers identified, 11
manufacturers already offer a range of
condensing gas-fired instantaneous
water heater models that meet TSL 1.
DOE estimates that condensing gas-fired
instantaneous water heaters account for
67 percent of current shipments. For a
condensing-level standard, most
manufacturers would have to repurpose
and retool assembly lines to produce
only condensing models since the
manufacturing processes (e.g.,
production of secondary heat
exchangers) differ between condensing
and non-condensing gas-fired
instantaneous water heater models.
Manufacturer feedback indicates that
most manufacturers could meet TSL 1
and TSL 2 without adding new
production lines. However, at TSL 3 and
TSL 4, DOE expects most manufacturers
would have to add production lines due
to increased complexity and
incorporation of a larger, more efficient
heat exchanger design. Additionally,
while most shipments already meet TSL
2, fewer shipments meet TSL 3 or TSL
4. Currently, 60 percent of shipments
meet TSL 2 whereas 15 percent and 8
percent of shipments meet TSL 3 and
TSL 4, respectively. However, at TSL 2
(the adopted level), DOE expects that
manufacturers would be able to add
capacity and adjust product designs in
the five-year period between the
announcement year of the amended
standard and the compliance year of the
amended standard.
d. Impacts on Subgroups of
Manufacturers
As discussed in section IV.J of this
document, using average cost
assumptions to develop an industry
cash flow estimate may not be adequate
for assessing differential impacts among
manufacturer subgroups. Small
manufacturers, niche manufacturers,
and manufacturers exhibiting a cost
structure substantially different from the
industry average could be affected
disproportionately. DOE used the
results of the industry characterization
to group manufacturers exhibiting
similar characteristics. Consequently,
DOE identified small business
manufacturers as a subgroup for a
separate impact analysis.
For the small business subgroup
analysis, DOE applied the small
business size standards published by
the U.S. Small Business Administration
(‘‘SBA’’) to determine whether a
company is considered a small business.
The size standards are codified at 13
CFR part 121. To be categorized as a
small business under North American
Industry Classification System
(‘‘NAICS’’) code 335220, ‘‘Major
Household Appliance Manufacturing,’’
105267
a gas-fired instantaneous water heater
manufacturer and its affiliates may
employ a maximum of 1,500 employees.
The 1,500-employee threshold includes
all employees in a business’s parent
company and any other subsidiaries.
Based on this classification, DOE did
not identify any manufacturers that
qualify as a domestic small business.
The small business subgroup analysis
is discussed in more detail in chapter 12
of the final rule TSD. DOE examines the
potential impacts of this final rule on
small business manufacturers in section
VI.B of this document.
e. Cumulative Regulatory Burden
One aspect of assessing manufacturer
burden involves looking at the
cumulative impact of multiple DOE
standards and the regulatory actions of
other Federal agencies and States 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 existing or impending
regulations may have serious
consequences for some manufacturers,
groups of manufacturers, or an entire
industry. Multiple regulations affecting
the same manufacturer can strain profits
and lead companies to abandon product
lines or markets with lower expected
future returns than competing products.
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 examined Federal,
product-specific regulations that could
affect gas-fired instantaneous water
heater manufacturers and that take
effect approximately 3 years before or
after the estimated compliance date
(2027 to 2033). This information is
presented in table V.8.
TABLE V.8—COMPLIANCE DATES AND EXPECTED CONVERSION EXPENSES OF FEDERAL ENERGY CONSERVATION
STANDARDS AFFECTING GAS-FIRED INSTANTANEOUS WATER HEATER ORIGINAL EQUIPMENT MANUFACTURERS
ddrumheller on DSK120RN23PROD with RULES2
Federal Energy Conservation Standard
Consumer Pool Heaters 88 FR 34624
(May 30, 2023) ...................................
Consumer Boilers † 88 FR 55128 (August 14, 2023) ....................................
Commercial Refrigerators, RefrigeratorFreezers, and Freezers † 88 FR
70196 (October 10, 2023) ..................
Dehumidifiers † 88 FR 76510 (November 6, 2023) ........................................
Consumer Furnaces 88 FR 87502 (December 18, 2023) ...............................
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Number of
OEMs
affected by
today’s rule **
Number of
OEMs *
PO 00000
Approx.
standards
compliance
year
Industry
conversion
costs
($ millions)
Industry
conversion costs/
equipment
revenue ***
20
3
2028
48.4 (2021$)
1.5
24
8
2030
98.0 (2022$)
3.6
83
1
2028
226.4 (2022$)
1.6
20
1
2028
6.9 (2022$)
0.4
14
3
2029
162.0 (2022$)
1.8
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Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations
TABLE V.8—COMPLIANCE DATES AND EXPECTED CONVERSION EXPENSES OF FEDERAL ENERGY CONSERVATION STANDARDS AFFECTING GAS-FIRED INSTANTANEOUS WATER HEATER ORIGINAL EQUIPMENT MANUFACTURERS—Continued
Number of
OEMs
affected by
today’s rule **
Number of
OEMs *
Federal Energy Conservation Standard
Refrigerators,
Refrigerator-Freezers,
and Freezers 89 FR 3026 (January
17, 2024) ............................................
Consumer Conventional Cooking Products 89 FR 11434 (February 14,
2024) ..................................................
Consumer Clothes Dryers 89 FR 18164
(March 12, 2024) ................................
Residential Clothes Washers 89 FR
19026 (March 15, 2024) .....................
Dishwashers 89 FR 31398 (April 24,
2024) ..................................................
Consumer Water Heaters 89 FR 37778
(May 6, 2024) .....................................
Miscellaneous Refrigeration Products
89 FR 38762 (May 7, 2024) ...............
Air-Cooled Unitary Air Conditioners and
Heat Pumps 89 FR 44052 (May 20,
2024) ..................................................
Walk-in Coolers and Freezers †† ..........
Approx.
standards
compliance
year
Industry
conversion
costs
($ millions)
Industry
conversion costs/
equipment revenue ***
63
2
‡ 2029 and 2030
830.3 (2022$)
1.3
35
1
2028
66.7 (2022$)
0.3
19
2
2028
180.7 (2022$)
1.4
22
2
2028
320.0 (2022$)
1.8
21
2
2027
126.9 (2022$)
2.1
16
4
2029
239.8 (2022$)
1.9
49
1
2029
130.7 (2022$)
2.9
9
87
1
1
2029
2028
288.0 (2022$)
91.5 (2023$)
2.1
0.6
* 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 gas-fired instantaneous water heaters 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 timeframe 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 3 to 5 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.
‡ For the refrigerators, refrigerator-freezers, and freezers energy conservation standards direct final rule, the compliance year (2029 or 2030)
varies by product class.
†† At the time of issuance of the final rule, the WICFs final rule has been issued and is pending publication in the FEDERAL REGISTER. Once
published, the final rule pertaining to WICFs will be available at: www.regulations.gov/docket/EERE-2017-BT-STD-0009.
3. National Impact Analysis
This section presents DOE’s estimates
of the NES and the NPV of consumer
benefits that would result from each of
the TSLs considered as potential
amended standards.
a. National Energy Savings
To estimate the energy savings
attributable to potential amended
standards (2030–2059). Table V.9
presents DOE’s projections of the NES
for each TSL considered for consumer
gas-fired instantaneous water heaters.
The savings were calculated using the
approach described in section IV.H.2 of
this document.
standards for consumer gas-fired
instantaneous water heaters, 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 during the 30-year
period that begins in the year of
anticipated compliance with amended
TABLE V.9—CUMULATIVE NATIONAL ENERGY SAVINGS FOR CONSUMER GAS-FIRED INSTANTANEOUS WATER HEATERS; 30
YEARS OF SHIPMENTS
[2030–2059]
Trial standard level
1
I
2
I
3
I
4
quads
ddrumheller on DSK120RN23PROD with RULES2
Primary Energy
Gas-fired Instantaneous Water Heaters ..........................................................
0.32
0.52
0.76
0.97
0.35
0.58
0.85
1.07
FFC Energy
Gas-fired Instantaneous Water Heaters ..........................................................
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OMB Circular A–4 192 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 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.193 The review
timeframe established in EPCA is
generally not synchronized with the
product lifetime, product manufacturing
cycles, or other factors specific to
consumer gas-fired instantaneous water
105269
heaters. 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 9year analytical period are presented in
table V.10. The impacts are counted
over the lifetime of consumer gas-fired
instantaneous water heaters purchased
during the period 2030–2038.
TABLE V.10—CUMULATIVE NATIONAL ENERGY SAVINGS FOR CONSUMER GAS-FIRED INSTANTANEOUS WATER HEATERS; 9
YEARS OF SHIPMENTS
[2030–2038]
Trial standard level
1
I
2
I
3
I
4
quads
Primary Energy
Gas-fired Instantaneous Water Heaters ..........................................................
0.10
0.16
0.21
0.27
0.11
0.17
0.24
0.30
FFC Energy
Gas-fired Instantaneous Water Heaters ..........................................................
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 consumer gas-fired
instantaneous water heaters. In
accordance with OMB Circular A–4,
DOE calculated NPV using both a 7-
percent and a 3-percent real discount
rate. Table V.11 shows the consumer
NPV results with impacts counted over
the lifetime of products purchased
during the period 2030–2059.
TABLE V.11—CUMULATIVE NET PRESENT VALUE OF CONSUMER BENEFITS FOR CONSUMER GAS-FIRED INSTANTANEOUS
WATER HEATERS; 30 YEARS OF SHIPMENTS
[2030–2059]
Trial standard level
Discount rate
1
I
2
I
3
I
4
billion 2023$
3 percent discount rate
Gas-fired Instantaneous Water Heaters ..........................................................
1.26
3.06
4.89
4.50
0.24
0.87
1.45
0.98
7 percent discount rate
ddrumheller on DSK120RN23PROD with RULES2
Gas-fired Instantaneous Water Heaters ..........................................................
The NPV results based on the
aforementioned 9-year analytical period
are presented in table V.12. The impacts
are counted over the lifetime of
products purchased during the period
2030–2038. 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.
192 U.S. Office of Management and Budget.
Circular A–4: Regulatory Analysis. Available at:
www.whitehouse.gov/omb/information-foragencies/circulars (last accessed August 29, 2024).
DOE used the prior version of Circular A–4
(September 17, 2003) in accordance with the
effective date of the November 9, 2023 version.
Available at: www.whitehouse.gov/wp-content/
uploads/legacy_drupal_files/omb/circulars/A4/a4.pdf (last accessed August 29, 2024).
193 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. (42 U.S.C. 6295(m)) 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.
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Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations
TABLE V.12—CUMULATIVE NET PRESENT VALUE OF CONSUMER BENEFITS FOR CONSUMER GAS-FIRED INSTANTANEOUS
WATER HEATERS; 9 YEARS OF SHIPMENTS
[2030–2038]
Trial standard level
Discount rate
1
I
2
I
3
I
4
billion 2023$
3 percent discount rate
Gas-fired Instantaneous Water Heaters ..........................................................
0.44
1.09
1.66
1.50
0.10
0.41
0.66
0.43
7 percent discount rate
Gas-fired Instantaneous Water Heaters ..........................................................
ddrumheller on DSK120RN23PROD with RULES2
The previous results reflect the use of
a default trend to estimate the change in
price for consumer gas-fired
instantaneous water heaters 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.
c. Indirect Impacts on Employment
DOE estimates that amended energy
conservation standards for consumer
gas-fired instantaneous water heaters
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 (2030–2034), where these
uncertainties are reduced.
The results suggest that the adopted
standards are likely to have a negligible
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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
will not lessen the utility or
performance of the gas-fired
instantaneous water heaters 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. To assist the
Attorney General in making this
determination, DOE provided the
Department of Justice (‘‘DOJ’’) with
copies of the NOPR and the TSD for
PO 00000
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review. In its assessment letter
responding to DOE, DOJ concluded that
the proposed energy conservation
standards for gas-fired instantaneous
water heaters are unlikely to
substantially lessen competition. DOE is
publishing the Attorney General’s
assessment at the end of this final rule.
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 gas-fired instantaneous water heaters
is expected to yield environmental
benefits in the form of reduced
emissions of certain air pollutants and
GHG. Table V.13 provides DOE’s
estimate of cumulative emissions
reductions expected to result from the
TSLs considered in this rulemaking. In
the case of mercury, negative values
(denoted in parenthesis) indicate a
slight increase in emissions due to
slightly higher electricity use at those
TSLs. 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.
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105271
TABLE V.13—CUMULATIVE EMISSIONS REDUCTION FOR GAS-FFIRED INSTANTANEOUS WATER HEATERS SHIPPED DURING
THE PERIOD 2030–2059
Trial standard level
1
2
3
4
17
0.3
0.03
0.04
15
(0.0004)
28
0.6
0.06
0.10
25
(0.0004)
40
0.8
0.08
0.17
35
(0.0003)
47
1.1
0.11
0.75
41
0.0035
2
244
0.00
0.01
38
(0.0000)
4
397
0.01
0.02
62
(0.0000)
6
575
0.01
0.03
89
(0.0000)
7
669
0.01
0.04
104
0.0000
19
244
0.04
0.05
53
(0.0004)
32
398
0.06
0.12
86
(0.0004)
46
576
0.09
0.20
125
(0.0003)
54
671
0.12
0.79
145
0.0035
Electric Power Sector and Site Emissions
CO2 (million metric tons) .................................................................................
CH4 (thousand tons) ........................................................................................
N2O (thousand tons) ........................................................................................
SO2 (thousand tons) ........................................................................................
NOX (thousand tons) .......................................................................................
Hg (tons) ..........................................................................................................
Upstream Emissions
CO2 (million metric tons) .................................................................................
CH4 (thousand tons) ........................................................................................
N2O (thousand tons) ........................................................................................
SO2 (thousand tons) ........................................................................................
NOX (thousand tons) .......................................................................................
Hg (tons) ..........................................................................................................
Total FFC Emissions
CO2 (million metric tons) .................................................................................
CH4 (thousand tons) ........................................................................................
N2O (thousand tons) ........................................................................................
SO2 (thousand tons) ........................................................................................
NOX (thousand tons) .......................................................................................
Hg (tons) ..........................................................................................................
Note: Totals may not equal sums due to rounding. Negative values refer to an increase in emissions.
As part of the analysis for this rule,
DOE estimated monetary benefits likely
to result from the reduced emissions of
CO2 that DOE estimated for each of the
considered TSLs for gas-fired
instantaneous water heaters. Section
IV.L of this document discusses the
estimated SC–CO2 values that DOE
used. Table V.14 and table V.15 present
the value of CO2 emissions reduction at
each TSL for each of the SC–CO2 cases.
The time-series of annual values is
presented for the selected TSL in
chapter 14 of the final rule TSD.
TABLE V.14—PRESENT VALUE OF CO2 EMISSIONS REDUCTION FOR GAS-FIRED INSTANTANEOUS WATER HEATERS
SHIPPED DURING THE PERIOD 2030–2059
[2023 estimates of SC–GHG]
Near-term Ramsey discount rate
TSL
2.5%
2.0%
1.5%
(billion 2023$)
1
2
3
4
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
2.2
3.5
5.1
6.0
3.8
6.1
8.8
10.3
6.8
11.0
15.9
18.7
TABLE V.15—PRESENT VALUE OF CO2 EMISSIONS REDUCTION FOR GAS-FIRED INSTANTANEOUS WATER HEATERS
SHIPPED DURING THE PERIOD 2030–2059
[2021 interim SC–GHG estimates]
ddrumheller on DSK120RN23PROD with RULES2
SC–CO2 Case
Discount rate and statistics
TSL
5%
Average
3%
Average
2.5%
Average
3%
95th percentile
(billion 2023$)
1 .......................................................................................................................
2 .......................................................................................................................
3 .......................................................................................................................
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0.3
0.4
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1.7
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1.8
2.6
2.2
3.5
5.1
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TABLE V.15—PRESENT VALUE OF CO2 EMISSIONS REDUCTION FOR GAS-FIRED INSTANTANEOUS WATER HEATERS
SHIPPED DURING THE PERIOD 2030–2059—Continued
[2021 interim SC–GHG estimates]
SC–CO2 Case
Discount rate and statistics
TSL
5%
Average
I
3%
Average
I
2.5%
Average
3%
I 95th percentile
(billion 2023$)
4 .......................................................................................................................
As discussed in section IV.L.2, DOE
estimated the climate benefits likely to
result from the reduced emissions of
methane and N2O that DOE estimated
for each of the considered TSLs for gas-
0.4
2.0
I
fired instantaneous water heaters. Table
V.16 and table V.17 present the value of
the CH4 emissions reduction at each
TSL, and table V.18 and table V.19
present the value of the N2O emissions
3.1
I
5.9
I
reduction at each TSL. The time-series
of annual values is presented for the
selected TSL in chapter 14 of the final
rule TSD.
TABLE V.16—PRESENT VALUE OF METHANE EMISSIONS REDUCTION FOR GAS-FIRED INSTANTANEOUS WATER HEATERS
SHIPPED DURING THE PERIOD 2030–2059
[2023 estimates of SC–GHG]
Near-term Ramsey discount rate
TSL
2.5%
2.0%
1.5%
(billion 2023$)
1
2
3
4
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
0.4
0.7
1.0
1.2
0.6
1.0
1.4
1.6
0.9
1.4
2.0
2.4
TABLE V.17—PRESENT VALUE OF METHANE EMISSIONS REDUCTION FOR GAS-FIRED INSTANTANEOUS WATER HEATERS
SHIPPED DURING THE PERIOD 2030–2059
[2021 Interim SC–GHG estimates]
SC–CH4 Case
Discount rate and statistics
TSL
5%
Average
3%
Average
2.5%
Average
3%
95th percentile
(billion 2023$)
1
2
3
4
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
0.1
0.2
0.2
0.3
0.3
0.5
0.7
0.8
0.4
0.7
1.0
1.1
0.8
1.3
1.8
2.1
TABLE V.18—PRESENT VALUE OF NITROUS OXIDE EMISSIONS REDUCTION FOR GAS-FIRED INSTANTANEOUS WATER
HEATERS SHIPPED DURING THE PERIOD 2030–2059
[2023 estimates of SC–GHG]
Near-term Ramsey discount rate
TSL
ddrumheller on DSK120RN23PROD with RULES2
2.5%
2.0%
1.5%
(billion 2023$)
1
2
3
4
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
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0.003
0.005
0.006
0.003
0.006
0.008
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TABLE V.19—PRESENT VALUE OF NITROUS OXIDE EMISSIONS REDUCTION FOR GAS-FIRED INSTANTANEOUS WATER
HEATERS SHIPPED DURING THE PERIOD 2030–2059
[2021 Interim SC–GHG estimates]
SC–N2O Case
Discount rate and statistics
TSL
5%
Average
3%
Average
2.5%
Average
3%
95th percentile
(billion 2023$)
1
2
3
4
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
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 global and U.S.
economy continues to evolve rapidly.
DOE, together with other Federal
agencies, will continue to review
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
0.0001
0.0002
0.0003
0.0004
record for this and other rulemakings, as
well as other methodological
assumptions and issues. DOE notes,
however, that the adopted standards
would be 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 and SO2 emissions
reductions anticipated to result from the
considered TSLs for gas-fired
instantaneous water heaters. The dollarper-ton values that DOE used are
0.0005
0.0008
0.0012
0.0016
0.0008
0.0013
0.0019
0.0025
0.0014
0.0022
0.0032
0.0043
discussed in section IV.L of this
document. Table V.20 presents the
present value for NOX emissions
reduction for each TSL calculated using
7-percent and 3-percent discount rates,
and table V.21 presents similar results
for SO2 emissions reductions. The
results in these tables reflect application
of EPA’s low dollar-per-ton values,
which DOE used to be conservative. The
time-series of annual values is presented
for the selected TSL in chapter 14 of the
final rule TSD.
TABLE V.20—PRESENT VALUE OF NOX EMISSIONS REDUCTION FOR GAS-FIRED INSTANTANEOUS WATER HEATERS
SHIPPED DURING THE PERIOD 2030–2059
7% Discount
rate
TSL
3% Discount
rate
(million 2023$)
1
2
3
4
...............................................................................................................................................................................
...............................................................................................................................................................................
...............................................................................................................................................................................
...............................................................................................................................................................................
554
892
1,260
1,468
1,650
2,675
3,830
4,481
TABLE V.21—PRESENT VALUE OF SO2 EMISSIONS REDUCTION FOR GAS-FIRED INSTANTANEOUS WATER HEATERS
SHIPPED DURING THE PERIOD 2030–2059
7% Discount
rate
EL
3% Discount
rate
(million 2023$)
ddrumheller on DSK120RN23PROD with RULES2
1
2
3
4
...............................................................................................................................................................................
...............................................................................................................................................................................
...............................................................................................................................................................................
...............................................................................................................................................................................
Not all the public health and
environmental benefits from the
reduction of GHG, NOx, and SO2 are
captured in the values above, and
additional unquantified benefits from
the reductions of those pollutants as
well as from the reduction of direct PM
and other co-pollutants may be
significant. DOE has not included
monetary impact of the change in Hg
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emissions because the change is very
small.
7. Other Factors
The Secretary, 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.
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5.9
39.1
8. Summary of Economic Impacts
Table V.22 and table V.23 present the
NPV values that result from adding the
estimates of the economic benefits
resulting from reduced GHG and NOX
and SO2 emissions to the NPV of
consumer benefits calculated for each
TSL considered in this rulemaking. The
consumer benefits are domestic U.S.
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monetary savings that occur as a result
of purchasing the covered products and
are measured for the lifetime of
products shipped during the period
2030–2059. 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 gas-fired
instantaneous water heaters shipped
during the period 2030–2059.
TABLE V.22—CONSUMER NPV COMBINED WITH PRESENT VALUE OF CLIMATE BENEFITS AND HEALTH BENEFITS
[2023 SC–GHG estimates]
Category of climate benefits
TSL 1
TSL 2
TSL 3
TSL 4
Using 3% Discount Rate for Consumer NPV and Health Benefits (billion 2023$)
2.5% Near-term Ramsey DR ...........................................................................
2.0% Near-term Ramsey DR ...........................................................................
1.5% Near-term Ramsey DR ...........................................................................
5.5
7.3
10.6
10.0
12.8
18.2
14.8
18.9
26.7
16.2
21.0
30.1
8.8
12.9
20.7
9.6
14.4
23.5
Using 7% Discount Rate for Consumer NPV and Health Benefits (billion 2023$)
2.5% Near-term Ramsey DR ...........................................................................
2.0% Near-term Ramsey DR ...........................................................................
1.5% Near-term Ramsey DR ...........................................................................
3.4
5.1
8.4
6.0
8.9
14.2
TABLE V.23—CONSUMER NPV COMBINED WITH PRESENT VALUE OF CLIMATE BENEFITS AND HEALTH BENEFITS
[2021 Interim SC–GHG estimates]
Category of climate benefits
TSL 1
TSL 2
TSL 3
TSL 4
Using 3% Discount Rate for Consumer NPV and Health Benefits (billion 2023$)
5% Average SC–GHG case ............................................................................
3% Average SC–GHG case ............................................................................
2.5% Average SC–GHG case .........................................................................
3% 95th percentile SC–GHG case ..................................................................
3.2
3.9
4.5
5.9
6.2
7.4
8.3
10.6
9.3
11.1
12.3
15.6
9.7
11.8
13.3
17.1
3.3
5.1
6.3
9.6
3.2
5.2
6.7
10.5
Using 7% Discount Rate for Consumer NPV and Health Benefits (billion 2023$)
5% Average SC–GHG case ............................................................................
3% Average SC–GHG case ............................................................................
2.5% Average SC–GHG case .........................................................................
3% 95th percentile SC–GHG case ..................................................................
ddrumheller on DSK120RN23PROD with RULES2
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)).
For this final rule, DOE considered
the impacts of amended standards for
gas-fired instantaneous water heaters at
each TSL, beginning with the maximum
technologically feasible level, to
determine whether that level was
economically justified. Where the max-
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1.1
1.8
2.4
3.8
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
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3.4
4.3
6.6
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
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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, 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.194
While DOE is not prepared at present
to provide a fuller quantifiable
framework for estimating the benefits
and costs of changes in consumer
purchase decisions due to an energy
conservation standard, DOE is
committed to developing a framework
that can support empirical quantitative
tools for improved assessment of the
consumer welfare impacts of appliance
standards. DOE has posted a paper that
discusses the issue of consumer welfare
impacts of appliance energy
conservation standards, and potential
enhancements to the methodology by
which these impacts are defined and
estimated in the regulatory process.195
DOE welcomes comments on how to
more fully assess the potential impact of
energy conservation standards on
consumer choice and how to quantify
this impact in its regulatory analysis in
future rulemakings. General
considerations for consumer welfare
and preferences as well as the special
cases of complementary goods are areas
DOE plans to explore in a forthcoming
RFI related to the agency’s updates to its
overall analytic framework.
1. Benefits and Burdens of TSLs
Considered for Gas-fired Instantaneous
Water Heater Standards
Table V.24 and table V.25 summarize
the quantitative impacts estimated for
105275
each TSL for gas-fired instantaneous
water heaters with effective storage
volumes less than 2 gallons and with
rated inputs greater than or equal to
50,000 Btu/h. The national impacts are
measured over the lifetime of gas-fired
instantaneous water heaters purchased
during the 30-year period that begins in
the anticipated year of compliance with
amended standards (2030–2059). The
energy savings, emissions reductions,
and value of emissions reductions refer
to full-fuel-cycle results. DOE is
presenting monetized benefits of GHG
emissions reductions in accordance
with the applicable Executive Orders,
and DOE would reach the same
conclusion presented in this final rule
in the absence of the estimated benefits
from reductions in GHG emissions,
including the estimates published by
EPA in December 2023 or the Interim
Estimates presented by the Interagency
Working Group in 2021. The efficiency
levels contained in each TSL are
described in section V.A of this
document.
TABLE V.24—SUMMARY OF ANALYTICAL RESULTS FOR GAS-FIRED INSTANTANEOUS WATER HEATERS TSLS: NATIONAL
IMPACTS
Category
TSL 1
TSL 2
TSL 3
TSL 4
Cumulative FFC National Energy Savings
Quads ..............................................................................................................
0.35
0.58
0.85
1.07
32
398
0.06
0.12
86
(0.0004)
46
576
0.09
0.20
125
(0.0003)
54
671
0.12
0.79
145
0.0035
Cumulative FFC Emissions Reductions
CO2 (million metric tons) .................................................................................
CH4 (thousand tons) ........................................................................................
N2O (thousand tons) ........................................................................................
SO2 (thousand tons) ........................................................................................
NOX (thousand tons) .......................................................................................
Hg (tons) ..........................................................................................................
19
244
0.04
0.05
53
(0.0004)
Present Value of Benefits and Costs (3% discount rate, billion 2023$)
Consumer Operating Cost Savings .................................................................
Climate Benefits * (2023 SC–GHG estimates) ................................................
Climate Benefits * (2021 interim SC–GHG estimates) ....................................
Health Benefits ** .............................................................................................
Total Benefits † (2023 SC–GHG estimates) .............................................
Total Benefits † (2021 interim SC–GHG estimates) .................................
2.6
4.4
1.0
1.6
8.6
5.3
4.5
7.1
1.7
2.7
14.3
8.9
6.7
10.2
2.4
3.8
20.8
12.9
8.6
12.0
2.8
4.5
25.1
15.9
Consumer Incremental Product Costs ‡ ..........................................................
Consumer Net Benefits ...................................................................................
Total Net Benefits † (2023 SC–GHG estimates) ......................................
Total Net Benefits † (2021 interim SC–GHG estimates) ..........................
1.4
1.3
7.3
3.9
1.5
3.1
12.8
7.4
1.8
4.9
18.9
11.1
4.1
4.5
21.0
11.8
2.4
10.2
2.4
1.3
3.1
12.0
2.8
1.5
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Present Value of Benefits and Costs (7% discount rate, billion 2023$)
Consumer Operating Cost Savings .................................................................
Climate Benefits * (2023 SC–GHG estimates) ................................................
Climate Benefits * (2021 interim SC–GHG estimates) ....................................
Health Benefits ** .............................................................................................
194 P.C. Reiss and M.W. White. Household
Electricity Demand, Revisited. Review of Economic
Studies. 2005. 72(3): pp. 853–883. doi: 10.1111/
0034–6527.00354.
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4.4
1.0
0.6
195 Sanstad, A. H. Notes on the Economics of
Household Energy Consumption and Technology
Choice. 2010. Lawrence Berkeley National
Laboratory. Available at: www1.eere.energy.gov/
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buildings/appliance_standards/pdfs/consumer_ee_
theory.pdf (last accessed September 12, 2024).
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TABLE V.24—SUMMARY OF ANALYTICAL RESULTS FOR GAS-FIRED INSTANTANEOUS WATER HEATERS TSLS: NATIONAL
IMPACTS—Continued
Category
TSL 1
TSL 2
TSL 3
TSL 4
Total Benefits † (2023 SC–GHG estimates) .............................................
Total Benefits † (2021 interim SC–GHG estimates) .................................
5.9
2.5
9.6
4.2
13.9
6.0
16.5
7.3
Consumer Incremental Product Costs ‡ ..........................................................
0.7
0.8
1.0
2.1
Consumer Net Benefits ...................................................................................
Total Net Benefits † (2023 SC–GHG estimates) ......................................
Total Net Benefits † (2021 interim SC–GHG estimates) ..........................
0.2
5.1
1.8
0.9
8.9
3.4
1.5
12.9
5.1
1.0
14.4
5.2
Note: This table presents the costs and benefits associated with gas-fired instantaneous water heaters shipped during the period 2030–2059.
These results include benefits to consumers which accrue after 2059 from the products shipped during the period 2030–2059. Parentheses indicate negative (-) values.
* Climate benefits are calculated using different estimates of the SC–CO2, SC–CH4 and SC–N2O. Climate benefits are estimated using two
separate sets of estimates of the social cost for each greenhouse gas, an updated set published in 2023 by the Environmental Protection Agency (EPA) (‘‘2023 SC–GHG’’) and the interim set of estimates used in the NOPR which were published in 2021 by the Interagency Working Group
on the SC–GHG (IWG) (‘‘2021 Interim SC–GHG’’) (see section IV.L of this document). For presentational purposes of this table, the climate benefits associated with the average SC–GHG at a 2-percent near-term Ramsey discount rate are shown for the 2023 SC–GHG estimates, and the
climate benefits associated with the average SC–GHG at a 3 percent discount rate are shown for the 2021 interim SC–GHG estimates.
** Health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only monetizing (for NOX and SO2) 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 5 of the EPA’s Estimating the Benefit per Ton of Reducing PM2.5 Precursors
from 21 Sectors TSD provides a summary of the health impact endpoints quantified in the analysis. See section IV.L of this document for more
details.
† Total and net benefits include consumer, climate, and health benefits. For presentation purposes, total and net benefits for both the 3-percent
and 7-percent cases are presented using the average SC–GHG with 2-percent near-term Ramsey discount rate for the 2023 estimate and the
average SC–GHG with 3-percent discount rate for the 2021 interim SC–GHG estimate.
‡ Costs include incremental equipment costs as well as installation costs.
TABLE V.25—SUMMARY OF ANALYTICAL RESULTS FOR GAS-FIRED INSTANTANEOUS WATER HEATER TSLS:
MANUFACTURER AND CONSUMER IMPACTS
Category
TSL 1
TSL 2
TSL 3
TSL 4
Manufacturer Impacts
Industry NPV (million 2023$) (No-new-standards case INPV = 1,193.9) ..........................
Industry NPV (% change) ................................
1,171.1 to 1,234.0
(1.9) to 3.4
1,160.2 to 1,234.4
(2.8) to 3.4
1,132.1 to 1,217.6
(5.2) to 2.0
1,119.5 to 1,275.2
(6.2) to 6.8
112
90
39
8.9
8.3
10.3
25.0
56.2
Consumer Average LCC Savings (2023$)
Gas-fired Instantaneous Water Heater ............
(1)
Consumer Simple PBP (years)
Gas-fired Instantaneous Water Heater ............
12.6
Percent of Consumers that Experience a Net Cost
Gas-fired Instantaneous Water Heater ............
17.5
15.2
ddrumheller on DSK120RN23PROD with RULES2
Parentheses indicate negative (-) values.
DOE first considered TSL 4, which
represents the max-tech efficiency level
analyzed for gas-fired instantaneous
water heaters with current UEF-based
standards. At TSL 4, the design option
pathway includes the use of highefficiency flat-plate condensing heat
exchangers and fully modulating
burners. TSL 4 would require extensive
changes to the way manufacturers
currently produce gas-fired
instantaneous water heaters. At TSL 4,
approximately 8 percent of shipments
are expected to meet the required
efficiency levels by 2030 in the no-newstandards case; therefore, a significant
ramp-up in manufacturing capacity
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would be needed to support the market
transition.
TSL 4 would save an estimated 1.07
quads of energy, an amount DOE
considers significant. Under TSL 4, the
NPV of consumer benefit would be
$0.98 billion using a discount rate of 7
percent, and $4.50 billion using a
discount rate of 3 percent.
The cumulative emissions reductions
at TSL 4 are 54 Mt of CO2, 671 thousand
tons of CH4, 0.12 thousand tons of N2O,
145 thousand tons of NOX, 0.79
thousand tons of SO2, and 0.0035 tons
of Hg. The estimated monetary value of
the climate benefits from reduced GHG
emissions at TSL 4 is $12.0 billion
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(associated with the average SC–GHG at
a 2-percent near Ramsey discount rate
using the 2023 SC–GHG estimates) or
$2.8 billion (associated with the average
SC–GHG at a 3-percent discount rate
using the 2021 interim SC–GHG
estimates). The estimated monetary
value of the health benefits from
reduced SO2 and NOX emissions at TSL
4 is $1.5 billion using a 7-percent
discount rate and $4.5 billion using a 3percent discount rate.
Using a 7-percent discount rate for
consumer benefits and costs, health
benefits from reduced SO2 and NOX
emissions, and the 2-percent near-term
Ramsey discount rate case or the 3-
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percent discount rate case for climate
benefits from reduced GHG emissions,
the estimated total NPV at TSL 4 is
$14.4 billion (using the 2023 SC–GHG
estimates) or $5.2 billion (using the
2021 interim SC–GHG estimates). Using
a 3-percent discount rate for consumer
benefits and costs and health benefits
from reduced NOX and SO2 emissions,
and the 2-percent near-term Ramsey
discount rate case or the 3-percent
discount rate case for climate benefits
from reduced GHG emissions, the
estimated total NPV at TSL 4 is $21.0
billion (using the 2023 SC–GHG
estimates) or $11.8 billion (using the
2021 interim SC–GHG estimates). The
estimated total NPV is provided for
additional information, however DOE
primarily relies upon the NPV of
consumer benefits when determining
whether a proposed standard level is
economically justified.
At TSL 4, consumers will experience
an average LCC savings of $39, which
includes the cost of purchasing and
installing a more expensive model with
fully modulating burner technology.
The fraction of consumers experiencing
a net LCC cost is 56.2 percent.
At TSL 4, the projected change in
INPV ranges from a decrease of $74.5
million to an increase of $81.2 million,
which corresponds to a decrease of 6.2
percent and an increase of 6.8 percent,
respectively. The range of impacts is
driven primarily by the ability of
manufacturers to recover their
investments. DOE estimates that
industry would need to invest $60.1
million to comply with standards set at
TSL 4. At this level, given the greater
complexity and assembly time of maxtech models, most manufacturers would
need to add production lines to meet
demand, which would require large
capital investments and updates to the
factory floor. The investment required to
add production capacity would vary by
manufacturer as it depends on floor
space availability in and around existing
manufacturing plants. Manufacturers
would also need to upgrade their
facilities to accommodate the
production of models with large, highefficiency condensing heat exchangers
and fully modulating burners. DOE
understands that implementing larger,
improved condensing heat exchanger
designs would add a significant amount
of complexity to the manufacturing
process. Feedback from confidential
interviews and public comments
indicate that it would require notable
investment to incorporate fully
modulating burners into their gas-fired
instantaneous water heater designs. Of
the 12 gas-fired instantaneous water
heater OEMs, five OEMs offer 19 models
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that meet TSL 4 (which represents
approximately 14 percent of gas-fired
instantaneous water heater basic model
listings).
The Secretary concludes that at TSL
4 for gas-fired instantaneous water
heaters, the benefits of energy savings,
positive NPV of consumer benefits,
emissions reductions, and estimated
monetary value of the emissions
reductions would be outweighed by
economic impacts to manufacturers
(driven by the ramp-up in scale and
offerings needed to support max-tech
efficiencies), and a majority of
consumers would experience a net cost
(56.2 percent). At TSL 4, most
manufacturers would need to add
production lines to meet demand,
which would require large capital
expenditures. DOE projects that only 8
percent of shipments would meet TSL 4
efficiencies by 2030 in the no-newstandards case. Consequently, the
Secretary has concluded that TSL 4 is
not economically justified.
DOE then considered TSL 3, which
represents the next highest efficiency
level analyzed for gas-fired
instantaneous water heaters with
current UEF-based standards and
represents efficiencies that can meet the
current ENERGY STAR specification. At
TSL 3, the design option pathway
includes the use of high-efficiency flatplate condensing heat exchangers. TSL
3 may also require changes to the way
manufacturers currently produce gasfired instantaneous water heaters since
many designs on the market today use
tube heat exchangers. At TSL 3,
approximately 16 percent of shipments
are expected to meet the required
efficiency levels by 2030 in the no-newstandards case.
TSL 3 would save an estimated 0.85
quads of energy, an amount DOE
considers significant. Under TSL 3, the
NPV of consumer benefit would be
$1.45 billion using a discount rate of 7
percent, and $4.89 billion using a
discount rate of 3 percent.
The cumulative emissions reductions
at TSL 3 are 46 Mt of CO2, 576 thousand
tons of CH4, 0.09 thousand tons of N2O,
125 thousand tons of NOX, 0.20
thousand tons of SO2, and an increase
of 0.0003 tons of Hg. The estimated
monetary value of the climate benefits
from reduced GHG emissions at TSL 3
is $10.2 billion (associated with the
average SC–GHG at a 2-percent nearterm Ramsey discount rate using the
2023 SC–GHG estimates) or $2.4 billion
(associated with the average SC–GHG at
a 3-percent discount rate using the 2021
interim SC–GHG estimates). The
estimated monetary value of the health
benefits from reduced SO2 and NOX
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emissions at TSL 3 is $1.3 billion using
a 7-percent discount rate and $3.8
billion using a 3-percent discount rate.
Using a 7-percent discount rate for
consumer benefits and costs, health
benefits from reduced SO2 and NOX
emissions, and the 2-percent near-term
Ramsey discount rate case or the 3percent discount rate case for climate
benefits from reduced GHG emissions,
the estimated total NPV at TSL 3 is
$12.9 billion (using the 2023 SC–GHG
estimates) or $5.1 billion (using the
2021 interim SC–GHG estimates). Using
a 3-percent discount rate for consumer
benefits and costs and health benefits
from reduced NOX and SO2 emissions,
and the 2-percent near-term Ramsey
discount rate case or the 3-percent
discount rate case for climate benefits
from reduced GHG emissions, the
estimated total NPV at TSL 3 is $18.9
billion (using the 2023 SC–GHG
estimates) or $11.1 billion (using the
2021 interim SC–GHG estimates). The
estimated total NPV is provided for
additional information, however DOE
primarily relies upon the NPV of
consumer benefits when determining
whether a proposed standard level is
economically justified.
At TSL 3, consumers will experience
an average LCC savings of $90, which
includes the cost of purchasing and
installing a more expensive condensing
model. The fraction of consumers
experiencing a net LCC cost is 25.0
percent.
At TSL 3, the projected change in
INPV ranges from a decrease of $61.8
million to an increase of $23.7 million,
which corresponds to a decrease of 5.2
percent and an increase of 2.0 percent,
respectively. As with TSL 4, the range
of impacts is driven primarily by the
ability of manufacturers to recover their
investments. DOE estimates that
industry must invest $60.1 million to
comply with standards set at TSL 3. At
this level, DOE expects manufacturers
would implement the same highefficiency heat exchanger design as at
max-tech and increase the condensing
heat exchanger area relative to lower
efficiency levels but not to the extent as
required at max-tech. Given the greater
complexity and assembly time of highefficiency models, most manufacturers
would need to add production lines to
meet demand, which would require
capital investments and potential
updates to the factory floor. The
investment required to add production
capacity would vary by manufacturer as
it depends on floor space availability in
and around existing manufacturing
plants. Manufacturers would also need
to upgrade their facilities to
accommodate the production of models
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with high-efficiency condensing heat
exchangers. Additionally, while TSL 3
is technologically feasible using
traditional step-modulating burner
designs, DOE received information from
several manufacturers indicating that, at
this efficiency level, some
manufacturers may opt to redesign their
models to take advantage of alternative
burner configurations (e.g., down-firing)
or even fully-modulating designs—
designs which may provide a benefit of
better condensate management at such a
high efficiency.
The Secretary concludes that at TSL
3 for gas-fired instantaneous water
heaters, the benefits of energy savings,
positive NPV of consumer benefits,
emissions reductions, and estimated
monetary value of the emissions
reductions would be outweighed by
economic impacts to manufacturers
(driven by the potential conversion
costs for production equipment and
tooling, as well as the ramp-up in
production necessary for all model lines
to meet this efficiency). At TSL 3, most
manufacturers would need to add
production lines to meet demand.
Consequently, the Secretary has
concluded that TSL 3 is not
economically justified.
DOE then considered TSL 2, which
represents the next highest efficiency
level analyzed for gas-fired
instantaneous water heaters with
current UEF-based standards. TSL 2 also
aligns with the Joint Stakeholder
Recommendation efficiency level. At
TSL 2, the design option pathway
includes the use of condensing heat
exchangers. At TSL 2, approximately 62
percent of shipments are expected to
meet the required efficiency levels by
2030 in the no-new-standards case,
which is a significant increase from TSL
3 and TSL 4.
TSL 2 would save an estimated 0.58
quads of energy, an amount DOE
considers significant. Under TSL 2, the
NPV of consumer benefit would be
$0.87 billion using a discount rate of 7
percent, and $3.06 billion using a
discount rate of 3 percent.
The cumulative emissions reductions
at TSL 2 are 32 Mt of CO2, 398 thousand
tons of CH4, 0.06 thousand tons of N2O,
86 thousand tons of NOX, 0.12 thousand
tons of SO2, and an increase of 0.0004
tons of Hg. The estimated monetary
value of the climate benefits from
reduced GHG emissions at TSL 2 is $7.1
billion (associated with the average SC–
GHG at a 2-percent near-term Ramsey
discount rate using the 2023 SC–GHG
estimates) or $1.7 billion (associated
with the average SC–GHG at a 3-percent
discount rate using the 2021 interim
SC–GHG estimates). The estimated
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monetary value of the health benefits
from reduced SO2 and NOX emissions at
TSL 3 is $0.9 billion using a 7-percent
discount rate and $2.7 billion using a 3percent discount rate.
Using a 7-percent discount rate for
consumer benefits and costs, health
benefits from reduced SO2 and NOX
emissions, and the 2-percent near-term
Ramsey discount rate case or the 3percent discount rate case for climate
benefits from reduced GHG emissions,
the estimated total NPV at TSL 2 is $8.9
billion (using the 2023 SC–GHG
estimates) or $3.4 billion (using the
2021 interim SC–GHG estimates). Using
a 3-percent discount rate for consumer
benefits and costs and health benefits
from reduced NOX and SO2 emissions,
and the 2-percent near-term Ramsey
discount rate case or the 3-percent
discount rate case for climate benefits
from reduced GHG emissions, the
estimated total NPV at TSL 2 is $12.8
billion (using the 2023 SC–GHG
estimates) or $7.4 billion (using the
2021 interim SC–GHG estimates). The
estimated total NPV is provided for
additional information, however DOE
primarily relies upon the NPV of
consumer benefits when determining
whether a proposed standard level is
economically justified.
At TSL 2, consumers will experience
an average LCC savings of $112 which
includes the cost of purchasing and
installing a more expensive condensing
model. The fraction of consumers
experiencing a net LCC cost is 15.2
percent.
At TSL 2, the projected change in
INPV ranges from a decrease of $33.7
million to an increase of $40.5 million,
which corresponds to a decrease of 2.8
percent and an increase of 3.4 percent,
respectively. DOE estimates that
industry must invest $20.4 million to
comply with standards set at TSL 2.
At higher TSLs, the primary driver of
high conversion costs is the required
capital investment to meet market
demand for high-efficiency condensing
gas-fired instantaneous water heaters.
However, at TSL 2, industry has
extensive experience producing gasfired instantaneous water heater models
that meet this level, and, furthermore,
this TSL was strongly supported by a
coalition of industry stakeholders,
including manufacturers. DOE believes
that having major manufacturers and the
industry trade association sign on to the
Joint Stakeholder Recommendation is a
testament to industry’s ability to ramp
up capacity to produce volumes
necessary to support a transition to
condensing efficiencies at TSL 2. Based
on manufacturer feedback, DOE does
not expect that most manufacturers
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would need to add production lines at
this level. All 12 gas-fired instantaneous
water heater OEMs currently
manufacture condensing gas-fired
instantaneous water heater models. Of
these 12 OEMs, 10 OEMs currently
manufacture condensing gas-fired
instantaneous water heater models that
meet this level. Collectively, these 10
OEMs offer 71 unique basic models that
meet TSL 2 (which represent
approximately 51 percent of gas-fired
instantaneous water heater basic model
listings). Furthermore, these 10 OEMs
account for the majority of gas-fired
instantaneous water heater sales,
representing over 95 percent of industry
shipments.
After considering the analysis and
weighing the benefits and burdens, the
Secretary has concluded that standards
set at TSL 2 for gas-fired instantaneous
water heaters would be economically
justified. At this TSL, the average LCC
savings for consumers are expected to
be positive. The FFC national energy
savings are significant and the NPV of
consumer benefits is positive using both
a 3-percent and 7-percent discount rate.
These national benefits vastly outweigh
the costs. The standard levels at TSL 2
are economically justified even without
weighing the estimated monetary value
of emissions reductions. When those
emissions reductions are included—
representing $7.1 billion in climate
benefits (associated with the average
SC–GHG at a 2-percent near-term
Ramsey discount rate using the 2023
SC–GHG estimates) or $1.7 billion in
climate benefits (associated with the
average SC–GHG at a 3-percent discount
rate using the 2021 interim SC–GHG
estimate), and $0.9 billion (using a 7percent discount rate) or $2.7 billion
(using a 3-percent discount rate) in
health benefits—the rationale becomes
stronger still. In addition, DOE
considered that TSL 2 is representative
of the Joint Stakeholder
Recommendation. More specifically,
DOE believes the Joint Stakeholder
agreement from a cross-section group of
stakeholders provides DOE with a good
indication of stakeholder views on this
rulemaking and some assurance that
industry can transition to these levels.
And, as indicated by DOE’s analysis, the
market will see significant benefits at
this efficiency level.
Accordingly, the Secretary has
concluded that TSL 2 would offer the
maximum improvement in efficiency
that is technologically feasible and
economically justified, and would result
in significant conservation of energy.
Lastly, TSL 2 represents the
recommended standard levels submitted
by Joint Stakeholders to DOE, providing
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further support for standard levels set at
TSL 2, a factor the Secretary considers
significant.
As stated, DOE conducts the 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. The walk-down is not a
comparative analysis, as a comparative
analysis would result in the
maximization of net benefits instead of
energy savings that are technologically
feasible and economically justified,
which would be contrary to the statute.
86 FR 70892, 70908. Although DOE has
not conducted a comparative analysis to
select the amended energy conservation
standards, DOE notes that at higher
TSLs, larger fractions of consumers
experience increased costs greater than
operating savings, and manufacturer
investments to meet consumer demand
would be significantly higher.
Therefore, based on the above
considerations, DOE adopts the
conservation standards for consumer
105279
water heaters at TSL 2 for those product
classes where there are existing
applicable UEF standards. For the
remaining product classes, DOE adopts
converted standards in the UEF metric
based on the amended appendix E test
procedure. The amended energy
conservation standards for gas-fired
instantaneous water heaters, which are
expressed as UEF, are shown in table
V.26.
TABLE V.26—AMENDED ENERGY CONSERVATION STANDARDS FOR GAS-FIRED INSTANTANEOUS WATER HEATERS
Effective storage volume
(Veff) * and input rating
Draw pattern
<2 gal and ≤50,000 Btu/h .............
Very Small ....................................
Low ...............................................
Medium .........................................
High ..............................................
Very Small ....................................
Low ...............................................
Medium .........................................
High ..............................................
Very Small ....................................
Low ...............................................
Medium .........................................
High ..............................................
Product class
Gas-fired
Heater.
Instantaneous
Water
<2 gal and >50,000 Btu/h .............
≥2 gal and ≤200,000 Btu/h ...........
UEF *
0.64.
0.64.
0.64.
0.64.
0.89.
0.91.
0.91.
0.93.
0.2534–(0.0018
0.5226–(0.0022
0.5919–(0.0020
0.6540–(0.0017
×
×
×
×
Veff).
Veff).
Veff).
Veff).
* Veff is the Effective Storage Volume (in gallons), as determined pursuant to 10 CFR 429.17.
2. Annualized Benefits and Costs of the
Adopted Standards
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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
2023$) 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
health benefits.
Table V.27 shows the annualized
values for gas-fired instantaneous water
heaters analyzed under TSL 2,
expressed in 2023$. The results under
the primary estimate are as follows.
Using a 7-percent discount rate for
consumer benefits and costs and health
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benefits from reduced NOX and SO2
emissions, and a 2-percent near-term
Ramsey discount rate case or the 3percent discount rate case for climate
benefits from reduced GHG emissions,
the estimated cost of the adopted
standards for gas-fired instantaneous
water heaters is $88 million per year in
increased equipment installed costs,
while the estimated annual benefits are
$187 million from reduced equipment
operating costs, $349 million in climate
benefits (using the 2023 SC–GHG
estimates) or $98 million in climate
benefits (using the 2021 interim SC–
GHG estimates), and $101 million in
health benefits. In this case, the net
benefit amounts to $549 million per
year (using the 2023 SC–GHG estimates)
or $297 million per year (using the 2021
interim SC–GHG estimates).
Using a 3-percent discount rate for
consumer benefits and costs and health
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benefits from reduced NOX and SO2
emissions, and the 2-percent near-term
Ramsey discount rate case or the 3percent discount rate case for climate
benefits from reduced GHG emissions,
the estimated cost of the adopted
standards for gas-fired instantaneous
water heaters is $87 million per year in
increased equipment costs, while the
estimated annual benefits are $268
million in reduced operating costs, $349
million in climate benefits (using the
2023 SC–GHG estimates) or $98 million
in climate benefits (using the 2021
interim SC–GHG estimates), and $158
million in health benefits. In this case,
the net benefit amounts to $689 million
per year (using the 2023 SC–GHG
estimates) or $437 million per year
(using the 2021 interim SC–GHG
estimates).
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TABLE V.27—ANNUALIZED BENEFITS AND COSTS OF THE ADOPTED ENERGY CONSERVATION STANDARDS FOR GAS-FIRED
INSTANTANEOUS WATER HEATERS AT TSL 2 SHIPPED DURING THE PERIOD 2030–2059
[Veff <2 gal, rated input >50,000 Btu/h]
Million 2023$/year
Primary
estimate
Low-netbenefits
estimate
High-netbenefits
estimate
3% discount rate
Consumer Operating Cost Savings .............................................................................................
Climate Benefits * (2023 SC–GHG estimates) ............................................................................
Climate Benefits * (2021 interim SC–GHG estimates) ................................................................
Health Benefits ** .........................................................................................................................
Total Benefits † (2023 SC–GHG estimates) ................................................................................
Total Benefits † (2021 interim SC–GHG estimates) ....................................................................
Consumer Incremental Product Costs ‡ ......................................................................................
Net Benefits † (2023 SC–GHG estimates) ..................................................................................
Net Benefits † (2021 interim SC–GHG estimates) ......................................................................
Change in Producer Cashflow (INPV) ‡‡ ....................................................................................
268
349
98
158
776
525
87
689
437
(3)–4
249
344
96
156
749
502
86
663
416
(3)–4
288
355
100
161
804
548
89
715
459
(3)–4
187
349
98
101
637
386
88
549
297
(3)–4
174
344
96
99
616
369
87
530
283
(3)–4
200
355
100
102
658
402
90
568
312
(3)–4
7% discount rate
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Consumer Operating Cost Savings .............................................................................................
Climate Benefits * (2023 SC–GHG estimates) ............................................................................
Climate Benefits * (2021 interim SC–GHG estimates) ................................................................
Health Benefits ** .........................................................................................................................
Total Benefits † (2023 SC–GHG estimates) ................................................................................
Total Benefits † (2021 interim SC–GHG estimates) ....................................................................
Consumer Incremental Product Costs ‡ ......................................................................................
Net Benefits † (2023 SC–GHG estimates) ..................................................................................
Net Benefits † (2021 interim SC–GHG estimates) ......................................................................
Change in Producer Cashflow (INPV) ‡‡ ....................................................................................
Note: These results include consumer, climate, and health benefits that accrue after 2059 from the products shipped during the period 2030–
2059. The Primary, Low Net Benefits, and High Net Benefits Estimates utilize projections of energy prices from the AEO2023 Reference case,
Low Economic Growth case, and High Economic Growth case, respectively. In addition, incremental equipment costs reflect a medium decline
rate in the Primary Estimate, a low decline rate in the Low Net Benefits Estimate, and a high decline rate in the High Net Benefits Estimate. The
methods used to derive projected price trends are explained in sections IV.F.1 and IV.H.3 of this document. Note that the Benefits and Costs
may not sum to the Net Benefits due to rounding.
* Climate benefits are calculated using different estimates of the global SC–GHG (see section IV.L of this document). Climate benefits are estimated using two separate sets of estimates of the social cost for each greenhouse gas, an updated set published in 2023 by the Environmental
Protection Agency (EPA) (‘‘2023 SC–GHG’’) and the interim set of estimates used in the NOPR which were published in 2021 by the Interagency
Working Group on the SC–GHG (IWG) (‘‘2021 Interim SC–GHG’’) (see section IV.L of this document). For presentational purposes of this table,
the climate benefits associated with the average SC–GHG at a 2 percent near-term Ramsey discount rate are shown for the 2023 SC–GHG estimates, and the climate benefits associated with the average SC–GHG at a 3 percent discount rate are shown for the 2021 interim SC–GHG estimates.
** Health benefits are calculated using benefit-per-ton values for 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. Table 5 of the EPA’s Estimating the Benefit per Ton of Reducing PM2.5 Precursors
from 21 Sectors TSD provides a summary of the health impact endpoints quantified in the analysis. See section IV.L of this document for more
details.
† Total benefits for both the 3-percent and 7-percent cases are presented using the average SC–GHG with 2-percent near-term Ramsey discount rate for the 2023 estimate and the average SC–GHG with 3-percent discount rate for the 2021 interim SC–GHG estimate.
‡ Costs include incremental equipment costs as well as installation costs.
‡‡ Operating Cost Savings are calculated based on the life-cycle costs analysis and national impact analysis as discussed in detail below. See
sections IV.F and IV.H of this document. DOE’s national impacts analysis includes all impacts (both costs and benefits) along the distribution
chain beginning with the increased costs to the manufacturer to manufacture the product and ending with the increase in price experienced by
the consumer. DOE also separately conducts a detailed analysis on the impacts on manufacturers (i.e., MIA). See section IV.J of this document.
In the detailed MIA, DOE models manufacturers’ pricing decisions based on assumptions regarding investments, conversion costs, cashflow, and
margins. The MIA produces a range of impacts, which is the rule’s expected impact on the INPV. The change in INPV is the present value of all
changes in industry cash flow, including changes in production costs, capital expenditures, and manufacturer profit margins. The annualized
change in INPV is calculated using the industry weighted average cost of capital value of 9.6 percent that is estimated in the MIA (see chapter
12 of the final rule TSD for a complete description of the industry weighted average cost of capital). For gas-fired instantaneous water heaters,
the annualized change in INPV ranges from ¥$3 million to $4 million. DOE accounts for that range of likely impacts in analyzing whether a TSL
is economically justified. See section V.C of this document. DOE is presenting the range of impacts to the INPV under two manufacturer markup
scenarios: the Preservation of Gross Margin scenario, which is the manufacturer markup scenario used in the calculation of Consumer Operating
Cost Savings in this table; and the Preservation of Operating Profit scenario, where DOE assumed manufacturers would not be able to increase
per-unit operating profit in proportion to increases in manufacturer production costs. DOE includes the range of estimated annualized change in
INPV in the above table, drawing on the MIA explained further in section IV.J of this document to provide additional context for assessing the estimated impacts of this final rule to society, including potential changes in production and consumption, which is consistent with OMB’s Circular
A–4 and E.O. 12866. If DOE were to include the INPV into the annualized net benefit calculation (2023 SC–GHG estimates) for this final rule,
the annualized net benefits would range from $686 million to $693 million at 3-percent discount rate and would range from $546 million to $553
million at 7-percent discount rate. Parentheses indicate negative ( ) values.
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3. Compliance Dates
As discussed in section II.A of this
document, DOE is conducting this
rulemaking in satisfaction of the
lookback review provisions and the UEF
metric provisions in EPCA. See 42
U.S.C. 6295(m) and 6295(e)(5),
respectively. Per EPCA, an amendment
of standards prescribed under 42 U.S.C.
6295(m) is applicable to water heaters
manufactured after the date that is 5
years after the publication of a final rule
amending standards. (42 U.S.C.
6295(m)(4)(A)(ii)) Hence, the
compliance date for amended standards
pertaining to gas-fired instantaneous
water heaters is 5 years from the
publication of this final rule.
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VI. Procedural Issues and Regulatory
Review
A. Review Under Executive Orders
12866, 13563, and 14094
Executive Order (‘‘E.O.’’) 12866,
‘‘Regulatory Planning and Review,’’ as
supplemented and reaffirmed by E.O.
13563, ‘‘Improving Regulation and
Regulatory Review,’’ 76 FR 3821 (Jan.
21, 2011) and amended by 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
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and Budget 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 the
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’’ within
the scope of 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
(Aug. 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 reviewed this final rule under
the provisions of the Regulatory
Flexibility Act and the procedures and
policies published on February 19,
2003. DOE certifies that this final rule
would not have a significant economic
impact on a substantial number of small
entities. As such, DOE has not prepared
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105281
a FRFA for the products that are the
subject of this rulemaking. The factual
basis of this certification is set forth in
the following paragraphs.
For manufacturers of gas-fired
instantaneous water heaters, 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-tablesize-standards. Manufacturing of gasfired instantaneous water heaters is
classified under NAICS 335220, ‘‘Major
Household Appliance Manufacturing.’’
The SBA sets a threshold of 1,500
employees or fewer for an entity to be
considered as a small business for this
category. For manufacturers of gas-fired
instantaneous water heaters, 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-tablesize-standards. Manufacturing of gasfired instantaneous water heaters is
classified under NAICS 335220, ‘‘Major
Household Appliance Manufacturing.’’
The SBA sets a threshold of 1,500
employees or fewer for an entity to be
considered as a small business for this
category.
To estimate the number of companies
that could be small business
manufacturers of gas-fired instantaneous
water heaters, DOE conducted a market
survey using public information and
subscription-based company reports to
identify potential small business
manufacturers. DOE reviewed DOE’s
Compliance Certification Database,196
Air-Conditioning, Heating, and
Refrigeration Institute’s Directory of
Certified Product Performance,197
196 U.S. Department of Energy’s Compliance
Certification Database is available at
regulations.doe.gov/certification-data (last accessed
July 19, 2024).
197 Air-Conditioning, Heating and Refrigeration
Institute’s Directory of Certified Product
Performance is available at https://
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California Energy Commission’s
Modernized Appliance Efficiency
Database System,198 the ENERGY STAR
Product Finder dataset,199 and
individual company websites, to create
a list of companies that manufacture,
produce, or import the products covered
by this rulemaking. DOE then consulted
publicly available data, such as
manufacturer websites, manufacturer
specifications and product literature,
import/export logs (e.g., bills of lading
from ImportYeti 200), and basic model
numbers, to identify original equipment
manufacturers (‘‘OEMs’’) of covered gasfired instantaneous water heaters. DOE
relied on public information and market
research tools (e.g., reports from D&B
Hoovers 201) to determine company
structure, location, headcount, and
annual revenue. DOE screened out
companies that do not manufacture the
equipment covered by this rulemaking,
do not meet the SBA’s definition of a
‘‘small business,’’ or are foreign-owned
and operated.
DOE identified 12 OEMs of gas-fired
instantaneous water heaters subject to
more stringent standards. Of these 12
OEMs, DOE did not identify any
domestic OEMs that meet SBA’s
definition of a ‘‘small business.’’ Given
the lack of small, domestic OEMs with
a direct compliance burden, DOE
concludes that this final rule would not
have ‘‘a significant impact on a
substantial number of small entities.’’
DOE has transmitted the certification
and supporting statement of factual
basis to the Chief Counsel for Advocacy
of the SBA for review under 5 U.S.C.
605(b).
In response to the July 2023 NOPR,
the Gas Association Commenters and
NPGA, APGA, AGA, and Rinnai
submitted comments noting that DOE
identified only two small businesses,
neither of which produce gas-fired
water heaters. As a result, these
commenters stated that DOE has no data
on small businesses that produce gasfired water heaters relative to redesign
costs, product availability, or whether
the proposed efficiency levels could
cause small businesses to exit the
market. (Gas Association Commenters
ahridirectory.org/search/searchhome?
Returnurl=%2f (last accessed July 23, 2024).
198 California Energy Commission’s Modernized
Appliance Efficiency Database System is available
at cacertappliances.energy.ca.gov/Pages/Search/
AdvancedSearch.aspx (last accessed July 19, 2024).
199 ENERGY STAR Product Finder is available at
www.energystar.gov/productfinder (last accessed
July 22, 2024).
200 ImportYeti, LLC. ImportYeti is available at:
www.importyeti.com/ (Last accessed July 30, 2024).
201 The Dun & Bradstreet subscription login is
available at app.dnbhoovers.com (last accessed July
30, 2024).
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20:37 Dec 23, 2024
Jkt 265001
No. 1181, pp. 38–39; NPGA, APGA,
AGA, and Rinnai, No. 441 at p. 5)
NPGA, APGA, AGA, and Rinnai
asserted that the July 2023 NOPR fails
to comply with Executive Order 13272,
‘‘Proper Consideration of Small Entities
in Agency Rulemaking,’’ and must be
addressed. (NPGA, APGA, AGA, and
Rinnai, No. 441 at p. 5)
For the IRFA conducted in support of
the July 2023 NOPR, which proposed
standards for covered consumer water
heaters, DOE identified one small
domestic OEM of oil-fired storage water
heaters and one small domestic OEM of
electric storage water heaters. For this
certification, DOE refreshed its product
database to include up-to-date
information on gas-fired instantaneous
water heaters marketed for the United
States. Based on its comprehensive
review of the gas-fired instantaneous
water heater market, DOE maintains its
finding from the IRFA that there are no
small, domestic OEMs that manufacture
gas-fired instantaneous water heaters.
As such, DOE does not expect that the
standards adopted in this final rule
would directly impact small businesses
that manufacture gas-fired
instantaneous water heaters.
DOE did not receive written
comments in response to the July 2024
NODA that specifically addressed the
potential impacts on small businesses.
C. Review Under the Paperwork
Reduction Act
Manufacturers of gas-fired
instantaneous water heaters must certify
to DOE that their products comply with
any applicable energy conservation
standards. In certifying compliance,
manufacturers must test their products
according to the DOE test procedures for
gas-fired instantaneous water heaters,
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 gas-fired instantaneous water
heaters. (See generally 10 CFR part 429).
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.
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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 rule
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 B5.1 because it is
a rulemaking that establishes energy
conservation standards for consumer
products or industrial equipment, none
of the exceptions identified in B5.1(b)
apply, no extraordinary circumstances
exist that require further environmental
analysis, and it 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 (Aug. 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 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
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Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations
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) Therefore, no
further action is required by Executive
Order 13132.
ddrumheller on DSK120RN23PROD with RULES2
F. Review Under Executive Order 12988
With respect to the review of existing
regulations and the promulgation of
new regulations, section 3(a) of E.O.
12988, ‘‘Civil Justice Reform,’’ 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. 61 FR 4729 (February 7,
1996). 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 section 3(a) and
section 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
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20:37 Dec 23, 2024
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estimates the resulting costs, benefits,
and other effects on the national
economy. (2 U.S.C. 1532(a), (b)) 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 gas-fired instantaneous
water heater 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 gas-fired instantaneous
water heaters, 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 preamble
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 42 U.S.C. 6295(m),
this final rule establishes amended
energy conservation standards for gasfired instantaneous water heaters that
are designed to achieve the maximum
improvement in energy efficiency that
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105283
DOE has determined to be both
technologically feasible and
economically justified, as required by
sections 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
proposed rule or policy that may affect
family well-being. When developing a
Family Policymaking Assessment,
agencies must assess whether: (1) the
action strengthens or erodes the stability
or safety of the family and, particularly,
the marital commitment; (2) the action
strengthens or erodes the authority and
rights of parents in the education,
nurture, and supervision of their
children; (3) the action helps the family
perform its functions, or substitutes
governmental activity for the function;
(4) the action increases or decreases
disposable income or poverty of families
and children; (5) the proposed benefits
of the action justify the financial impact
on the family; (6) the action may be
carried out by State or local government
or by the family; and whether (7) the
action establishes an implicit or explicit
policy concerning the relationship
between the behavior and personal
responsibility of youth, and the norms
of society. In evaluating the above
factors, DOE has concluded that it is not
necessary to prepare a Family
Policymaking Assessment as none of the
above factors are implicated. Further,
this proposed determination would not
have any financial impact on families
nor any impact on the autonomy or
integrity of the family as an institution.
DOE has considered how the benefits
of this final rule compare to the possible
financial impact on a family (the only
factor listed that is relevant to this
proposed rule). As part of its rulemaking
process, DOE must determine whether
the energy conservation standards
enacted in this final rule are
economically justified. As discussed in
section V.C.1 of this document, DOE has
determined that the standards enacted
in this final rule are economically
justified because the benefits to
consumers would far outweigh the costs
to manufacturers. Families will also see
LCC savings as a result of this final rule.
Moreover, as discussed further in
section V.B.1 of this document, DOE has
determined that for low-income
households, average LCC savings and
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Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Rules and Regulations
PBP at the considered efficiency levels
are improved (i.e., higher LCC savings
and lower PBP) as compared to the
average for all households. Further, the
standards will also result in climate and
health benefits for families.
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.
ddrumheller on DSK120RN23PROD with RULES2
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 (February 22, 2002), and
DOE’s guidelines were published at 67
FR 62446 (Oct. 7, 2002). Pursuant to
OMB Memorandum M–19–15,
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%20
IQA%20Guidelines%20
Dec%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 is likely to have a
significant adverse effect on the supply,
distribution, or use of energy; or (2) 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,
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20:37 Dec 23, 2024
Jkt 265001
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 gas-fired instantaneous water
heaters, 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. Information Quality
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.
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.202
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
202 The 2007 ‘‘Energy Conservation Standards
Rulemaking Peer Review Report’’ is available at:
energy.gov/eere/buildings/downloads/energyconservation-standards-rulemaking-peer-reviewreport-0 (last accessed August 29, 2024).
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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 report.203
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 the Office of
Information and Regulatory Affairs has
determined that the rule meets the
criteria set forth in 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, Reporting
and recordkeeping requirements, and
Small businesses.
Signing Authority
This document of the Department of
Energy was signed on December 16,
2024, 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 December
16, 2024.
Treena V. Garrett,
Federal Register Liaison Officer, U.S.
Department of Energy.
For the reasons set forth in the
preamble, DOE amends part 430 of
chapter II, subchapter D, of title 10 of
the Code of Federal Regulations, as set
forth below:
203 The report is available at:
www.nationalacademies.org/our-work/review-ofmethods-for-setting-building-and-equipmentperformance-standards.
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2. Amend § 430.32 by revising
paragraph (d)(3) and adding paragraph
(d)(4) to read as follows:
PART 430—ENERGY CONSERVATION
PROGRAM FOR CONSUMER
PRODUCTS
■
1. The authority citation for part 430
continues to read as follows:
§ 430.32 Energy and water conservation
standards and their compliance dates.
■
Authority: 42 U.S.C. 6291–6309; 28 U.S.C.
2461 note.
*
*
*
(d) * * *
*
105285
(3) The uniform energy factor of water
heaters manufactured on or after
December 26, 2029 shall not be less than
the following:
*
TABLE 15 TO PARAGRAPH (d)(3)
Product class
Gas-fired
Heater.
Instantaneous
Water
Effective storage volume (Veff) *
and input rating
Draw pattern
<2 gallons (‘‘gal’’) and ≤50,000
Btu/h.
Very Small ....................................
Low ...............................................
Medium .........................................
High ..............................................
Very Small ....................................
Low ...............................................
Medium .........................................
High ..............................................
Very Small ....................................
Low ...............................................
Medium .........................................
High ..............................................
<2 gal and >50,000 Btu/h .............
≥2 gal and ≤200,000 Btu/h ...........
UEF *
0.64.
0.64.
0.64.
0.64.
0.89.
0.91.
0.91.
0.93.
0.2534¥(0.0018
0.5226¥(0.0022
0.5919¥(0.0020
0.6540¥(0.0017
×
×
×
×
Veff).
Veff).
Veff).
Veff).
* Veff is the Effective Storage Volume (in gallons), as determined pursuant to § 429.17 of this chapter.
(4) The provisions of paragraph (d) of
this section are separate and severable
from one another. Should a court of
competent jurisdiction hold any
provision(s) of paragraph (d) of this
section to be stayed or invalid, such
action shall not affect any other
provision of paragraph (d) of this
section.
*
*
*
*
*
Note: The following letter will not appear
in the Code of Federal Regulations.
October 12, 2023
U.S. Department of Justice: Antitrust
Division, Ami Grace-Tardy, Assistant
General Counsel for Legislation,
Regulation and Energy Efficiency,
U.S. Department of Energy,
Washington, DC 20585, Re: Energy
Conservation Standards for Consumer
Water Heaters DOE Docket No. EERE–
2017–BT–STD–0019
Dear Assistant General Counsel GraceTardy:
ddrumheller on DSK120RN23PROD with RULES2
I am responding to your August 23,
2023 letter seeking the views of the
Attorney General about the potential
impact on competition of proposed
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20:37 Dec 23, 2024
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energy conservation standards for
consumer water heaters.
Your request was submitted under
section 325(o)(2)(B)(i)(V) of the Energy
Policy and Conservation Act, as
amended (ECPA), 42 U.S.C.
6295(o)(2)(B)(i)(V), which requires the
Attorney General to determine 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
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substantially limiting consumer choice,
by placing certain manufacturers at an
unjustified competitive disadvantage, or
by inducing avoidable inefficiencies in
production or distribution of particular
products. 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 (‘‘NOPR’’) (88 FR
49058, July 28, 2023) and the related
Technical Support Document. We have
also reviewed public comments and
information provided by industry
participants and have reviewed the
transcript and information presented at
the Webinar of the Public Meeting held
on September 13, 2023. Based on this
review, we do not have an evidentiary
basis to conclude that the proposed
energy conservation standards for
consumer water heaters are likely to
substantially lessen competition.
Sincerely,
David G.B. Lawrence,
Policy Director.
[FR Doc. 2024–30369 Filed 12–23–24; 8:45 am]
BILLING CODE 6450–01–P
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Agencies
[Federal Register Volume 89, Number 247 (Thursday, December 26, 2024)]
[Rules and Regulations]
[Pages 105188-105285]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-30369]
[[Page 105187]]
Vol. 89
Thursday,
No. 247
December 26, 2024
Part II
Department of Energy
-----------------------------------------------------------------------
10 CFR Part 430
Energy Conservation Program: Energy Conservation Standards for Consumer
Gas-fired Instantaneous Water Heaters; Final Rule
Federal Register / Vol. 89 , No. 247 / Thursday, December 26, 2024 /
Rules and Regulations
[[Page 105188]]
DEPARTMENT OF ENERGY
10 CFR Part 430
[EERE-2017-BT-STD-0019]
RIN 1904-AF65
Energy Conservation Program: Energy Conservation Standards for
Consumer Gas-fired Instantaneous Water Heaters
AGENCY: Office of Energy Efficiency and Renewable Energy, Department of
Energy.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Energy Policy and Conservation Act, as amended (``EPCA''),
prescribes energy conservation standards for various consumer products
and certain commercial and industrial equipment, including gas-fired
instantaneous water heaters, which are a type of consumer water heater.
EPCA also requires the U.S. Department of Energy (``DOE'' or the
``Department'') to periodically review its existing standards to
determine whether more-stringent standards would be technologically
feasible and economically justified, and would result in significant
energy savings. In this final rule, DOE is adopting amended energy
conservation standards for gas-fired instantaneous water heaters. It
has determined that the amended energy conservation standards for these
products would result in significant conservation of energy, and are
technologically feasible and economically justified.
DATES: The effective date of this rule is March 11, 2025. Compliance
with the amended standards established for gas-fired instantaneous
water heaters in this final rule is required on and after December 26,
2029.
ADDRESSES: The docket for this rulemaking, which includes Federal
Register notices, public meeting attendee lists and transcripts,
comments, and other supporting documents/materials, is available for
review at www.regulations.gov. All documents in the docket are listed
in the www.regulations.gov index. However, not all documents listed in
the index may be publicly available, such as information that is exempt
from public disclosure.
The docket web page can be found at www.regulations.gov/docket/EERE-2017-BT-STD-0019. The docket web page contains instructions on how
to access all documents, including public comments, in the docket.
For further information on how to review the docket, contact the
Appliance and Equipment Standards Program staff at (202) 287-1445 or by
email: [email protected].
FOR FURTHER INFORMATION CONTACT: Ms. Julia Hegarty, U.S. Department of
Energy, Office of Energy Efficiency and Renewable Energy, Building
Technologies Office, EE-5B, 1000 Independence Avenue SW, Washington,
DC, 20585-0121. Telephone: (202) 586-0729. Email:
[email protected].
Mr. Uchechukwu ``Emeka'' Eze, U.S. Department of Energy, Office of
the General Counsel, GC-33, 1000 Independence Avenue SW, Washington,
DC, 20585-0121. Telephone: (240) 961-8879. Email:
[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 Gas-fired Instantaneous
Water Heaters
III. General Discussion
A. General Comments
1. General Support
2. Support for Updated Analysis and Standards at EL 2
3. General Opposition
4. Comments on Higher Standards Than Proposed in the NOPR
B. Scope of Coverage
C. Test Procedure
D. Technological Feasibility
1. General
2. Maximum Technologically Feasible Levels
E. Energy Savings
1. Determination of Savings
2. Significance of Savings
F. Economic Justification
1. Specific Criteria
a. Economic Impact on Manufacturers and Consumers
b. Savings in Operating Costs Compared to Increase in Price (LCC
and PBP)
c. Energy Savings
d. Lessening of Utility or Performance of Products
e. Impact of Any Lessening of Competition
f. Need for National Energy Conservation
g. Other Factors
2. Rebuttable Presumption
IV. Methodology and Discussion of Related Comments
A. Market and Technology Assessment
1. Product Classes
2. Technology Options
B. Screening Analysis
1. Screened-Out Technologies
2. Remaining Technologies
C. Engineering Analysis
1. Products With Current UEF-Based Standards
a. Efficiency Levels
b. Design Options
c. Cost Analysis
d. Shipping Costs and Manufacturer Selling Price
e. Cost-Efficiency Results
2. Products Without Current UEF-Based Standards
a. Crosswalk to Equivalent-Stringency UEF-Based Standards
b. Consideration of More Stringent Standards
D. Markups Analysis
E. Energy Use Analysis
1. Building Sample
2. Hot Water Use Determination
3. Energy Use Determination
F. Life-Cycle Cost and Payback Period Analysis
1. Product Cost
2. Installation Cost
a. Basic Installation Costs
b. Venting Costs
c. Condensate Management Costs
3. Annual Energy Consumption
4. Energy Prices
5. Maintenance and Repair Costs
6. Product Lifetime
7. Discount Rates
8. Energy Efficiency Distribution in the No-New-Standards Case
9. Payback Period Analysis
10. Accounting for Product Switching
11. Analytical Results
G. Shipments Analysis
1. Impact of Repair vs. Replace
H. National Impact Analysis
1. Product Efficiency Trends
2. National Energy Savings
3. Net Present Value Analysis
I. Consumer Subgroup Analysis
1. Low-Income Households
2. Senior-Only Households
3. Small Business Subgroup
J. Manufacturer Impact Analysis
1. Overview
2. Government Regulatory Impact Model and Key Inputs
a. Manufacturer Production Costs
b. Shipments Projections
c. Capital and Product Conversion Costs
d. Manufacturer Markup Scenarios
3. Discussion of MIA Comments
K. Emissions Analysis
1. Air Quality Regulations Incorporated in DOE's Analysis
L. Monetizing Emissions Impacts
1. Monetization of Greenhouse Gas Emissions
a. Social Cost of Carbon
b. Social Cost of Methane and Nitrous Oxide
2. Monetization of Other Emissions Impacts
M. Utility Impact Analysis
N. Employment Impact Analysis
V. Analytical Results and Conclusions
A. Trial Standard Levels
B. Economic Justification and Energy Savings
1. Economic Impacts on Individual Consumers
a. Life-Cycle Cost and Payback Period
b. Consumer Subgroup Analysis
[[Page 105189]]
c. Rebuttable Presumption Payback
2. Economic Impacts on Manufacturers
a. Industry Cash Flow Analysis Results
b. Direct Impacts on Employment
c. Impacts on Manufacturing Capacity
d. Impacts on Subgroups of Manufacturers
e. Cumulative Regulatory Burden
3. National Impact Analysis
a. National Energy Savings
b. Net Present Value of Consumer Costs and Benefits
c. Indirect Impacts on Employment
4. Impact on Utility or Performance of Products
5. Impact of Any Lessening of Competition
6. Need of the Nation To Conserve Energy
7. Other Factors
8. Summary of Economic Impacts
C. Conclusion
1. Benefits and Burdens of TSLs Considered for Gas-fired
Instantaneous Water Heater Standards
2. Annualized Benefits and Costs of the Adopted Standards
3. Compliance Dates
VI. Procedural Issues and Regulatory Review
A. Review Under Executive Orders 12866, 13563, and 14094
B. Review Under the Regulatory Flexibility Act
C. Review Under the Paperwork Reduction Act
D. Review Under the National Environmental Policy Act of 1969
E. Review Under Executive Order 13132
F. Review Under Executive Order 12988
G. Review Under the Unfunded Mandates Reform Act of 1995
H. Review Under the Treasury and General Government
Appropriations Act, 1999
I. Review Under Executive Order 12630
J. Review Under the Treasury and General Government
Appropriations Act, 2001
K. Review Under Executive Order 13211
L. Information Quality
M. Congressional Notification
VII. Approval of the Office of the Secretary
I. Synopsis of the Final Rule
The Energy Policy and Conservation Act, Public Law 94-163, as
amended (``EPCA''),\1\ authorizes DOE to regulate the energy efficiency
of a number of consumer products and certain industrial equipment. (42
U.S.C. 6291-6317, as codified) Title III, Part B of EPCA \2\
established the Energy Conservation Program for Consumer Products Other
Than Automobiles. (42 U.S.C. 6291-6309) These products include gas-
fired instantaneous water heaters, the subject of this document. (42
U.S.C. 6292(a)(4))
---------------------------------------------------------------------------
\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, DOE is required to review its existing energy
conservation standards for covered consumer products no later than six
years after issuance of any final rule establishing or amending a
standard. (42 U.S.C. 6295(m)(1)) Pursuant to that statutory provision,
DOE must publish either a notification of determination that standards
for the product do not need to be amended, or a notice of proposed
rulemaking (``NOPR'') including new proposed energy conservation
standards (proceeding to a final rule, as appropriate). (Id.) Any new
or amended energy conservation standard must be designed to achieve the
maximum improvement in energy efficiency that DOE determines is
technologically feasible and economically justified. (42 U.S.C.
6295(o)(2)(A)) Furthermore, the new or amended standard must result in
significant conservation of energy. (42 U.S.C. 6295(o)(3)(B)) DOE has
conducted this review of the energy conservation standards for gas-
fired instantaneous water heaters under EPCA's six-year-lookback
authority described herein. Additionally, for gas-fired instantaneous
water heaters with 2 or more gallons of storage volume and gas-fired
instantaneous water heaters with less than or equal to 50,000 British
thermal units per hour (``Btu/h'') of input, DOE is following the
provisions in EPCA to translate the current energy factor (``EF'')-
based standards to the uniform energy factor (``UEF'') metric. (42
U.S.C. 6295(e)(5))
In accordance with these and other statutory provisions discussed
in this document, DOE analyzed the benefits and burdens of four trial
standard levels (``TSLs'') for gas-fired instantaneous water heaters
with less than 2 gallons of effective storage volume and rated inputs
greater than 50,000 Btu/h. The TSLs and their associated benefits and
burdens are discussed in detail in sections V.A through V.C of this
document. As discussed in section V.C of this document, DOE has
determined that TSL 2 represents the maximum improvement in energy
efficiency that is technologically feasible and economically justified.
The adopted standards, which are expressed in UEF are shown in table
I.1. These standards apply to products with effective storage volumes
less than 2 gallons and input ratings greater than 50,000 Btu/h (as
listed in table I.1) and manufactured in, or imported into, the United
States starting on December 26, 2029.
For all other gas-fired instantaneous water heaters, DOE is
adopting new standards that do not constitute an increase to
stringency, but simply a change in rating metric to the UEF descriptor.
These standards apply to all remaining products listed in table I.1 and
manufactured in, or imported into, the United States starting on
December 26, 2029.
Table I.1--Energy Conservation Standards for Gas-Fired Instantaneous Water Heaters
----------------------------------------------------------------------------------------------------------------
Effective storage
Product class volume (Veff) * and Draw pattern UEF
input rating
----------------------------------------------------------------------------------------------------------------
Gas-fired Instantaneous Water <2 gallons (``gal'') Very Small............... 0.64
Heater. and <=50,000 Btu/h.
Low...................... 0.64
Medium................... 0.64
High..................... 0.64
<2 gal and >50,000 Very Small............... 0.89
Btu/h.
Low...................... 0.91
Medium................... 0.91
High..................... 0.93
>=2 gal and <=200,000 Very Small............... 0.2534-(0.0018 x Veff)
Btu/h.
Low...................... 0.5226-(0.0022 x Veff)
Medium................... 0.5919-(0.0020 x Veff)
High..................... 0.6540-(0.0017 x Veff)
----------------------------------------------------------------------------------------------------------------
* Veff is the Effective Storage Volume (in gallons), as determined pursuant to 10 CFR 429.17.
[[Page 105190]]
The following sections of this synopsis summarize the findings of
the analysis carried out for gas-fired instantaneous water heaters with
less than 2 gallons of effective storage volume and rated inputs
greater than 50,000 Btu/h.
A. Benefits and Costs to Consumers 3
---------------------------------------------------------------------------
\3\ All monetary values in this document are expressed in 2023
dollars unless indicated otherwise. For purposes of discounting
future monetary values, the present year in the analysis was 2024.
---------------------------------------------------------------------------
The average life-cycle cost (``LCC'') savings are $112, and the
simple payback period (``PBP''),\4\ 8.9 years, is less than the 20-year
average lifetime of a gas-fired instantaneous water heater (see section
IV.F of this document).
---------------------------------------------------------------------------
\4\ The average LCC savings refer to consumers that are affected
by a standard and are measured relative to the efficiency
distribution in the no-new-standards case, which depicts the market
in the compliance year in the absence of new or amended standards
(see section IV.F.9 of this document). The simple PBP, which is
designed to compare specific efficiency levels, is measured relative
to the baseline product (see section IV.C of this document).
---------------------------------------------------------------------------
DOE's analysis of the impacts of the adopted standards on consumers
is described in section IV.F of this document.
B. Impact on Manufacturers
The industry net present value (``INPV'') is the sum of the
discounted cash flows to the industry from the base year through the
end of the analysis period (2024-2059). Using a real discount rate of
9.6 percent, DOE estimates that the INPV for manufacturers of gas-fired
instantaneous water heaters in the case without amended standards is
$1,193.9 million in 2023$. Under the adopted standards, DOE estimates
the change in INPV to range from -2.8 percent to 3.4 percent, which is
approximately -$33.7 million to $40.5 million. In order to bring
products into compliance with amended standards, it is estimated that
industry will incur total conversion costs of $20.4 million.
DOE's analysis of the impacts of the adopted standards on
manufacturers is described in section IV.J of this document. The
analytic results of the manufacturer impact analysis (``MIA'') are
presented in section V.B.2 of this document.
C. National Benefits and Costs
DOE's analyses indicate that the adopted energy conservation
standards for gas-fired instantaneous water heaters would save a
significant amount of energy. Relative to the case without amended
standards, the lifetime energy savings for gas-fired instantaneous
water heaters purchased during the 30-year period that begins in the
anticipated year of compliance with the amended standards (2030-2059),
amount to 0.58 quadrillion British thermal units (``Btu''), or
quads.\5\ This represents a savings of 1.9 percent relative to the
energy use of these products in the case without amended standards
(referred to as the ``no-new-standards case'').
---------------------------------------------------------------------------
\5\ The quantity refers to full-fuel-cycle (``FFC'') energy
savings. FFC energy savings includes the energy consumed in
extracting, processing, and transporting primary fuels (i.e., coal,
natural gas, petroleum fuels), and, thus, presents a more complete
picture of the impacts of energy efficiency standards. For more
information on the FFC metric, see section IV.H.2 of this document.
---------------------------------------------------------------------------
The cumulative net present value (``NPV'') of total consumer
benefits of the standards for gas-fired instantaneous water heaters
ranges from $0.87 billion (at a 7-percent discount rate) to $3.06
billion (at a 3-percent discount rate). This NPV expresses the
estimated total value of future operating-cost savings minus the
estimated increased product and installation costs for gas-fired
instantaneous water heaters purchased during the period 2030-2059.
In addition, the adopted standards for gas-fired instantaneous
water heaters are projected to yield significant environmental
benefits. DOE estimates that the standards will result in cumulative
emission reductions (over the same period as for energy savings) of 32
million metric tons (``Mt'') \6\ of carbon dioxide
(``CO2''), 0.12 thousand tons of sulfur dioxide
(``SO2''), 86 thousand tons of nitrogen oxides
(``NOX''), 398 thousand tons of methane
(``CH4''), 0.06 thousand tons of nitrous oxide
(``N2O''), and an increase of 0.0004 tons of mercury
(``Hg'') due to a small increase in electricity use at the adopted
standards.\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 reflects, to the extent
possible, laws and regulations adopted through mid-November 2022,
including the Inflation Reduction Act. See section IV.K of this
document for further discussion of AEO2023 assumptions that affect
air pollutant emissions.
---------------------------------------------------------------------------
DOE estimates the value of climate benefits from a reduction in
greenhouse gases (``GHG'') using different estimates of the social cost
of CO2 (``SC-CO2''), the social cost of methane
(``SC-CH4''), and the social cost of nitrous oxide (``SC-
N2O'').\8\ Together these represent the social cost of GHG
(``SC-GHG''). DOE used an updated set of SC-GHG estimates published in
2023 by the Environmental Protection Agency (``EPA'') (``2023 SC-
GHG''), as well as the interim SC-GHG values (in terms of benefit per
ton of GHG avoided) developed by an Interagency Working Group on the
Social Cost of Greenhouse Gases (``IWG'') in 2021 (``2021 Interim SC-
GHG''), which DOE used in the notice of proposed rulemaking for this
rule before the updated values were available.\9\ These values is
discussed in section IV.L of this document. The climate benefits
associated with the average SC-GHG at a 2-percent near-term Ramsey
discount rate using the 2023 SC-GHG estimates are estimated to be $7.1
billion, and the climate benefits associated with the average 2021
Interim SC-GHG estimates at a 3-percent discount rate are estimated to
be $1.7 billion. DOE notes, however, that the adopted standards would
be economically justified even without inclusion of the estimated
monetized benefits of reduced GHG emissions.
---------------------------------------------------------------------------
\8\ Estimated climate-related benefits are provided in
compliance with Executive Order 12866.
\9\ Technical Support Document: Social Cost of Carbon, Methane,
and Nitrous Oxide Interim Estimates Under Executive Order 13990
published in February 2021 by the IWG. (``February 2021 SC-GHG
TSD''). www.whitehouse.gov/wp-content/uploads/2021/02/TechnicalSupportDocument_SocialCostofCarbonMethaneNitrousOxide.pdf.
https://www.epa.gov/system/files/documents/2023-12/eo12866_oil-and-gas-nsps-eg-climate-review-2060-av16-final-rule-20231130.pdf;
https://www.epa.gov/system/files/documents/2023-12/epa_scghg_2023_report_final.pdf (last accessed July 3, 2024).
---------------------------------------------------------------------------
DOE estimated the monetary health benefits of SO2 and
NOX emissions reductions using benefit per ton estimates
from the EPA's Benefits Mapping and Analysis Program,\10\ as discussed
in section IV.L of this document. DOE did not monetize the change in
mercury emissions because the quantity is very small. DOE estimated the
present value of the health benefits would be $0.9 billion using a 7-
percent discount rate, and $2.7 billion using a 3-percent discount
rate.\11\ DOE is currently only monetizing health benefits from changes
in ambient fine particulate matter (``PM2.5'')
concentrations from two precursors (SO2 and NOX),
and from changes in ambient ozone from one precursor (NOX),
but will continue to assess the ability to monetize other effects such
as health benefits from reductions in direct PM2.5
emissions.
---------------------------------------------------------------------------
\10\ U.S. EPA. Estimating the Benefit per Ton of Reducing
Directly-Emitted PM2.5, PM2.5 Precursors and
Ozone Precursors from 21 Sectors. Available at: www.epa.gov/benmap/estimating-benefit-ton-reducing-pm25-precursors-21-sectors.
\11\ DOE estimates the economic value of these emissions
reductions resulting from the considered TSLs for the purpose of
complying with the requirements of Executive Order 12866.
---------------------------------------------------------------------------
Table I.2 summarizes the monetized benefits and costs expected to
result from the amended standards for gas-
[[Page 105191]]
fired instantaneous water heaters. There are other important
unquantified effects, including certain unquantified climate benefits,
unquantified public health benefits from the reduction of toxic air
pollutants and other emissions, unquantified energy security benefits,
and distributional effects, among others.
Table I.2--Summary of Monetized Benefits and Costs of the Adopted Energy
Conservation Standards for Gas-fired Instantaneous Water Heaters at TSL
2 Shipped During the Period 2030-2059
[Veff < 2 gal, Rated Input > 50,000 Btu/h]
------------------------------------------------------------------------
Billion 2023$
------------------------------------------------------------------------
3% discount rate
------------------------------------------------------------------------
Consumer Operating Cost Savings......................... 4.5
Climate Benefits * (2023 SC-GHG estimates).............. 7.1
Climate Benefits * (2021 interim SC-GHG estimates)...... 1.7
Health Benefits **...................................... 2.7
Total Benefits [dagger] (2023 SC-GHG estimates)......... 14.3
Total Benefits [dagger] (2021 interim SC-GHG estimates). 8.9
Consumer Incremental Product Costs [Dagger]............. 1.5
Net Benefits [dagger] (2023 SC-GHG estimates)........... 12.8
Net Benefits [dagger] (2021 interim SC-GHG estimates)... 7.4
Change in Producer Cashflow (INPV) [Dagger][Dagger]..... (0.03)-0.04
------------------------------------------------------------------------
7% discount rate
------------------------------------------------------------------------
Consumer Operating Cost Savings......................... 1.7
Climate Benefits * (2023 SC-GHG estimates).............. 7.1
Climate Benefits * (2021 interim SC-GHG estimates)...... 1.7
Health Benefits **...................................... 0.9
Total Benefits [dagger] (2023 SC-GHG estimates)......... 9.6
Total Benefits [dagger] (2021 interim SC-GHG estimates). 4.2
Consumer Incremental Product Costs [Dagger]............. 0.8
Net Benefits [dagger] (2023 SC-GHG estimates)........... 8.9
Net Benefits [dagger] (2021 interim SC-GHG estimates)... 3.4
Change in Producer Cashflow (INPV) [Dagger][Dagger]..... (0.03)-0.04
------------------------------------------------------------------------
Note: These results include consumer, climate, and health benefits that
accrue after 2030 from the products shipped during the period 2030-
2059.
* Climate benefits are calculated using different estimates of the
social cost of carbon (SC-CO2), methane (SC-CH4), and nitrous oxide
(SC-N2O). Climate benefits are estimated using two separate sets of
estimates of the social cost for each greenhouse gas, an updated set
published in 2023 by the Environmental Protection Agency (EPA) (``2023
SC-GHG'') and the interim set of estimates used in the NOPR which were
published in 2021 by the Interagency Working Group on the SC-GHG (IWG)
(``2021 Interim SC-GHG'') (see section IV.L of this document). For
presentational purposes of this table, the climate benefits associated
with the average SC-GHG at a 2 percent near-term Ramsey discount rate
are shown for the 2023 SC-GHG estimates, and the climate benefits
associated with the average SC-GHG at a 3 percent discount rate are
shown for the 2021 interim SC-GHG estimates.
** Health benefits are calculated using benefit-per-ton values for 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. Table 5 of the EPA's Estimating the Benefit per Ton of
Reducing PM Precursors from 21 Sectors TSD provides a summary of the
health impact endpoints quantified in the analysis. See section IV.L
of this document for more details.
[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 2-percent near-term
Ramsey discount rate for the 2023 estimate and the average SC-GHG with
3-percent discount rate for the 2021 interim SC-GHG estimate.
[Dagger] Costs include incremental equipment costs as well as
installation costs.
[Dagger][Dagger] Operating Cost Savings are calculated based on the life-
cycle costs analysis and national impact analysis as discussed in
detail below. See sections IV.F and IV.H of this document. DOE's
national impacts analysis includes all impacts (both costs and
benefits) along the distribution chain beginning with the increased
costs to the manufacturer to manufacture the product and ending with
the increase in price experienced by the consumer. DOE also separately
conducts a detailed analysis on the impacts on manufacturers (i.e.,
manufacturer impact analysis, or ``MIA''). See section IV.J of this
document. In the detailed MIA, DOE models manufacturers' pricing
decisions based on assumptions regarding investments, conversion
costs, cashflow, and margins. The MIA produces a range of impacts,
which is the rule's expected impact on the INPV. The change in INPV is
the present value of all changes in industry cash flow, including
changes in production costs, capital expenditures, and manufacturer
profit margins. Change in INPV is calculated using the industry
weighted average cost of capital value of 9.6 percent that is
estimated in the MIA (see chapter 12 of the final rule technical
support document (``TSD'') for a complete description of the industry
weighted average cost of capital). For gas-fired instantaneous water
heaters, the change in INPV ranges from -$34 million to $41 million.
DOE accounts for that range of likely impacts in analyzing whether a
TSL is economically justified. See section V.C of this document. DOE
is presenting the range of impacts to the INPV under two manufacturer
markup scenarios: the Preservation of Gross Margin scenario, which is
the manufacturer markup scenario used in the calculation of Consumer
Operating Cost Savings in this table; and the Preservation of
Operating Profit scenario, where DOE assumed manufacturers would not
be able to increase per-unit operating profit in proportion to
increases in manufacturer production costs. DOE includes the range of
estimated INPV in the above table, drawing on the MIA explained
further in section IV.J of this document to provide additional context
for assessing the estimated impacts of this final rule to society,
including potential changes in production and consumption, which is
consistent with OMB's Circular A-4 and E.O. 12866. If DOE were to
include the INPV into the net benefit calculation (2023 SC-GHG
estimates) for this final rule, the net benefits would be $12.8
billion at 3-percent discount rate and $8.9 billion at 7-percent
discount rate. Parentheses indicate negative ( ) values.
[[Page 105192]]
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.\12\
---------------------------------------------------------------------------
\12\ To convert the time-series of costs and benefits into
annualized values, DOE calculated a present value in 2024, the year
used for discounting the NPV of total consumer costs and savings.
For the benefits, DOE calculated a present value associated with
each year's shipments in the year in which the shipments occur
(e.g., 2020 or 2030), and then discounted the present value from
each year to 2024. Using the present value, DOE then calculated the
fixed annual payment over a 30-year period, starting in the
compliance year, that yields the same present value.
---------------------------------------------------------------------------
The national operating cost savings are domestic private U.S.
consumer monetary savings that occur as a result of purchasing the
covered products and are measured for the lifetime of gas-fired
instantaneous water heaters shipped during the period 2030-2059. The
benefits associated with reduced emissions achieved as a result of the
adopted standards are also calculated based on the lifetime of gas-
fired instantaneous water heaters shipped during the period 2030-2059.
Total benefits for both the 3-percent and 7-percent cases are presented
using the average SC-GHG with a 2 percent near-term Ramsey discount
rate for the 2023 SC-GHG estimates and the average SC-GHG with 3-
percent discount rate for the 2021 interim SC-GHG estimates.\13\
---------------------------------------------------------------------------
\13\ DOE notes that using consumption-based discount rates
(e.g., 2 or 3 percent) is appropriate when discounting the value of
climate impacts. Combining climate effects discounted at an
appropriate consumption-based discount rate with other costs and
benefits discounted at a capital-based rate (i.e., 7 percent) is
reasonable because of the different nature of the types of benefits
being measured.
---------------------------------------------------------------------------
Table I.3 presents the total estimated monetized benefits and costs
associated with the adopted standard, expressed in terms of annualized
values. The results under the primary estimate are as follows.
Using a 7-percent discount rate for consumer benefits and costs and
health benefits from reduced NOX and SO2
emissions, and the 2-percent near-term Ramsey discount rate case or the
3-percent discount rate case for climate benefits from reduced GHG
emissions, the estimated cost of the standards adopted in this rule is
$88 million per year in increased equipment costs, while the estimated
annual benefits are $187 million in reduced equipment operating costs,
$349 million in climate benefits (using the 2023 SC-GHG estimates) or
$98 million in climate benefits (using the 2021 interim SC-GHG
estimates), and $101 million in health benefits. In this case, the net
benefit would amount to $549 million per year (using the 2023 SC-GHG
estimates) or $297 million per year (using the 2021 interim SC-GHG
estimates).
Using a 3-percent discount rate for consumer benefits and costs and
health benefits from reduced NOX and SO2
emissions, and the 2-percent near-term Ramsey discount rate case or the
3-percent discount rate case for climate benefits from reduced GHG
emissions, the estimated cost of the standards is $87 million per year
in increased equipment costs, while the estimated annual benefits are
$268 million in reduced operating costs, $349 million in climate
benefits (using the 2023 SC-GHG estimates) or $98 million in climate
benefits (using the 2021 interim SC-GHG estimates), and $158 million in
health benefits. In this case, the net benefit would amount to $689
million per year (using the 2023 SC-GHG estimates) or $437 million per
year (using the 2021 interim SC-GHG estimates).
Table I.3--Annualized Benefits and Costs of the Adopted Energy Conservation Standards for Gas-Fired
Instantaneous Water Heaters at TSL 2 Shipped During the Period 2030-2059
[Veff <2 gal, rated input >50,000 Btu/h]
----------------------------------------------------------------------------------------------------------------
Million 2023$/year
-----------------------------------------------
Low-net- High-net-
Primary benefits benefits
estimate estimate estimate
----------------------------------------------------------------------------------------------------------------
3% discount rate
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings................................. 268 249 288
Climate Benefits * (2023 SC-GHG estimates)...................... 349 344 355
Climate Benefits * (2021 interim SC-GHG estimates).............. 98 96 100
Health Benefits **.............................................. 158 156 161
Total Benefits [dagger] (2023 SC-GHG estimates)................. 776 749 804
Total Benefits [dagger] (2021 interim SC-GHG estimates)......... 525 502 548
Consumer Incremental Product Costs [Dagger]..................... 87 86 89
Net Benefits [dagger] (2023 SC-GHG estimates)................... 689 663 715
Net Benefits [dagger] (2021 interim SC-GHG estimates)........... 437 416 459
Change in Producer Cashflow (INPV) [Dagger][Dagger]............. (3)-4 (3)-4 (3)-4
----------------------------------------------------------------------------------------------------------------
7% discount rate
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings................................. 187 174 200
Climate Benefits * (2023 SC-GHG estimates)...................... 349 344 355
Climate Benefits * (2021 interim SC-GHG estimates).............. 98 96 100
Health Benefits **.............................................. 101 99 102
Total Benefits [dagger] (2023 SC-GHG estimates)................. 637 616 658
Total Benefits [dagger] (2021 interim SC-GHG estimates)......... 386 369 402
Consumer Incremental Product Costs [Dagger]..................... 88 87 90
Net Benefits [dagger] (2023 SC-GHG estimates)................... 549 530 568
Net Benefits [dagger] (2021 interim SC-GHG estimates)........... 297 283 312
[[Page 105193]]
Change in Producer Cashflow (INPV) [Dagger][Dagger]............. (3)-4 (3)-4 (3)-4
----------------------------------------------------------------------------------------------------------------
Note: These results include consumer, climate, and health benefits that accrue after 2059 from the products
shipped during the period 2030-2059. The Primary, Low Net Benefits, and High Net Benefits Estimates utilize
projections of energy prices from the AEO2023 Reference case, Low Economic Growth case, and High Economic
Growth case, respectively. In addition, incremental equipment costs reflect a medium decline rate in the
Primary Estimate, a low decline rate in the Low Net Benefits Estimate, and a high decline rate in the High Net
Benefits Estimate. The methods used to derive projected price trends are explained in sections IV.F.1 and
IV.H.3 of this document. Note that the Benefits and Costs may not sum to the Net Benefits due to rounding.
* Climate benefits are calculated using different estimates of the global SC-GHG (see section IV.L of this
document). Climate benefits are estimated using two separate sets of estimates of the social cost for each
greenhouse gas, an updated set published in 2023 by the Environmental Protection Agency (EPA) (``2023 SC-
GHG'') and the interim set of estimates used in the NOPR which were published in 2021 by the Interagency
Working Group on the SC-GHG (IWG) (``2021 Interim SC-GHG'') (see section IV.L of this document). For
presentational purposes of this table, the climate benefits associated with the average SC-GHG at a 2 percent
near-term Ramsey discount rate are shown for the 2023 SC-GHG estimates, and the climate benefits associated
with the average SC-GHG at a 3 percent discount rate are shown for the 2021 interim SC-GHG estimates.
** Health benefits are calculated using benefit-per-ton values for 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. Table 5 of the EPA's Estimating the Benefit per Ton of Reducing PM2.5 Precursors from 21
Sectors TSD provides a summary of the health impact endpoints quantified in the analysis. See section IV.L of
this document for more details.
[dagger] Total benefits for both the 3-percent and 7-percent cases are presented using the average SC-GHG with 2-
percent near-term Ramsey discount rate for the 2023 estimate and the average SC-GHG with 3-percent discount
rate for the 2021 interim SC-GHG estimate.
[Dagger] Costs include incremental equipment costs as well as installation costs.
[Dagger][Dagger] Operating Cost Savings are calculated based on the life-cycle costs analysis and national
impact analysis as discussed in detail below. See sections IV.F and IV.H of this document. DOE's national
impacts analysis includes all impacts (both costs and benefits) along the distribution chain beginning with
the increased costs to the manufacturer to manufacture the product and ending with the increase in price
experienced by the consumer. DOE also separately conducts a detailed analysis on the impacts on manufacturers
(i.e., MIA). See section IV.J of this document. In the detailed MIA, DOE models manufacturers' pricing
decisions based on assumptions regarding investments, conversion costs, cashflow, and margins. The MIA
produces a range of impacts, which is the rule's expected impact on the INPV. The change in INPV is the
present value of all changes in industry cash flow, including changes in production costs, capital
expenditures, and manufacturer profit margins. The annualized change in INPV is calculated using the industry
weighted average cost of capital value of 9.6 percent that is estimated in the MIA (see chapter 12 of the
final rule TSD for a complete description of the industry weighted average cost of capital). For gas-fired
instantaneous water heaters, the annualized change in INPV ranges from -$3 million to $4 million. DOE accounts
for that range of likely impacts in analyzing whether a TSL is economically justified. See section V.C of this
document. DOE is presenting the range of impacts to the INPV under two manufacturer markup scenarios: the
Preservation of Gross Margin scenario, which is the manufacturer markup scenario used in the calculation of
Consumer Operating Cost Savings in this table; and the Preservation of Operating Profit scenario, where DOE
assumed manufacturers would not be able to increase per-unit operating profit in proportion to increases in
manufacturer production costs. DOE includes the range of estimated annualized change in INPV in the above
table, drawing on the MIA explained further in section IV.J of this document to provide additional context for
assessing the estimated impacts of this final rule to society, including potential changes in production and
consumption, which is consistent with OMB's Circular A-4 and E.O. 12866. If DOE were to include the INPV into
the annualized net benefit calculation (2023 SC-GHG estimates) for this final rule, the annualized net
benefits would range from $686 million to $693 million at 3-percent discount rate and would range from $546
million to $553 million at 7-percent discount rate. Parentheses indicate negative ( ) values.
DOE's analysis of the national impacts of the adopted standards is
described in sections IV.H, IV.K, and IV.L of this document.
D. Conclusion
DOE concludes that the standards adopted in this final rule
represent the maximum improvement in energy efficiency that is
technologically feasible and economically justified, and would result
in the significant conservation of energy. Specifically, with regards
to technological feasibility products achieving these standard levels
are already commercially available. As for economic justification,
DOE's analysis shows that the benefits of the standards exceed, to a
great extent, the burdens of the standards.
Using a 7-percent discount rate for consumer benefits and costs and
NOX and SO2 reduction benefits, and a 2-percent
near-term Ramsey discount rate case or the 3-percent discount rate case
for GHG social costs, the estimated cost of the standards for gas-fired
instantaneous water heaters is $88 million per year in increased
product costs, while the estimated annual benefits are $187 million in
reduced product operating costs, $349 million in climate benefits
(using the 2023 SC-GHG estimates) or $98 million in climate benefits
(using the 2021 interim SC-GHG estimates), and $101 million in health
benefits. The net benefit amounts to $549 million per year (using the
2023 SC-GHG estimates) or $297 million per year (using the 2021 interim
SC-GHG estimates). DOE notes that the net benefits are substantial even
in the absence of the climate benefits,\14\ and DOE would adopt the
same standards in the absence of such benefits.
---------------------------------------------------------------------------
\14\ 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.\15\ For
example, some covered products and equipment have most of their energy
consumption occur during periods of peak energy demand. The impacts of
these products on the energy infrastructure can be more pronounced than
the impacts of products with relatively constant demand. Accordingly,
DOE evaluates the significance of energy savings on a case-by-case
basis.
---------------------------------------------------------------------------
\15\ 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).
---------------------------------------------------------------------------
[[Page 105194]]
As previously mentioned, the standards are projected to result in
estimated national energy savings (``NES'') of 0.58 quads full-fuel-
cycle (``FFC''), the equivalent of the primary annual energy use of 4
million homes. Based on these findings, DOE has determined the energy
savings from the standard levels adopted in this final rule are
``significant'' within the meaning of 42 U.S.C. 6295(o)(3)(B). A more
detailed discussion of the basis for these conclusions is contained in
the remainder of this document and the accompanying TSD.
II. Introduction
The following section briefly discusses the statutory authority
underlying this final rule, as well as some of the relevant historical
background related to the establishment of standards for gas-fired
instantaneous water heaters, which, as discussed in section III.B of
this document, are a subset of consumer water heaters. Gas-fired
instantaneous water heaters are defined at 10 CFR 430.2 as a water
heater that uses gas as the main energy source, has a nameplate input
rating less than 200,000 Btu/h, and contains no more than one gallon of
water per 4,000 Btu per hour of input.
A. Authority
EPCA authorizes DOE to regulate the energy efficiency of a number
of consumer products and certain industrial equipment. (42 U.S.C. 6291-
6317, as codified) Title III, Part B of EPCA \16\ established the
Energy Conservation Program for Consumer Products Other Than
Automobiles. (42 U.S.C. 6291-6309) These products include gas-fired
instantaneous water heaters, the subject of this document. (42 U.S.C.
6292(a)(4))
---------------------------------------------------------------------------
\16\ As noted previously, for editorial reasons, upon
codification in the U.S. Code, Part B was redesignated Part A.
---------------------------------------------------------------------------
The energy conservation program under EPCA, consists essentially of
four parts: (1) testing, (2) labeling, (3) the establishment of Federal
energy conservation standards, and (4) certification and enforcement
procedures. Relevant provisions of EPCA specifically include
definitions (42 U.S.C. 6291), test procedures (42 U.S.C. 6293),
labeling provisions (42 U.S.C. 6294), energy conservation standards (42
U.S.C. 6295), and the authority to require information and reports from
manufacturers (42 U.S.C. 6296).
Federal energy efficiency requirements for covered products
established under EPCA generally supersede State laws and regulations
concerning energy conservation testing, labeling, and standards. (42
U.S.C. 6297(a)-(c)) DOE may, however, grant waivers of Federal
preemption in limited circumstances for particular State laws or
regulations, in accordance with the procedures and other provisions set
forth under EPCA. (42 U.S.C. 6297(d))
Subject to certain criteria and conditions, DOE is required to
develop test procedures to measure the energy efficiency, energy use,
or estimated annual operating cost of each covered product. (42 U.S.C.
6295(o)(3)(A) and 42 U.S.C. 6295(r)) Manufacturers of covered products
must use the prescribed DOE test procedure as the basis for certifying
to DOE that their product complies with the applicable energy
conservation standards and as the basis for any representations
regarding the energy use or energy efficiency of the product. (42
U.S.C. 6295(s) and 42 U.S.C. 6293(c)). Similarly, DOE must use these
test procedures to evaluate whether a basic model complies with the
applicable energy conservation standard(s). (42 U.S.C. 6295(s)) The DOE
test procedures for gas-fired instantaneous water heaters appear at
title 10 of the Code of Federal Regulations (``CFR'') part 430, subpart
B, appendix E (``appendix E'').
EPCA prescribed energy conservation standards for gas-fired
instantaneous water heaters (42 U.S.C. 6295(e)(1)) and directed DOE to
conduct future rulemakings to determine whether to amend these
standards. (42 U.S.C. 6295(e)(4)) Not later than six years after the
issuance of any final rule establishing or amending a standard, DOE
must publish either a notice of determination (``NOPD'') that standards
for the product do not need to be amended, or a NOPR including new
proposed energy conservation standards (proceeding to a final rule, as
appropriate). (42 U.S.C. 6295(m)(1)) DOE must make the analysis on
which a NOPD or NOPR is based publicly available and provide an
opportunity for written comment. (42 U.S.C. 6295(m)(2)) Not later than
two years after a NOPR is issued, DOE must publish a final rule
amending the energy conservation standard for the product. (42 U.S.C.
6295(m)(3)(A))
DOE must follow specific statutory criteria for prescribing new or
amended standards for covered products, including gas-fired
instantaneous water heaters. Any new or amended standard for a covered
product must be designed to achieve the maximum improvement in energy
efficiency that the Secretary of Energy (``Secretary'') determines is
technologically feasible and economically justified. (42 U.S.C.
6295(o)(2)(A)) Furthermore, DOE may not adopt any standard that would
not result in the significant conservation of energy. (42 U.S.C.
6295(o)(3)(B))
Moreover, DOE may not prescribe a standard if: (1) for certain
products, including gas-fired instantaneous water heaters, no test
procedure has been established for the product; or (2) DOE determines
by rule that the establishment of such standard will not result in
significant conservation of energy (or, for certain products, water),
or is not technologically feasible or economically justified. (42
U.S.C. 6295(o)(3)(A)-(B)) In deciding whether a proposed standard is
economically justified, DOE must determine whether the benefits of the
standard exceed its burdens. (42 U.S.C. 6295(o)(2)(B)(i)) DOE must make
this determination after receiving comments on the proposed standard,
and by considering, to the greatest extent practicable, the following
seven statutory factors:
(1) The economic impact of the standard on manufacturers and
consumers of the products subject to the standard;
(2) The savings in operating costs throughout the estimated average
life of the covered products in the type (or class) compared to any
increase in the price, initial charges, or maintenance expenses for the
covered products that are likely to result from the standard;
(3) The total projected amount of energy (or as applicable, water)
savings likely to result directly from the standard;
(4) Any lessening of the utility or the performance of the covered
products likely to result from the standard;
(5) The impact of any lessening of competition, as determined in
writing by the Attorney General, that is likely to result from the
standard;
(6) The need for national energy and water conservation; and
(7) Other factors the Secretary considers relevant.
(42 U.S.C. 6295(o)(2)(B)(i)(I)-(VII))
Further, EPCA, as codified, establishes a rebuttable presumption
that a standard is economically justified if the Secretary finds that
the additional cost to the consumer of purchasing a product complying
with an energy conservation standard level will be less than three
times the value of the energy savings during the first year that the
consumer will receive as a result of the standard, as calculated under
the applicable test procedure. (42 U.S.C. 6295(o)(2)(B)(iii))
EPCA, as codified, also contains what is known as an ``anti-
backsliding''
[[Page 105195]]
provision, which prevents the Secretary from prescribing any amended
standard that either increases the maximum allowable energy use or
decreases the minimum required energy efficiency of a covered product.
(42 U.S.C. 6295(o)(1)) Also, the Secretary may not prescribe an amended
or new standard if interested persons have established by a
preponderance of the evidence that the standard is likely to result in
the unavailability in the United States in any covered product type (or
class) of performance characteristics (including reliability),
features, sizes, capacities, and volumes that are substantially the
same as those generally available in the United States. (42 U.S.C.
6295(o)(4))
Additionally, EPCA specifies requirements when promulgating an
energy conservation standard for a covered product that has two or more
subcategories. A rule prescribing an energy conservation standard for a
type (or class) of product must specify a different standard level for
a type or class of products that has the same function or intended use
if DOE determines that products within such group (A) consume a
different kind of energy from that consumed by other covered products
within such type (or class); or (B) have a capacity or other
performance-related feature which other products within such type (or
class) do not have and such feature justifies a higher or lower
standard. (42 U.S.C. 6295(q)(1)) In determining whether a performance-
related feature justifies a different standard for a group of products,
DOE considers such factors as the utility to the consumer of such a
feature and other factors DOE deems appropriate. Id. Any rule
prescribing such a standard must include an explanation of the basis on
which such higher or lower level was established. (42 U.S.C.
6295(q)(2))
Finally, pursuant to the amendments to EPCA contained in the Energy
Independence and Security Act of 2007, Public Law 110-140, any final
rule for new or amended energy conservation standards promulgated after
July 1, 2010, is required to address standby mode and off mode energy
use. (42 U.S.C. 6295(gg)(3)) Specifically, when DOE adopts a standard
for a covered product after that date, it must, if justified by the
criteria for adoption of standards under EPCA (42 U.S.C. 6295(o)),
incorporate standby mode and off mode energy use into a single
standard, or, if that is not feasible, adopt a separate standard for
such energy use for that product. (42 U.S.C. 6295(gg)(3)(A)-(B))
DOE is publishing this final rule pursuant to the six-year-lookback
review requirement in EPCA described herein for gas-fired instantaneous
water heaters with less than 2 gallons of effective storage volume and
rated inputs greater than 50,000 Btu/h. (42 U.S.C. 6295(m)) DOE is also
publishing this final rule pursuant to its authority to establish
uniform efficiency descriptors for covered water heaters (42 U.S.C.
6295(e)(5))
B. Background
1. Current Standards
As directed by EPCA (42 U.S.C. 6295(e)(4)), DOE conducted two
cycles of rulemakings to determine whether to amend the statutory
standards for consumer water heaters found in 42 U.S.C. 6295(e)(1). The
most recent rulemaking from April 2010 resulted in amended standards
using the EF metric originally prescribed by EPCA with a requirement
for compliance starting on April 16, 2015. 75 FR 20112 (Apr. 16, 2010)
(the ``April 2010 Final Rule''). Later amendments to EPCA directed DOE
to establish a uniform efficiency metric for consumer water heaters
(see 42 U.S.C. 6295(e)(5)(B)).\17\ The Federal test procedure was
revised to use a new metric, UEF, in a final rule published on July 11,
2014 (the ``July 2014 UEF TP Final Rule''). 79 FR 40542. In a final
rule published in the Federal Register on December 29, 2016, the
existing EF-based energy conservation standards were then translated
from EF to UEF using a ``conversion factor'' method for water heater
basic models that were in existence at the time. 81 FR 96204
(``December 2016 Conversion Factor Final Rule'').
---------------------------------------------------------------------------
\17\ The requirement for a consumer water heater test procedure
using UEF as a metric, as well as the requirement for DOE to
undertake a conversion factor rulemaking to translate existing
consumer water heater standards denominated in terms of EF to ones
denominated in terms of UEF, were part of the amendments to EPCA
contained in the American Energy Manufacturing Technical Corrections
Act (``AEMTCA''), Public Law 112-210 (Dec. 18, 2012).
---------------------------------------------------------------------------
The resulting standards for gas-fired instantaneous water heaters
set forth in DOE's regulations at 10 CFR 430.32(d)(1) are shown in
table II.1.
Table II.1--Federal Energy Efficiency Standards for Gas-Fired Instantaneous Water Heaters
----------------------------------------------------------------------------------------------------------------
Rated storage volume and Uniform energy
Product class input rating Draw pattern * factor
----------------------------------------------------------------------------------------------------------------
Instantaneous Gas-fired Water Heater.. <2 gal and >50,000 Btu/h. Very Small................... 0.80
Low.......................... 0.81
Medium....................... 0.81
High......................... 0.81
----------------------------------------------------------------------------------------------------------------
* The draw pattern dictates the frequency and duration of hot water draws during the 24-hour simulated use test,
and is an indicator of delivery capacity of the water heater. Draw patterns are assigned based on the first
hour rating (``FHR''), for non-flow-activated water heaters, or maximum GPM rating (``Max GPM''), for flow-
activated water heaters. For the specific FHR and Max GPM ranges which correspond to each draw pattern, see
section 5.4.1 of appendix E to subpart B of 10 CFR part 430.
In the December 2016 Conversion Factor Final Rule, DOE declined to
develop conversion factors and UEF-based standards for consumer water
heaters of certain sizes (by rated storage volume or input rating) and
of certain types (i.e., oil-fired instantaneous water heaters) where
models did not exist on the market at the time to inform the analysis
of the standards conversion. 81 FR 96204, 96210-96211. For consumer
water heaters that did not receive converted UEF-based standards, DOE
provided its interpretation that the original statutory standards--
found at 42 U.S.C. 6295(e)(1) and expressed in terms of the EF metric--
still applied; however, DOE would not enforce those statutorily-
prescribed standards until such a time that conversion factors are
developed for these products and they can be converted to UEF. Id.
Thus, the EF-based standards specified by EPCA apply to any consumer
water heaters which do not have UEF-based standards found at 10 CFR
430.32(d). The EF-based standards for gas-fired instantaneous water
heaters which do not have UEF-based standards are set
[[Page 105196]]
forth at 42 U.S.C. 6295(e)(1) and are repeated in table II.2.
Table II.2--EF-Based Federal Energy Conservation Standards for Gas-Fired
Consumer Water Heaters
------------------------------------------------------------------------
Product class Energy factor *
------------------------------------------------------------------------
Gas water heaters................ 0.62-(0.0019 x Vr)
------------------------------------------------------------------------
* Vr is the rated storage volume (in gallons), as determined pursuant to
10 CFR 429.17.
2. History of Standards Rulemaking for Gas-Fired Instantaneous Water
Heaters
On May 21, 2020, DOE initiated the most recent rulemaking for
consumer water heaters, including gas-fired instantaneous water
heaters, by publishing in the Federal Register a request for
information (``May 2020 RFI''), soliciting public comment on various
aspects of DOE's planned analyses to help DOE determine whether to
amend energy conservation standards for consumer water heaters. 85 FR
30853 (May 21, 2020). DOE subsequently published a notice requesting
feedback on its preliminary analysis and technical support document
(``preliminary TSD'') on March 1, 2022 (the ``March 2022 Preliminary
Analysis'') with a 60-day comment period. 87 FR 11327 (Mar. 1, 2022).
The comment period was extended by 14 days in a notice published on May
4, 2022. 87 FR 26303.
On October 21, 2022, DOE received a set of recommendations on
amended energy conservation standards for consumer water heaters from a
coalition of seven public- and private-sector organizations, including
two water heater manufacturers, three energy efficiency organizations,
one environmental group, and one consumer organization--collectively
the Joint Stakeholders--which, in part, addressed standards for gas-
fired instantaneous water heaters. This coalition's submission has been
referred to as the ``Joint Stakeholder Recommendation.'' (See Document
No. 49 in Docket No. EERE-2017-BT-STD-0019.)
On July 28, 2023, DOE published in the Federal Register a notice of
proposed rulemaking (``July 2023 NOPR'') and technical support document
(``NOPR TSD'') with a 60-day comment period that proposed new and
amended standards for consumer water heaters, including gas-fired
instantaneous water heaters. 88 FR 49058 (Jul. 28, 2023). On September
13, 2023, DOE presented the proposed standards and accompanying
analysis at a public meeting. The submissions DOE received in response
to the July 2023 NOPR pertaining to gas-fired instantaneous water
heaters are listed in table II.3.
Table II.3--List of Commenters With Written Submissions Specific to Gas-Fired Instantaneous Water Heaters in
Response to the July 2023 NOPR
----------------------------------------------------------------------------------------------------------------
Comment number in the
Commenter(s) Abbreviation docket Commenter type
----------------------------------------------------------------------------------------------------------------
Individual......................... Hardy....................... 0185.................... Individual.
NPGA, APGA, AGA, and Rinnai........ NPGA, APGA, AGA, and Rinnai. 0441.................... Trade Associations
and Manufacturer.
Carolinas Natural Gas Coalition.... CNGC........................ 0648.................... Trade Association.
Jackson Energy Authority........... JEA......................... 0865.................... Utility.
Watertown Municipal Utilities...... WMU......................... 0872.................... Utility.
Philadelphia Gas Works............. PGW......................... 0886.................... Utility.
Southeast Gas...................... Southeast Gas............... 0887.................... Utility.
Consumer Energy Alliance........... CEA......................... 0914.................... Consumer Advocate.
American Society of Gas Engineers.. ASGE........................ 0976.................... Trade Association.
Chesapeake Utilities Corporation... CHPK........................ 1008.................... Utility.
Georgia Office of the Attorney Attorney General of GA...... 1026.................... State Official/
General. Agency.
Advanced Water Heating Initiative.. AWHI........................ 1036.................... Efficiency
Organization.
Tennessee Attorney General's Office Attorney General of TN...... 1149.................... State Official/
Agency.
American Pipeline Contractors APCA........................ 1152.................... Trade Association.
Association.
Texas Public Policy Foundation..... TPPF........................ 1153.................... Academic Institute.
Midwest Energy Efficiency Alliance, Joint Regional Advocacy 1154.................... Efficiency
Northeast Energy Efficiency Groups. Organizations.
Partnerships, Northwest Energy
Efficiency Alliance, South-central
Partnership for Energy Efficiency
as a Resource, Southeast Energy
Efficiency Alliance, Southwest
Energy Efficiency Project.
American Council for an Energy- Joint Stakeholders.......... 1156.................... Coalition.
Efficient Economy, Natural
Resources Defense Council,
Appliance Standards Awareness
Project, Northwest Energy
Efficiency Alliance, Consumer
Federation of America, Rheem
Manufacturing.
Office of Governor Brian P. Kemp... Governor of GA.............. 1157.................... State Official/
Agency.
Bradford White Corporation......... BWC......................... 1164.................... Manufacturer.
Air-Conditioning, Heating, and AHRI........................ 1167.................... Trade Association.
Refrigeration Institute.
California Energy Commission....... CEC......................... 1173.................... State Official/
Agency.
Pacific Gas and Electric Company; CA IOUs..................... 1175.................... Utilities.
Southern California Edison; and
San Diego Gas & Electric Company;
collectively, the California
Investor-owned Utilities.
Huntsville Utilities............... Huntsville Utilities........ 1176.................... Utility
Association.
Rheem Manufacturing Company........ Rheem....................... 1177.................... Manufacturer.
AGA, APGA, NPGA, Spire............. Gas Association Commenters.. 1181.................... Utility
Association.
A.O. Smith Corporation............. A.O. Smith.................. 1182.................... Manufacturer.
Rinnai America Corporation......... Rinnai...................... 1186.................... Manufacturer.
Northwest Energy Efficiency NEEA........................ 1199.................... Efficiency
Alliance. Organization.
ONE Gas, Inc....................... ONE Gas..................... 1200.................... Utility.
Noritz America Corporation......... Noritz...................... 1202.................... Efficiency
Organization.
[[Page 105197]]
Robert Bosch LLC................... Bosch....................... 1204.................... Manufacturer.
U.S. House of Representatives (Nine U.S. House of 1205.................... Government Official/
members, all from Georgia). Representatives. Agency.
----------------------------------------------------------------------------------------------------------------
Subsequent to the July 2023 NOPR, DOE determined it would continue
to consider comments prior to finalizing standards for gas-fired
instantaneous water heaters, although standards for all other consumer
water heaters were finalized in a rule published on May 6, 2024 (``May
2024 Final Rule''). 89 FR 37778. Most recently, DOE published a notice
of data availability in the Federal Register on July 23, 2024 (``July
2024 NODA''). 89 FR 59692. The purpose of the July 2024 NODA was to
make publicly available a full set of analytical results specific to
gas-fired instantaneous water heaters, including updates as compared to
the analysis conducted for the July 2023 NOPR after considering the
comments received. DOE received comments in response to the July 2024
NODA from the interested parties listed in table II.4.
In response to the July 2024 NODA, a larger coalition of
stakeholders co-signed a joint comment recommending standards for gas-
fired instantaneous water heaters. This coalition--consisting of AHRI
(a trade association representing the views of multiple manufacturers),
three energy efficiency organizations, one environmental group, and one
consumer organization--submitted the previous Joint Stakeholder
Recommendation for renewed consideration by DOE. Hence the submission
by this larger, more recent coalition is still referred to as the Joint
Stakeholder Recommendation throughout this final rule.
Table II.4--List of Commenters With Written Submissions in Response to the July 2024 NODA
----------------------------------------------------------------------------------------------------------------
Comment number in the
Commenter(s) Abbreviation docket Commenter type
----------------------------------------------------------------------------------------------------------------
Sophie Charlotte DuBard-Weis....... DuBard-Weis........... 1430....................... Individual.
Lucy Anderson...................... Anderson.............. 1431....................... Individual.
Anonymous.......................... Anonymous............. 1432....................... Individual.
American Gas Association (AGA), Joint Requesters...... 1433....................... Utility Associations;
American Public Gas Association Manufacturer.
(APGA), National Propane Gas
Association (NPGA), and Rinnai
America Corporation.
Northwest Energy Efficiency NEEA.................. 1434....................... Efficiency
Alliance. Organization.
Rinnai America Corporation......... Rinnai................ 1435, 1443................. Manufacturer.
Rheem Manufacturing Company........ Rheem................. 1436....................... Manufacturer.
Air-Conditioning, Heating, and AHRI.................. 1437....................... Trade Association.
Refrigeration Institute.
AHRI, ACEEE, ASAP, CFA, NRDC, and AHRI and the Joint 1438....................... Trade Association.
NEEA. Stakeholders.
American Gas Association (AGA), AGA et al............. 1439....................... Utility Association.
American Public Gas Association
(APGA), and National Propane Gas
Association (NPGA).
A.O. Smith Corporation............. A.O. Smith............ 1440....................... Manufacturer.
Bradford White Corporation......... BWC................... 1441....................... Manufacturer.
Pacific Gas and Electric Company; CA IOUs............... 1442....................... Utility.
Southern California Edison; and
San Diego Gas & Electric Company;
collectively, the California
Investor-owned Utilities.
ASAP, ACEEE, CFA, NCLC, NRDC, NBI, Joint Advocates....... 1444....................... Efficiency
and NEEA. Organization.
U.S. House of Representatives U.S. House of 1445....................... Government Official/
(Three members, all from Georgia). Representatives. Agency.
----------------------------------------------------------------------------------------------------------------
A parenthetical reference at the end of a comment quotation or
paraphrase provides the location of the item in the public record.\18\
To the extent that interested parties have provided written comments
that are substantively consistent with any oral comments provided
during the September 13, 2023, public meeting, DOE cites the written
comments throughout this final rule. DOE did not identify any oral
comments provided during the September 13, 2023, public meeting that
are not substantively addressed by written comments.
---------------------------------------------------------------------------
\18\ The parenthetical reference provides a reference for
information located in the docket of DOE's rulemaking to develop
energy conservation standards for consumer water heaters. (Docket
No. EERE-2017-BT-STD-0019, which is maintained at:
www.regulations.gov). The references are arranged as follows:
(commenter name, comment docket ID number at page of that document).
---------------------------------------------------------------------------
III. General Discussion
DOE developed this final rule after a review of the market for the
subject gas-fired instantaneous water heaters. DOE also considered
comments, data, and information from interested parties that represent
a variety of interests. This final rule addresses issues raised by
these commenters.
A. General Comments
This section summarizes general comments received from interested
parties regarding rulemaking timing and process.
In response to the July 2024 NODA, the Joint Requesters recommended
that DOE provide stakeholders with an additional 30 days (i.e., for a
total of 60 days) to comment. The Joint Requesters stated that the 30
days provided by DOE does not allow stakeholders to sufficiently
analyze the NODA and the related documents, which appear to incorporate
new data, use new methodologies, and reach different results from the
July 2023 NOPR. The Joint Requesters further commented that their
organizations had limited staff availability during the comment period.
(Joint Requesters, No. 1433 at pp. 2-3)
DOE notes the limited scope of the NODA and reiterates that the
July 2024 NODA updated only specific aspects of DOE's analysis of
potential amended energy conservation standards for gas-fired
instantaneous water heaters. The analysis from the July 2023 NOPR was
updated to reflect the latest available versions of the data sources
used. Overall, the cost-benefit analysis
[[Page 105198]]
methodology remains largely unchanged between the July 2024 NODA and
the July 2023 NOPR (see 89 FR 59692, 59693). Furthermore, this analysis
has been subject to extensive stakeholder input and feedback throughout
the course of this rulemaking. Commenters were provided a full 60-day
comment period to review the July 2023 NOPR analysis, and the July 2024
NODA described in depth the specific areas where DOE's analysis was
updated while providing the rationale for each update. As such, DOE
believes a 30-day comment period was appropriate for stakeholders to
review a limited set of revisions to a previously published analysis
and provide meaningful comments on the notice. (See Document No. 1446
in Docket No. EERE-2017-BT-STD-0019.)
AGA et al. stated that due to the use of data designed for other
natural gas appliances and not gas-fired instantaneous water heaters
specifically, DOE should restart the rulemaking process for gas-fired
instantaneous water heaters, or at a minimum issue a supplemental
notice. (AGA et al., No. 1439 at p. 1)
In response, DOE notes that it published the July 2024 NODA to
inform stakeholders of newly available data and results with respect to
potential amended standards for gas-fired instantaneous water heaters,
a limited update to the July 2023 NOPR analysis.
1. General Support
In response to the July 2023 NOPR, DOE received 2,880 \19\ general
comments (those which provided general remarks on the impact of the
rulemaking) \20\ with a significant number of commenters expressing
support of the proposed standards--including those proposed for gas-
fired instantaneous water heaters--and acknowledging the significant
energy savings that would result from the adoption of the proposed
standards.\21\
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\19\ The number of comments reflects the number of individual
party submissions. Specifically, form letters with multiple
submissions count each submission individually.
\20\ Commenters who are directly referenced in this final rule
and appear in table II.3 are not counted in these statistics because
these submitters typically expressed detailed views that could not
be generalized as either clear support or clear opposition for all
aspects of the proposal.
\21\ One comment in support of the proposed standards, including
the proposal for gas-fired instantaneous water heaters, had 8,357
signatories.
---------------------------------------------------------------------------
AWHI expressed support for more stringent standards for gas-fired
instantaneous water heaters. (AWHI, No. 1036 at pp. 3-4) The Joint
Stakeholders stated that the proposed standards for gas-fired
instantaneous water heaters are consistent with their recommendations.
(Joint Stakeholders, No. 1156 at p. 2) NEEA, the Joint Regional
Advocacy Groups (citing the estimated FFC and monetary savings), and
Bosch supported the proposed standards for gas-fired instantaneous
water heaters. (NEEA, No. 1199 at p. 9; Joint Regional Advocacy Groups,
No. 1154 at p. 1; Bosch, No. 1204 at p. 2) Bosch commented that
condensing gas-fired instantaneous water heaters are readily available
and widely accepted in the market, and can create significant energy
savings and emissions reductions. Bosch stated that nearly every gas-
fired instantaneous water heater manufacturer sells a condensing-level
product and, therefore, the required technology is well-understood and
minimal research and development efforts would be required to achieve
the proposed efficiency levels. (Bosch, No. 1204 at p. 2)
CEC and A.O. Smith also supported DOE's proposed standards for gas-
fired instantaneous water heaters because they would result in
significant savings, lower monthly energy bills for homeowners, and
also provide emissions benefits. CEC urged DOE to finalize the proposed
standards as soon as possible. (CEC, No. 1173 at p. 12; A.O. Smith, No.
1182 at p. 14)
Two individual commenters expressed support for the proposed
rulemaking on the basis that clean energy is necessary for securing a
peaceful and prosperous future and for the economic benefits that will
result from the proposed rulemaking. (DuBard-Weis, No. 1430 at p. 1;
Anderson, No. 1431 at p. 1) An anonymous commenter also expressed
support for the proposed rulemaking on the basis of reducing emissions
related to water heaters for the benefit of the planet. (Anonymous, No.
1432 at p. 2)
2. Support for Updated Analysis and Standards at EL 2
In response to the July 2024 NODA, DOE received the following
comments in support of the updated analytical results and potential
amended standards at efficiency level (``EL'') 2.
NEEA, AHRI, AHRI and the Joint Stakeholders, the Joint Advocates,
Rheem, and BWC expressed support for the standards proposed at EL 2 for
gas-fired instantaneous water heaters in the July 2023 NOPR, with NEEA,
AHRI, AHRI and the Joint Stakeholders, the Joint Advocates, and BWC
noting the significant national energy savings and LCC savings for
consumers. NEEA, The Joint Advocates, and BWC stated that the proposed
standard aligns with the Joint Stakeholder Recommendations made in
2022. AHRI and the Joint Stakeholders expressed concern that DOE had
not yet adopted these standards and commented that the proposed levels
would, enable a broad set of consumer options while meeting EPCA's
directives of achieving significant national energy savings as well as
cost effectiveness and technological feasibility for consumers who
install these products. The Joint Advocates supported DOE's proposal to
adopt EL 2 for gas-fired instantaneous water heaters because EL 2
represents an intermediate condensing level and reflects the Joint
Stakeholder recommendations. The Joint Advocates further commented that
DOE's updated analysis in the NODA reinforces the economic and energy
benefits of adopting EL 2 for gas-fired instantaneous water heaters
and, while similar to those in the July 2023 NOPR, the updates in the
July 2024 NODA improve the analysis. (NEEA, No. 1434 at p. 1; Rheem,
No. 1436 at p. 1; AHRI, No. 1437 at p. 2; AHRI and the Joint
Stakeholders, No. 1438 at p. 1; BWC, No. 1441 at p. 1; Joint Advocates,
No. 1444, at pp. 1-2)
NEEA commented that the July 2024 NODA effectively updates the
analysis for gas-fired instantaneous water heaters to thoroughly
represent the market and better account for manufacturer impacts of
updating standards for gas-fired instantaneous water heaters by
updating from Energy Information Administration's Residential Energy
Consumption Survey (``RECS'') 2015 to RECS 2020 data, accounting for
the use of concentric pipe venting for both condensing and non-
condensing gas-fired instantaneous water heaters, and updating the
analysis to include outdoor installations of gas-fired instantaneous
water heaters that don't require venting or that require short through-
the-wall vents. NEEA commented that according to DOE's analysis,
impacts on manufacturers from a condensing-level standard would be
modest and potentially beneficial to domestic production. NEEA
recommended that DOE quickly issue a final rule for gas-fired
instantaneous water heaters, as NEEA agreed with DOE that condensing-
level standards at EL 2 would be cost effective and deliver significant
energy savings while having minimal negative impacts. (NEEA, No. 1434
at pp. 1-3)
Rheem recommended that DOE amend standards for gas-fired
instantaneous water heaters to EL 2, stating that DOE's analysis
remains justified. (Rheem, No. 1436 at p. 1) BWC urged DOE to establish
minimum energy
[[Page 105199]]
conservation standards for gas-fired instantaneous water heaters at EL
2 as originally proposed in the July 2023 NOPR and in accordance with
the Joint Stakeholder Recommendation. BWC stated that establishing
standards consistent with the Joint Stakeholder Recommendation would
result in national energy savings of 0.8 quads and provide individual
consumers average savings of $31 per year.\22\ (BWC, No. 1441 at p. 1)
---------------------------------------------------------------------------
\22\ BWC cited analytical results provided in the original Joint
Stakeholder Recommendation (Document No. 49 in this docket), which
relied on DOE's results from the March 2022 Preliminary Analysis
(see Joint Stakeholder, No. 49 at p. 5). DOE's most up-to-date
analysis provided in this final rule indicates a potential for 0.58
quads of national energy savings, with an average consumer LCC
savings of $112.
---------------------------------------------------------------------------
3. General Opposition
In response to the July 2023 NOPR, DOE received comments from
several stakeholders raising concern over the impact of the proposed
standards.
An individual commenter requested careful consideration of the
impacts of the proposed levels for gas-fired instantaneous water
heaters on the economy. The individual commenter noted that they work
at a propane company whose installation and servicing of tankless \23\
water heaters is a large part of its income, asserting that the
proposals, if adopted, could be detrimental to the economy. (Hardy, No.
185 at p. 1)
---------------------------------------------------------------------------
\23\ ``Tankless'' models are instantaneous water heaters with
very little storage volume. These designs comprise the majority of
consumer gas-fired instantaneous water heaters on the market today.
---------------------------------------------------------------------------
Commenters from the U.S. House of Representatives indicated that
the popularity of non-condensing gas-fired instantaneous water heaters
among homeowners and small business owners across the United States
reflects the efficiency and affordability of the products.
Additionally, the Commenters from the U.S. House of Representatives
stated that restricting consumer access to gas-fired instantaneous
water heaters by adopting higher standards would reduce consumer choice
and increase product prices. (U.S. House of Representatives, No. 1205
at p. 1) Then, in response to the July 2024 NODA, the Commenters from
the U.S. House of Representatives stated that gas-fired instantaneous
water heaters are projected to reach 11 percent of the U.S. market by
2028 and that sales of non-condensing tankless water heaters from 2005
to 2022 have saved 339 million MMBtus (0.34 quads) and 37.7 billion
pounds (17 million metric tons) of carbon emissions. Commenters from
the U.S. House of Representatives also stated that the July 2023 NOPR
would eliminate the non-condensing gas-fired instantaneous water
heaters while leaving costlier or higher emission profile products on
the market. (U.S. House of Representatives, No. 1445 at p. 1)
Regarding stakeholders' comments that the standards proposed in the
July 2023 NOPR would discourage adoption of gas-fired instantaneous
water heaters, DOE notes that it expects the share of gas-fired
instantaneous water heaters to continue to increase as a percentage of
the overall U.S. market in both the no-new-standards case and standards
cases. See section IV.F.10 for a discussion regarding why adoption of
other types of water heaters in response to amended standards for gas-
fired instantaneous water heaters is highly unlikely. Additionally, DOE
notes that only one-third of gas-fired instantaneous water heaters
shipped in 2024 were non-condensing models, with a market share that is
projected to decrease even in the absence of amended standards. See
section IV.G of this document and chapter 9 of the final rule TSD for
additional information on DOE's shipments analysis.
In addition to emphasizing several of the points it made in
response to the July 2023 NOPR, Rinnai claimed that, although the July
2024 NODA appears to make some adjustments for data provided by Rinnai
as well as other inputs, methods and approaches, it does not
sufficiently account for historic market data and trends, consumer
decision making, product and installation costs, and concerns with
modeling and methodology, nor does it suffice to meet statutory
requirements relating to economic justification, significant energy
savings, or product unavailability. Rinnai stated that the analysis in
the July 2024 NODA does not change its conclusion that the proposed
rule would limit the affordable, efficient options available to
consumers, would impede a market-driven shift toward more efficient
storage-type water heaters,\24\ and would likely result in a net
reduction in energy savings and an increase in carbon emissions. Rinnai
therefore requested that DOE correct its claimed deficiencies and flaws
in the July 2024 NODA, issue a supplemental notice of proposed
rulemaking to address these changes and allow thorough stakeholder
input, and reconsider the July 2023 NOPR's proposed rule. Rinnai
suggested that DOE should either maintain the existing standard for
gas-fired instantaneous water heaters, or alternatively promulgate
separate standards for condensing and non-condensing gas-fired
instantaneous water heaters. (Rinnai, No. 1443 at pp. 2-3)
---------------------------------------------------------------------------
\24\ The commenter used the phrase ``tank water heaters'' but
did not clarify how amended standards for gas-fired instantaneous
water heaters would impede a market transition towards more
efficient types of storage water heaters; however, they later
reiterate the concern regarding a shift towards gas-fired storage
water heaters, which, in general, tend to have lower UEF ratings
today compared to gas-fired instantaneous water heaters.
---------------------------------------------------------------------------
Rinnai raised concern with the condensing-level standards supported
by the Joint Stakeholders, asserting that such standards would not
adequately consider the gas-fired instantaneous water heater market and
industry as a whole. Specifically, Rinnai expressed that it does not
believe that non-condensing gas-fired instantaneous water heaters are
``on the way out'' of the market. According to Rinnai, the July 2024
NODA showed a projected 30 percent of gas-fired instantaneous water
heater sales in 2030 would be non-condensing models, consistent with
current trends. Rinnai stated that it would suffer the direct impacts
of this rule, being not only one of the leading manufacturers of gas-
fired instantaneous water heaters in general but also the market leader
in sales of non-condensing models, producing approximately 60 percent
of the market share of non-condensing models. (Rinnai, No. 1443 at pp.
23-24) Rinnai argued that DOE's consumer water heater rulemaking, and
in particular its actions with regard to gas-fired instantaneous water
heaters, depend heavily on DOE's interpretation of several statutory
provisions in EPCA. According to Rinnai, DOE's interpretations of
statutory provisions are not entitled to deference--for example, DOE's
interpretation of the unavailability provision, section 6295(o)(4), the
``significant conservation of energy'' provision, section 6295(o)(3),
the economic justification provision, section 6295(o)(2)(B), and the
separate standards provision, section 6295(q). Rinnai expressed its
concern that DOE's consumer water heater rulemaking, in conjunction
with its rulemaking proceedings on furnaces and boilers, represent a
significant overhaul of the appliance manufacturing industry. Rinnai
commented that, in line with the outcome of West Virginia v. EPA,\25\
[[Page 105200]]
EPCA was not intended to allow DOE to favor one fuel or type of
appliance over another or to reshape the appliance industry. (Rinnai,
No. 1443 at pp. 23-24)
---------------------------------------------------------------------------
\25\ In West Virginia v. EPA, 597 U.S. 697 (2022), the Court
expounded on the major questions doctrine, and held that agencies
could not adopt rules with, as Rinnai put it, ``significant
economic, industry and consumer choice impacts'' without having
clear congressional authorization to do so. (Rinnai, No. 1443 at p.
24)
---------------------------------------------------------------------------
DOE's rulemaking to amend energy conservation standards for gas-
fired instantaneous water heaters does not disallow the production,
import, or sale of water heaters using any specific fuel type.
Moreover, gas-fired instantaneous water heaters will not be made
unavailable as a result of this rulemaking. Stakeholders have not
indicated that raising standards for gas-fired instantaneous water
heaters would push consumers towards electric or oil-fired water
heaters--and such a case would be highly improbable based on DOE's own
analysis of consumer purchasing decisions. Instead, stakeholders such
as Rinnai and the Gas Association Commenters appear to indicate that
more-stringent standards for gas-fired instantaneous water heaters may
impact shipments of other gas-fired water heaters, and these comments
are discussed further in section IV.F.10 of this document. As such,
there is no evidence to support Rinnai's suggestion that DOE's action
``favors'' one fuel type over another. Furthermore, since the statutory
consumer water heater standards were established by EPCA at 42 U.S.C.
6295(e)(1), DOE has maintained separate product classes (i.e., separate
standards) for gas-fired, oil-fired, and electric water heaters. See 10
CFR 430.32(d)(1)-(2). These separate product classes are consistent
with the statutory provisions at 42 U.S.C. 6295(q).
DOE has statutory authority to routinely evaluate and address
minimum efficiency levels for gas-fired instantaneous water heaters
(and all other consumer water heaters). See section II.A of this
document. As a general matter, energy conservation standards save
energy by removing the least-efficient technologies and designs from
the market. Discussed further in section IV.A.1 of this document, non-
condensing gas-fired instantaneous water heaters use only one heat
exchanger that operates at a higher temperature, whereas condensing
gas-fired instantaneous water heaters make use of corrosion-resistant
condensing heat exchangers that can extract far more energy from the
flue gases exhausted by combustion--causing the exhaust flue gases to
condense into liquid (hence, the term ``condensing''). Because of this,
condensing gas-fired instantaneous water heaters are a step up in
efficiency from non-condensing products. The energy-saving purposes of
EPCA would be frustrated if DOE were required to set standards that
maintain less-energy-efficient covered products and equipment in the
market based simply on the fact that they use a specific type of less-
efficient design.
DOE has evaluated the statutory criteria--technological
feasibility, significant energy savings, and economic justification--
and considered the application of the statutory ``unavailability
provision'' (see 42 U.S.C. 6295(o)(4)) to determine the product class
structure for gas-fired instantaneous water heaters; see section IV.A.1
of this document for further details. DOE has not sought to ``reshape
the appliance industry,'' but rather to set standards in accordance
with the statutory requirements of EPCA. Analytical results from
multiple rulemakings indicate that certain segments of the space and
water heating industries have made significant progress in
transitioning the market towards more-efficient condensing products,
and the analysis herein for gas-fired instantaneous water heaters also
reflects this trend. As such, DOE is not setting condensing-level
standards simply to increase the usage of condensing technology.
Rather, DOE has found that condensing-level standards are justified for
gas-fired instantaneous water heaters based on extensive analysis and
review.
4. Comments on Higher Standards Than Proposed in the NOPR
EL 3 corresponds to the efficiency that would meet the current
ENERGY STAR Specification version 5.0, and as such is an efficiency
level that many manufacturers currently target. In the July 2023 NOPR,
DOE tentatively determined that the additional benefits and savings
from amended standards at EL 3 could be considered significant, but
there was uncertainty as to whether manufacturing capacity of EL 3
models could be scaled up to meet national demand for gas-fired
instantaneous water heaters. 88 FR 49058, 49161. While the July 2023
NOPR proposed standards at EL 2, DOE requested additional information
on the benefits and burdens of a potential amended standard for gas-
fired instantaneous water heaters at EL 3, especially with respect to
manufacturers being able to scale their entire production to EL 3 in
the compliance time frame being considered by this rulemaking. Id.
In response, Bosch stated that EL 3 would be significantly more
difficult to reach compared to EL 2, adding that though EL 3 is
feasible with current technology, the technology comes with increased
complexity. Specifically, Bosch stated that the most significant
challenge in raising the efficiency of a gas-fired instantaneous water
heater from a UEF of 0.93 to 0.95 for the high draw pattern is the need
for significant burner modulation. Bosch recommended DOE retain the EL
2 proposal for gas-fired instantaneous water heaters. (Bosch, No. 1204
at pp. 4-5) Noritz stated that EL 3 is significantly more difficult to
reach than EL 2, due to complexity related to the software, controls,
fan, and gas valve, as well as higher material costs due to increased
heat exchanger surface area. (Noritz, No. 1202 at p. 3) BWC recommended
against adopting standards for gas-fired instantaneous water heaters at
EL 3 because this would be inconsistent with the Joint Stakeholder
Recommendation, and the proposed standards at EL 2 already amount to
substantial increase in efficiency. (BWC, No. 1164 at p. 16) Rheem
stated that it does not support EL 3 for gas-fired instantaneous water
heaters as the costs to the manufacturer outweigh the benefit of the
slight increase in UEF. Rheem further stated that EL 3 requires
completely different condensing technology than EL 2 and will have
significantly more impact on existing manufacturing facilities. (Rheem,
No. 1177 at p. 13)
AHRI stated that gas-fired instantaneous water heaters would
experience more difficulty achieving EL 3 compared to EL 2 due to
increasing complexity, driven by designs incorporating full burner
modulation. AHRI further stated that this would require substantial
research and development and more expensive components. (AHRI, No. 1167
at pp. 12-13)
CEC stated that if DOE received data in response to the request for
information in the July 2023 NOPR, DOE should consider finalizing a
standard consistent with EL 3 for gas-fired instantaneous water
heaters. (CEC, No. 1173 at p. 12)
In response to the July 2023 NOPR, the CA IOUs encouraged DOE to
set more stringent standards for gas-fired instantaneous water heaters,
recommending that DOE establish the standards proposed at TSL 6 in the
July 2023 NOPR, equivalent to max-tech (i.e., EL 4). According to the
CA IOUs, more stringent standards for all gas-fired consumer water
heater sub-classes, specifically at condensing efficiencies, would
result in significant savings of natural gas in California and across
the United States. Regarding statements from some stakeholders that
significant installation barriers are associated with gas condensing
water heaters, the CA IOUs referred DOE to a report docketed
[[Page 105201]]
in 2019 titled ``Investigation of Installation Barriers and Costs for
Condensing Gas Appliances.'' \26\ Key findings from this report
indicate that these challenges impact less than 5 percent of condensing
gas retrofit installations for residential and commercial applications,
and that condensate management and chimney relining were minor concerns
for installing gas condensing products. (CA IOUs, No. 1175 at p. 2) In
response to the July 2024 NODA, the CA IOUs reiterated that more-
stringent efficiency standards for gas-fired instantaneous water
heaters would conserve natural gas, reduce emissions, and lower utility
payments for Californians. The CA IOUs stated that while a standard
based on EL 2 would generate between $0.13 billion ($2022, at a 7-
percent discount rate) and $0.47 billion ($2022, at a 3-percent
discount rate) in consumer benefits for all Californians over 30 years,
a standard based on EL 3 would generate between $0.21 billion ($2022,
at a 7-percent discount rate) and $0.75 billion ($2022, at a 3-percent
discount rate) in consumer benefits for all Californians over the same
time period. The CA IOUs stated that adoption of EL 3 would increase
consumer benefits by 60 percent relative to EL 2 and reiterated that EL
3 has the shortest simple payback period of any gas-fired instantaneous
water heater efficiency level. The CA IOUs urged DOE to adopt a
standard for gas-fired instantaneous water heaters based on EL 3. (CA
IOUs, No. 1442 at pp. 1-2)
---------------------------------------------------------------------------
\26\ EERE-2018-BT-ST-0018-0062. February 28, 2019. Available at:
www.regulations.gov/comment/EERE-2018-BT-STD-0018-0062 (last
accessed: Oct. 1, 2024).
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In this final rule analysis, DOE finds that although EL 3 would
present many consumer benefits, the average estimated simple payback
period for EL 3 is 8.3 years, whereas for EL 2 it is 8.9 years, which
is not strikingly different in the context of the product's lifespan,
which is estimated to be about 20 years. DOE acknowledges that setting
standards at EL 3 for gas-fired instantaneous water heaters would
require notably higher levels of investment compared to EL 2 for gas-
fired instantaneous water heaters. In this final rule, DOE is adopting
TSL 2, which corresponds to EL 2 for gas-fired instantaneous water
heaters. DOE notes that industry would need to significantly scale up
production of models that meet EL 3 given the lower quantity of
shipments of these models today. Approximately 60 percent of gas-fired
instantaneous water heater shipments currently meet the adopted level
(i.e., EL 2).\27\ However, only 15 percent of gas-fired instantaneous
water heater shipments currently meet EL 3. To meet EL 3, DOE expects
manufacturers would implement a more efficient heat exchanger design
(e.g., replacing a tube condensing heat exchanger with a flat plate
condensing heat exchanger) and increase the condensing heat exchanger
area relative to EL 2. DOE understands that implementing the larger,
improved condensing heat exchanger technology could increase the
complexity of the manufacturing process compared to the tube design
condensing heat exchanger technology analyzed at EL 1 and EL 2. Given
the low shipments volumes and increased complexity of EL 3 models, DOE
expects most manufacturers would need to add new production lines to
maintain existing capacity at TSL 3. DOE does not expect most
manufacturers would need to add new production lines or incur notable
capital investments to meet TSL 2. DOE estimates that industry
conversion costs at EL 2 would reach approximately $20 million whereas
industry conversion costs would triple at EL 3 (approximately $60
million). See section V.B.2.a of this document for the estimated
industry conversion costs at each TSL. See section V.C.1 of this
document for the benefits and burdens of the TSLs considered in this
rulemaking.
---------------------------------------------------------------------------
\27\ The term ``current shipments'' refers to no-new-standards
shipments estimated to occur in 2024 (the reference year).
---------------------------------------------------------------------------
B. Scope of Coverage
Gas-fired instantaneous water heaters are a subset of consumer
water heaters. Generally, DOE defines a ``water heater,'' consistent
with EPCA's definition at 42 U.S.C. 6291(27) and codified at 10 CFR
430.2, as a product which utilizes oil, gas, or electricity to heat
potable water for use outside the heater upon demand. An instantaneous-
type water heater is one that heats water but contains no more than one
gallon of water per 4,000 Btu per hour of input, and consumer gas-fired
instantaneous water heaters are additionally defined as having an input
rating less than 200,000 Btu per hour. 10 CFR 430.2; (42 U.S.C.
6291(27)).
This rulemaking does not cover gas-fired circulating water heaters,
which must be used in combination with recirculation pump and a storage
tank or recirculation loop, and therefore constitute storage-type water
heaters. 10 CFR 430.2.
As stated in section I of this document, EPCA prescribed energy
conservation standards for all consumer water heaters (i.e., those that
meet the definition of ``water heater'' above). For the purposes of
this final rule, DOE is solely considering ``gas-fired instantaneous
water heaters,'' including those for which there are no current UEF-
based standards codified at 10 CFR 430.32(d)(1).
See section IV.A.1 of this document for discussion of the product
classes analyzed in this final rule.
C. Test Procedure
EPCA sets forth generally applicable criteria and procedures for
DOE's adoption and amendment of test procedures. (42 U.S.C. 6293)
Manufacturers of covered products must use these test procedures as the
basis for certifying to DOE that their product complies with the
applicable energy conservation standards and as the basis for any
representations regarding the energy use or energy efficiency of the
product. (42 U.S.C. 6295(s) and 42 U.S.C. 6293(c)). Similarly, DOE must
use these test procedures to evaluate whether a basic model complies
with the applicable energy conservation standard(s). 10 CFR 429.110(e).
The current test procedure for consumer and residential-duty commercial
water heaters is codified at 10 CFR part 430, subpart B, appendix E.
Appendix E includes provisions for determining UEF, the metric on which
current standards are based. 10 CFR 430.32(d)(1).
DOE most recently amended the test procedure for these products at
appendix E in the consumer and residential-duty commercial water heater
test procedure final rule published on June 21, 2023 (``June 2023 TP
Final Rule'') pursuant to the 7-year review requirement as specified by
EPCA. (42 U.S.C. 6293(b)(1)(A) and 42 U.S.C. 6314(a)(1)(A)) In that
final rule, DOE established effective storage volume
(``Veff'') as a metric to address how much hot water could
be immediately delivered by the system, taking into account the
temperature of the stored water and, in the case of circulating water
heaters, the volume of the paired storage tank. 88 FR 40406. The
amended test procedure established by the June 2023 TP Final Rule is
mandatory for gas-fired instantaneous water heater testing starting
December 18, 2023, 180 days after publication. Id.
In response to the July 2023 NOPR, BWC reiterated its comments in
response to the March 2022 Preliminary Analysis asserting that there is
evidence to suggest that gas-fired instantaneous water heaters may gain
an unfair advantage in the current test procedure
[[Page 105202]]
as compared to gas-fired storage water heaters. The commenter provided
DOE with a study published by the Davis Energy Group, Inc. and
requested that DOE elaborate on its disagreement with the outcome of
that study. In particular, BWC pointed out that while gas-fired
instantaneous water heaters are not subjected to standby losses like
their storage-type counterparts, the number, timing, and frequency of
draws required for these products causes the heat exchanger to be
raised to temperature for each draw; and this, according to Davis
Energy Group, Inc., can cause a bias toward higher efficiency ratings
for gas-fired instantaneous water heaters. BWC requested further
discussion on this topic to ensure that both types of gas-fired
products are treated fairly. (BWC, No. 1164 at pp. 9-10)
In response, DOE notes that the current test procedure for consumer
water heaters is designed to represent generally how consumer water
heaters are used in-field. As such, if one type of water heater
generally receives higher efficiency ratings than another, it would be
the result of that water heater type having a more efficient design for
actual consumer usage patterns than the other. This difference would
therefore not be a bias, but a reflection of actual differences in
operating efficiency being captured by the test result. The Davis
Energy Group, Inc. study cited by BWC shows the efficiency of the gas-
fired instantaneous water heater that was tested was more affected by
the time between water draws than that of the gas-fired storage water
heater that was tested. That is, the efficiency of the gas-fired
instantaneous water heater degraded more when the time between water
draws increased than did the gas-fired storage water heater. However,
for these findings to have any significance, DOE would also need
evidence to show that the water draw sequencing of the current test
procedure at appendix E is unrepresentative. The draw sequence was
developed as a representative test method in the 2014 test procedure
rulemaking that established the UEF test method, and it considered
factors such as standby loss periods, test stand capabilities, and
water heater recovery rates (see 79 FR 40542). In the absence of
sufficient data provided by BWC or the Davis Energy Group, Inc. report
demonstrating that the current test procedure is unrepresentative, DOE
cannot conclude that the prescribed test method results in an unfair
advantage for gas-fired instantaneous water heaters over gas-fired
storage water heaters. In this standards analysis, DOE has relied on an
efficiency-level approach to identify potential standards based on UEF
ratings that are demonstrated (certified) for gas-fired instantaneous
water heaters on the basis of testing under the DOE test procedure.
Therefore, hypothetically, even if these products do benefit from
factors in the test procedure that allow them to have higher UEF
ratings, all gas-fired instantaneous water heaters would benefit
equally, and the increase in UEF is reflected in product ratings and
the efficiency levels selected for the analysis. By basing its analysis
around commercially available products and their certified ratings in
the product classes separately, DOE is ensuring that the standards it
is setting for gas-fired instantaneous water heaters are reflective of
these products' performance under the appendix E test procedure. DOE
used a similar approach for all other types of consumer water heaters
(e.g., gas-fired storage water heaters) when it finalized amended
standards in a May 6, 2024 final rule pertaining to those products. 89
FR 37778.
D. Technological Feasibility
1. General
As discussed, any new or amended energy conservation standard must
be designed to achieve the maximum improvement in energy efficiency
that DOE determines is technologically feasible and economically
justified. (42 U.S.C. 6295(o)(2)(A))
To determine whether potential amended standards would be
technologically feasible, DOE first develops a list of all known
technologies and design options that could improve the efficiency of
the products or equipment that are the subject of the rulemaking. DOE
considers technologies incorporated in commercially available products
or in working prototypes to be ``technologically feasible.'' 10 CFR
part 430, subpart C, appendix A, sections 6(a)(3)(iii)(A) and 7(b)(1).
Section IV.A.2 of this document discusses the technology options
identified by DOE for this analysis. For further details on the
technology assessment conducted for this final rule, see chapter 3 of
the final rule technical support document (``TSD'').
After DOE has determined which, if any, technologies and design
options are technologically feasible, it further evaluates each
technology and design option in light of the following additional
screening criteria: (1) practicability to manufacture, install, and
service; (2) adverse impacts on product utility or availability; (3)
adverse impacts on health or safety; and (4) unique-pathway proprietary
technologies. 10 CFR part 430, subpart C, appendix A, sections
6(a)(3)(iii)(B) through (E) and 7(b)(2) through (5). Those technology
options that are ``screened out'' based on these criteria are not
considered further. Those technology and design options that are not
screened out are considered as the basis for higher efficiency levels
that DOE could consider for potential amended standards. Section IV.B
of this document discusses the results of this screening analysis
conducted for this final rule. For further details on the screening
analysis conducted for this final rule, see chapter 4 of the final rule
TSD.
2. Maximum Technologically Feasible Levels
EPCA requires that for any proposed rule that prescribes an amended
or new energy conservation standard, or prescribes no amendment or no
new standard for a type (or class) of covered product, DOE must
determine the maximum improvement in energy efficiency or maximum
reduction in energy use that is technologically feasible for each type
(or class) of covered products. (42 U.S.C. 6295(p)(1)) Accordingly, in
the engineering analysis, DOE identifies the maximum efficiency level
currently available on the market. DOE also defines a ``max-tech''
efficiency level, representing the maximum theoretical efficiency that
can be achieved through the application of all available technology
options retained from the screening analysis.\28\ In many cases, the
max-tech efficiency level is not commercially available because it is
not currently economically feasible.
---------------------------------------------------------------------------
\28\ In applying these design options, DOE would only include
those that are compatible with each other that when combined, would
represent the theoretical maximum possible efficiency.
---------------------------------------------------------------------------
The max-tech levels that DOE determined for this analysis are
described in section IV.C.1.a of this document and in chapter 5 of the
final rule TSD.
E. Energy Savings
1. Determination of Savings
For each TSL, DOE projected energy savings from application of the
TSL to gas-fired instantaneous water heaters purchased during the 30-
year period that begins in the first year of compliance with the
amended standards (2030-2059).\29\ The savings are measured over the
entire lifetime of products purchased during the 30-year
[[Page 105203]]
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.
---------------------------------------------------------------------------
\29\ DOE also presents a sensitivity analysis that considers
impacts for products shipped in a 9-year period.
---------------------------------------------------------------------------
DOE used its national impact analysis (``NIA'') spreadsheet models
to estimate NES from potential amended standards for gas-fired
instantaneous water heaters. The NIA spreadsheet model (described in
section IV.H of this document) calculates energy savings in terms of
site energy, which is the energy directly consumed by products at the
locations where they are used. For electricity, DOE reports NES in
terms of primary energy savings, which is the savings in the energy
that is used to generate and transmit the site electricity. For natural
gas, the primary energy savings are considered to be equal to the site
energy savings. DOE also calculates NES in terms of FFC energy savings.
The FFC metric includes the energy consumed in extracting, processing,
and transporting primary fuels (i.e., coal, natural gas, petroleum
fuels), and thus presents a more complete picture of the impacts of
energy conservation standards.\30\ 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.
---------------------------------------------------------------------------
\30\ The FFC metric is discussed in DOE's statement of policy
and notice of policy amendment. 76 FR 51282 (Aug. 18, 2011), as
amended at 77 FR 49701 (Aug. 17, 2012).
---------------------------------------------------------------------------
2. Significance of Savings
To adopt any new or amended standards for a covered product, DOE
must determine that such action would result in significant energy
savings. (42 U.S.C. 6295(o)(3)(B))
The significance of energy savings offered by a new or amended
energy conservation standard cannot be determined without knowledge of
the specific circumstances surrounding a given rulemaking.\31\ For
example, some covered products and equipment have most of their energy
consumption occur during periods of peak energy demand. The impacts of
these products on the energy infrastructure can be more pronounced than
the impacts of products with relatively constant demand. Accordingly,
DOE evaluates the significance of energy savings on a case-by-case
basis, taking into account the significance of cumulative FFC national
energy savings, the cumulative FFC emissions reductions, and the need
to confront the global climate crisis, among other factors.
---------------------------------------------------------------------------
\31\ The numeric threshold for determining the significance of
energy savings established in a final rule published on February 14,
2020 (85 FR 8626, 8670) was subsequently eliminated in a final rule
published on December 13, 2021 (86 FR 70892).
---------------------------------------------------------------------------
As stated, the standard levels adopted in this final rule are
projected to result in NES of 0.58 quad, the equivalent of the primary
annual energy use of about 4 million homes. Based on the amount of FFC
savings, the corresponding reduction in emissions, and the need to
confront the global climate crisis, DOE has determined the energy
savings from the standard levels adopted in this final rule are
``significant'' within the meaning of 42 U.S.C. 6295(o)(3)(B).
F. Economic Justification
1. Specific Criteria
As noted previously, EPCA provides seven factors to be evaluated in
determining whether a potential energy conservation standard is
economically justified. (42 U.S.C. 6295(o)(2)(B)(i)(I)(VII)) The
following sections discuss how DOE has addressed each of those seven
factors in this rulemaking.
a. Economic Impact on Manufacturers and Consumers
In determining the impacts of potential new or amended standards on
manufacturers, DOE conducts a manufacturer impact analysis (``MIA''),
as discussed in section IV.J of this document. First, DOE uses an
annual cash-flow approach to determine the quantitative impacts. This
step includes both a short-term assessment--based on the cost and
capital requirements during the period between when a regulation is
issued and when entities must comply with the regulation--and a long-
term assessment over a 30-year period. The industry-wide impacts
analyzed include: (1) INPV, which values the industry on the basis of
expected future cash flows; (2) cash flows by year; (3) changes in
revenue and income; and (4) other measures of impact, as appropriate.
Second, DOE analyzes and reports the impacts on different types of
manufacturers, including impacts on small manufacturers. Third, DOE
considers the impact of standards on domestic manufacturer employment
and manufacturing capacity, as well as the potential for standards to
result in plant closures and loss of capital investment. Finally, DOE
takes into account cumulative impacts of various DOE regulations and
other regulatory requirements on manufacturers.
For individual consumers, measures of economic impact include the
changes in LCC and PBP associated with new or amended standards. These
measures are discussed further in the following section. For consumers
in the aggregate, DOE also calculates the national NPV of the consumer
costs and benefits expected to result from particular standards. DOE
also evaluates the impacts of potential standards on identifiable
subgroups of consumers that may be affected disproportionately by a
standard.
b. Savings in Operating Costs Compared To Increase in Price (LCC and
PBP)
EPCA requires DOE to consider the savings in operating costs
throughout the estimated average life of the covered product in the
type (or class) compared to any increase in the price of, or in the
initial charges for, or maintenance expenses of, the covered product
that are likely to result from a standard. (42 U.S.C.
6295(o)(2)(B)(i)(II)) DOE conducts this comparison in its LCC and PBP
analysis.
The LCC is the sum of the purchase price of a product (including
its installation) and the operating cost (including energy,
maintenance, and repair expenditures) discounted over the lifetime of
the product. The LCC analysis requires a variety of inputs, such as
product prices, product energy consumption, energy prices, maintenance
and repair costs, product lifetime, and discount rates appropriate for
consumers. To account for uncertainty and variability in specific
inputs, such as product lifetime and discount rate, DOE uses a
distribution of values, with probabilities attached to each value.
The PBP is the estimated amount of time (in years) it takes
consumers to recover the increased purchase cost (including
installation) of a more-efficient product through lower operating
costs. DOE calculates the PBP by dividing the change in purchase cost
due to a more-stringent standard by the change in annual operating cost
for the year that standards are assumed to take effect.
For its LCC and PBP analysis, DOE assumes that consumers will
purchase the covered products in the first year of compliance with new
or amended standards. The LCC savings for the considered efficiency
levels are calculated relative to the case that reflects projected
market trends in the absence of new or amended standards. DOE's LCC and
PBP analysis is
[[Page 105204]]
discussed in further detail in section IV.F of this document.
c. Energy Savings
Although significant conservation of energy is a separate statutory
requirement for adopting an energy conservation standard, EPCA requires
DOE, in determining the economic justification of a standard, to
consider the total projected energy savings that are expected to result
directly from the standard. (42 U.S.C. 6295(o)(2)(B)(i)(III)) As
discussed in section IV.H, DOE uses the NIA spreadsheet models to
project NES.
d. Lessening of Utility or Performance of Products
In establishing product classes, and in evaluating design options
and the impact of potential standard levels, DOE evaluates potential
standards that would not lessen the utility or performance of the
considered products. (42 U.S.C. 6295(o)(2)(B)(i)(IV)) Based on data
available to DOE, the standards adopted in this document would not
reduce the utility or performance of the gas-fired instantaneous water
heaters under consideration in this rulemaking.
e. Impact of Any Lessening of Competition
EPCA directs DOE to consider the impact of any lessening of
competition, as determined in writing by the Attorney General, that is
likely to result from a standard. (42 U.S.C. 6295(o)(2)(B)(i)(V)) It
also directs the Attorney General to determine the impact, if any, of
any lessening of competition likely to result from a standard and to
transmit such determination to the Secretary within 60 days of the
publication of a proposed rule, together with an analysis of the nature
and extent of the impact. (42 U.S.C. 6295(o)(2)(B)(ii)) To assist the
Department of Justice (``DOJ'') in making such a determination, DOE
transmitted copies of its proposed rule and the NOPR TSD to the
Attorney General for review, with a request that the DOJ provide its
determination on this issue. In its assessment letter responding to
DOE, DOJ concluded that the proposed energy conservation standards for
gas-fired instantaneous water heaters are unlikely to substantially
lessen competition. DOE is publishing the Attorney General's assessment
at the end of this final rule.
In response to the July 2023 NOPR, Rinnai asserted that eliminating
non-condensing gas-fired instantaneous water heaters from the market
would create detrimental effects on competition by limiting consumer
choice, raising prices on more efficient products, eliminating
consumers' option to make like-for-like product replacements, all of
which would place Rinnai at a disadvantage as a smaller competitor in a
concentrated water heater market. (Rinnai, No. 1186 at p. 7) In
response to the July 2024 NODA, Rinnai commented that the consumer
water heater market is already a highly concentrated market with three
dominant players, and that moving to a standard for gas-fired
instantaneous water heaters that requires condensing technology would
impede competition. (Rinnai, No. 1443 at p. 22)
DOE recognizes the importance of competition in the marketplace.
For this final rule, DOE reviewed its Compliance Certification
Database,\32\ Air-Conditioning, Heating, and Refrigeration Institute's
Directory of Certified Product Performance,\33\ California Energy
Commission's Modernized Appliance Efficiency Database System,\34\ and
the ENERGY STAR Product Finder dataset \35\ to ensure an up-to-date
assessment of gas-fired instantaneous water heater manufacturers
operating in the United States. Through its review, DOE identified 12
OEMs of gas-fired instantaneous water heaters subject to more stringent
standards under this rulemaking. All 12 OEMs already manufacture
condensing gas-fired instantaneous water heaters. Of these 12
manufacturers, 10 manufacturers, including Rinnai, manufacture products
that meet the standards adopted in this final rule. Collectively, these
10 OEMs offer 71 basic models (accounting for 51 percent of model
listings and 60 percent of shipments in 2024) that meet the adopted
level (TSL 2). Thus, a variety of companies already participate in the
condensing gas-fired instantaneous water heater market. Comparatively,
only eight OEMs currently manufacture non-condensing gas-fired
instantaneous water heaters. See chapter 3 of the final rule TSD for a
complete list of manufacturers of gas-fired instantaneous water
heaters. Based on Rinnai's comments in response to the July 2023 NOPR,
DOE understands that Rinnai's market share of non-condensing gas-fired
instantaneous water heaters is 60 percent and their market share of
condensing gas-fired instantaneous water heater sales is 20 percent.
(Rinnai No. 1186 at p. 1) Given that all 12 manufacturers already offer
condensing gas-fired instantaneous water heater products, DOE does not
anticipate lessening of competition in the gas-fired instantaneous
water heater market; which is estimated to represent 14 percent of the
total consumer water heater market in 2030. As previously discussed,
this conclusion is also supported by the DOJ's assessment letter.
---------------------------------------------------------------------------
\32\ U.S. Department of Energy's Compliance Certification
Database is available at regulations.doe.gov/certification-data
(last accessed July 19, 2024).
\33\ Air-Conditioning, Heating and Refrigeration Institute's
Directory of Certified Product Performance is available at https://ahridirectory.org/search/searchhome?Returnurl=%2f (last accessed
July 23, 2024).
\34\ California Energy Commission's Modernized Appliance
Efficiency Database System is available at
cacertappliances.energy.ca.gov/Pages/Search/AdvancedSearch.aspx
(last accessed July 19, 2024).
\35\ ENERGY STAR Product Finder is available at
www.energystar.gov/productfinder (last accessed July 22, 2024).
---------------------------------------------------------------------------
f. Need for National Energy Conservation
DOE also considers the need for national energy and water
conservation in determining whether a new or amended standard is
economically justified. (42 U.S.C. 6295(o)(2)(B)(i)(VI)) The energy
savings from the adopted standards are likely to provide improvements
to the security and reliability of the Nation's energy system.
Reductions in the demand for electricity also may result in reduced
costs for maintaining the reliability of the Nation's electricity
system. DOE conducts a utility impact analysis to estimate how
standards may affect the Nation's needed power generation capacity, as
discussed in section IV.M of this document.
DOE maintains that environmental and public health benefits
associated with the more efficient use of energy are important to take
into account when considering the need for national energy
conservation. The adopted standards are likely to result in
environmental benefits in the form of reduced emissions of air
pollutants and GHGs associated with energy production and use. DOE
conducts an emissions analysis to estimate how potential standards may
affect these emissions, as discussed in section IV.K of this document;
the estimated emissions impacts are reported in section V.B.6 of this
document. DOE also estimates the economic value of emissions reductions
resulting from the considered TSLs, as discussed in section IV.L of
this document.
g. Other Factors
In determining whether an energy conservation standard is
economically justified, DOE may consider any other factors that the
Secretary deems to be relevant. (42 U.S.C. 6295(o)(2)(B)(i)(VII)) To
the extent DOE identifies any relevant information regarding
[[Page 105205]]
economic justification that does not fit into the other categories
described previously, DOE could consider such information under ``other
factors.''
2. Rebuttable Presumption
As set forth in 42 U.S.C. 6295(o)(2)(B)(iii), EPCA creates a
rebuttable presumption that an energy conservation standard is
economically justified if the additional cost to the consumer of a
product that meets the standard is less than three times the value of
the first year's energy savings resulting from the standard, as
calculated under the applicable DOE test procedure. DOE's LCC and PBP
analyses generate values used to calculate the effect potential amended
energy conservation standards would have on the PBP for consumers.
These analyses include, but are not limited to, the 3-year PBP
contemplated under the rebuttable-presumption test. In addition, DOE
routinely conducts an economic analysis that considers the full range
of impacts to consumers, manufacturers, the Nation, and the
environment, as required under 42 U.S.C. 6295(o)(2)(B)(i). The results
of this analysis serve as the basis for DOE's evaluation of the
economic justification for a potential standard level (thereby
supporting or rebutting the results of any preliminary determination of
economic justification). The rebuttable presumption payback calculation
is discussed in section IV.F of this final rule.
IV. Methodology and Discussion of Related Comments
This section addresses the analyses DOE has performed for this
rulemaking with regard to gas-fired instantaneous water heaters.
Separate subsections address each component of DOE's analyses.
DOE used several analytical tools to estimate the impact of the
standards considered in this document. The first tool is a spreadsheet
that calculates the LCC savings and PBP of potential amended or new
energy conservation standards. The NIA uses a second spreadsheet set
that provides shipments projections and calculates NES and NPV of total
consumer costs and savings expected to result from potential energy
conservation standards. DOE uses the third spreadsheet tool, the
Government Regulatory Impact Model (``GRIM''), to assess manufacturer
impacts of potential standards. These three spreadsheet tools are
available on the DOE website for this rulemaking: www.regulations.gov/docket/EERE-2017-BT-STD-0019. Additionally, DOE used output from the
latest version of the Energy Information Administration's (``EIA's'')
Annual Energy Outlook (``AEO'') for the emissions and utility impact
analyses.
A. Market and Technology Assessment
DOE develops information in the market and technology assessment
that provides an overall picture of the market for the products
concerned, including the purpose of the products, the industry
structure, manufacturers, market characteristics, and technologies used
in the products. This activity includes both quantitative and
qualitative assessments, based primarily on publicly-available
information. The subjects addressed in the market and technology
assessment for this rulemaking include: (1) a determination of the
scope of the rulemaking and product classes, (2) manufacturers and
industry structure, (3) existing efficiency programs, (4) shipments
information, (5) market and industry trends, and (6) technologies or
design options that could improve the energy efficiency of gas-fired
instantaneous water heaters. The key findings of DOE's market
assessment are summarized in the following sections. See chapter 3 of
the final rule TSD for further discussion of the market and technology
assessment.
1. Product Classes
When evaluating and establishing or amending energy conservation
standards, DOE establishes separate standards for a group of covered
products (i.e., establish a separate product class) based on the type
of energy used, or if DOE determines that a product's capacity or other
performance-related feature justifies a different standard. (42 U.S.C.
6295(q)) In making a determination whether a performance-related
feature justifies a different standard, DOE considers such factors as
the utility of the feature to the consumer and other factors DOE
determines are appropriate. (Id.)
EPCA, as amended by the National Appliance Energy Act (NAECA; Pub.
L. 100-12), established initial energy conservation standards for
consumer water heaters, expressed in EF, that were based on three
product classes differentiated by fuel type: (1) gas-fired, (2) oil-
fired, and (3) electric. (42 U.S.C. 6295(e)(1)) These standards applied
to consumer water heaters manufactured on or after January 1, 1990.
Gas-fired instantaneous water heaters were, at the time, required to
comply with the same EF standards as gas-fired storage water heaters
because the standards were not differentiated by storage versus
instantaneous water heaters.
DOE subsequently amended these EF standards twice, most recently in
the April 2010 Final Rule, with which compliance was required starting
on April 16, 2015. 75 FR 20112. By the April 2010 Final Rule, DOE had
further divided gas-fired consumer water heaters into product classes
based on demand type (storage, instantaneous), storage volume, and
input rate. While the April 2010 Final Rule had separate standards for
gas-fired instantaneous water heaters and gas-fired storage water
heaters, DOE did not adopt standards for gas-fired instantaneous water
heaters with less than 50,000 Btu/h of input because, at that time,
there were no such low-input gas-fired instantaneous water heaters
available on the market. Id. at 75 FR 20127.
Most recently, the December 2016 Conversion Factor Final Rule,
published and effective on December 29, 2016, translated the EF-based
standards to UEF-based standards. 81 FR 96204. In doing so, separate
product classes were created for each of the four draw patterns (very
small, low, medium, and high) in the UEF test procedure. However, due
to concerns that the UEF test procedure would not apply to gas-fired
instantaneous water heaters 2 gallons or larger at the time, DOE
determined that the translated UEF-based standards would apply only to
gas-fired instantaneous water heaters with less than 2 gallons of
storage volume. Id. at 81 FR 96205. As a result, UEF-based standards
were established only for gas-fired instantaneous water heaters with
less than 2 gallons of storage volume and more than 50,000 Btu/h of
input. Id. at 81 FR 96205. As discussed in the December 2016 Conversion
Factor Final Rule, the standards established in EPCA do not define a
minimum fuel input rate or maximum storage volume for gas-fired
instantaneous water heaters; therefore, the original standards
established by EPCA in terms of EF remained applicable to all gas-fired
instantaneous water heaters without UEF-based standards. Id. at 81 FR
96209-96211. The four product classes for which DOE has currently
established UEF-based standards are summarized in table IV.1. The
product classes without UEF-based standards, for which EF-based
standards from EPCA apply, are shown in table IV.2.
[[Page 105206]]
Table IV.1--Gas-Fired Instantaneous Water Heater Product Classes With
Current UEF-Based Standards
------------------------------------------------------------------------
Rated storage
Product type volume and input Draw patterns
rating
------------------------------------------------------------------------
Instantaneous Gas-Fired Water <2 gal and >50,000 Very Small.
Heater. Btu/h. Low.
Medium.
High.
------------------------------------------------------------------------
Table IV.2--Gas-Fired Instantaneous Water Heater Product Classes Without
Current UEF-Based Standards
------------------------------------------------------------------------
Rated storage volume and input
Product class rating (if applicable)
------------------------------------------------------------------------
Gas-fired Instantaneous................ <2 gal and <=50,000 Btu/h.
>=2 gal.
------------------------------------------------------------------------
In response to the July 2024 NODA, A.O. Smith noted that the
conversion factor rulemaking did not establish a product class for gas-
fired instantaneous water heaters >=2 gallons and <=200,000 Btu/h. A.O.
Smith noted that, while the intent of the December 2016 Conversion
Factor Final Rule was to satisfy the requirements of AEMTCA, DOE is not
statutorily required under EPCA to establish standards in terms of UEF
for the entirety of this product class because some products meet the
criteria for exclusion on account of being commercial equipment. (A.O.
Smith, No. 1440 at p. 3) A.O. Smith claimed that the hot water delivery
capacity, as a function of input capacity and storage volume, of a
subset of products in the >=2 gallon, <=200,000 Btu/h proposed product
class for gas-fired instantaneous water heaters includes equipment that
would not be used or installed residentially and would only be suitable
for commercial applications. A.O. Smith noted that equipment meeting
the capacity ranges of the proposed product class already exist on the
market and are exclusively used in commercial applications. (A.O.
Smith, No. 1440 at pp. 3-4) A.O. Smith recommended that DOE re-evaluate
the gas-instantaneous water heater product class structure and avoid
prescribing a UEF test metric and standard for these water heaters
where the UEF metric is inappropriate. A.O. Smith noted that EPCA's
definition for commercial gas-fired instantaneous water heaters does
not include a minimum input or volume limit and claimed that it does
not prevent DOE from specifying a reasonable storage volume threshold
for gas-fired instantaneous water heaters above which the product would
be rated to commercial metrics and considered as commercial equipment.
(A.O. Smith, No. 1440 at p. 4)
As stated earlier, in the December 2016 Conversion Factor Final
Rule, DOE determined that the translated UEF-based standards would
apply only to gas-fired instantaneous water heaters with less than 2
gallons of storage volume due to concerns at the time that the UEF test
procedure would not apply to gas-fired instantaneous water heaters 2
gallons or larger. 81 FR 96204, 96205. However, after conducting the
market assessment for this rulemaking, DOE is now aware of multiple
gas-fired instantaneous water heaters with 2 or more gallons of storage
volume presently on the market. These products are specifically
marketed for residential applications in publicly available product
listings and literature.36 37 DOE is not aware of, nor has
A.O. Smith provided, evidence suggesting that products in this product
class are designed or marketed exclusively for commercial applications.
As such, products in this size range have demonstrated residential use
and therefore do not meet the requirement for exclusion from the UEF
descriptor as specified at 42 U.S.C. 6295(e)(5)(F)(i).
---------------------------------------------------------------------------
\36\ American Water Heaters. See the ProLine[supreg] XE
Polaris[supreg] PG10-34-150-2NV 34-gallon ``Commercial-Grade
Residential Gas Water Heater'' with 150,000 Btu input rate.
Information available online at www.americanwaterheater.com/media/28107/nrgss03316.pdf (Last accessed Aug. 29, 2024).
\37\ HTP. See the ``High Efficiency Crossover Floor Water
Heater,'' with information provided to compare against typical
residential 50-gallon gas-fired storage water heaters and tankless
199,000 Btu/h gas-fired instantaneous water heaters. Information
available online at www.htproducts.com/literature/mktlit-117.pdf
(Last accessed Aug. 27, 2024).
---------------------------------------------------------------------------
In response to the July 2023 NOPR, some stakeholders provided
comments specific to the proposed standards for gas-fired instantaneous
water heaters in reference to the ``unavailability provision'' found in
EPCA, 42 U.S.C. 6295(o)(4). DOE indicated that these comments would not
be addressed in the May 2024 Final Rule. 89 FR 37778, 37814. After
further consideration of these comments DOE is addressing them in this
final rule. Relatedly, DOE received a multitude of comments throughout
this rulemaking pertaining to a potential product class structure that
differentiates between non-condensing and condensing products.
Per 42 U.S.C. 6295(o)(4), which outlines certain criteria for
prescribing new or amended standards, the Secretary may not prescribe
an amended or new standard under this section if the Secretary finds
(and publishes such finding) that interested persons have established
by a preponderance of the evidence that the standard is likely to
result in the unavailability in the United States in any covered
product type (or class) of performance characteristics (including
reliability), features, sizes, capacities, and volumes that are
substantially the same as those generally available in the United
States at the time of the Secretary's finding. The failure of some
types (or classes) to meet this criterion shall not affect the
Secretary's determination of whether to prescribe a standard for other
types (or classes).
Briefly, condensing and non-condensing products differ in how
efficiently they make use of flue gas heat. A baseline gas-fired
instantaneous water heater relies on a single heat exchanger, which
extracts heat energy from the flue gases and transfers it to the water
being delivered to the consumer. However, these flue gases contain more
heat energy than the baseline heat exchanger is able to extract and, as
a result, much of the heat in the flue gases is lost as they are
exhausted outdoors. Enhancements to the heat exchanger--including the
use of a secondary heat exchanger--enable high-efficiency gas-fired
instantaneous water heaters to extract much more of the energy
available in the flue gases. When enough energy is extracted by the
heat exchangers, the flue gases cool to the point where they begin to
condense,
[[Page 105207]]
forming liquid condensate. This results in a significant rise in
efficiency. See chapter 3 of the final rule TSD for further discussion
of condensing heat exchangers.
As noted in the comments submitted by NPGA, APGA, AGA, and Rinnai
in response to the July 2023 NOPR, the UEF requirements for gas-fired
instantaneous water heaters as proposed in the July 2023 NOPR would
require condensing technology. (NPGA, APGA, AGA, and Rinnai, No. 441 at
pp. 2-3) Rinnai contended that the proposed rule exceeds DOE's
authority because it is in conflict with statutory provisions in EPCA,
most notably the unavailability provision. Rinnai added that if the
proposed rule were adopted, it would eliminate non-condensing tankless
water heaters, one of its product offerings. (Rinnai, No. 1186 at p. 2)
Rinnai further argued that DOE may not make non-condensing gas-fired
instantaneous water heaters unavailable pursuant to the section
6295(o)(4) of EPCA (the ``unavailability provision''). Rinnai cited to
DOE's interpretation of the unavailability provision in a recent
rulemaking for residential furnaces and commercial water heaters and
suggested that DOE's interpretation of the provision is unduly narrow
and not supported by the provision's plain language.\38\ (Rinnai, No.
1186 at p. 9) Rinnai noted that there is no reference to ``consumer
utility'' in the unavailability provision detailed in section
6295(o)(4) of EPCA. Rinnai stated that, rather than relying on the
plain language of section 6295(o)(4) itself, DOE's interpretation of
the unavailability provision in section 6295(o)(4) of EPCA relies on
reading section 6295(q) as a redundant companion provision to section
6295(o)(4) and suggested there is no basis to do so. Rinnai added that
this misinterpretation constitutes an evasion of the limits placed on
DOE's authority by section 6295(o)(4) of EPCA. (Rinnai, No. 1186 at p.
10)
---------------------------------------------------------------------------
\38\ DOE finds the better reading of the term ``features'' in
the unavailability provision (i.e., those features that cannot be
eliminated by the establishment of a new or amended energy
conservation standard) to be those features that provide a consumer
unique utility during the operation of the appliance in performance
of its major function(s). Stated another way, the ``features''
provision and the related utility of such features pertain to those
aspects of the appliance with which the consumer interacts during
the operation of the product (i.e., when the product is providing
its ``useful output'') and the utility derived from those features
during normal operation. 86 FR 73947, 73955.
---------------------------------------------------------------------------
Rinnai stated that even if DOE's interpretation of the
unavailability provision in section 6295(o)(4) of EPCA is taken as
correct, non-condensing gas-fired instantaneous water heaters still
provide utility because the consumer's operation of, or interaction
with, the appliance necessarily depends on whether or not the appliance
can be installed. Rinnai added that installation costs should be
considered under the unavailability provision in section 6295(o)(4) of
EPCA, not just as part of determining whether or not a standard is
economically justified. (Rinnai, No. 1186 at pp. 10-11) Similarly, ONE
Gas claimed that DOE's proposed standards for gas-fired instantaneous
water heaters violate section 6295(o)(4) of EPCA because the
unavailability provision is not only limited to product classes and
types, but also certain performance characteristics including,
features, reliability, sizes, capacities, and volumes within those
product classes and types. ONE Gas asserted that DOE's association of
customer utility with understanding of, and interaction with, the
covered appliance is incorrect and is an overreach in interpretation of
section 6295 of EPCA. (ONE Gas, No. 1200 at pp. 4-5)
In response to the July 2024 NODA, Rinnai reiterated its position
that non-condensing gas-fired instantaneous water heaters have useful
and valuable features, including the ability to have like-for-like
replacements, compatibility for easier and wider applications of
installations, compatibility with non-condensing venting, smaller space
requirements, and greater efficiency at lower cost than gas-fired
storage water heaters. Rinnai claimed that there is no sound statutory
basis for DOE's refusal to recognize that non-condensing gas-fired
instantaneous water heaters have distinct features and characteristics
from those of condensing gas-fired instantaneous water heaters that
provide utility to consumers. Rinnai stated that DOE could instead
establish separate standards for condensing and non-condensing gas-
fired instantaneous water heaters to recognize the different functions,
capabilities, and installation requirements while preserving consumer
choice, and therefore retain the increased energy efficiency standard
for condensing gas-fired instantaneous water heaters. Rinnai requested
that DOE run an analysis of this proposal with product substitution and
other factors taken properly into account. (Rinnai, No. 1443 at pp. 4-
5)
Regarding Rinnai's request for further analysis on product
substitution, see section IV.F.10 of this document for further details.
Regarding Rinnai's assertion that DOE's interpretation of the
unavailability provision requires a redundant reading of 42 U.S.C.
6295(q) to 42 U.S.C. 6295(o)(4), DOE notes that while these provisions
are related, they are not redundant. EPCA provides DOE authority to
establish product classes with different standard levels under 42
U.S.C. 6295(q). Under this authority, DOE has to determine if a
performance-related feature justifies a different standard, i.e., is
worth preserving in the market, by considering, among other things,
utility to the consumer. In contrast, for the performance
characteristics, features, sizes, capacities, and volumes protected
under the unavailability provision, Congress has already made the
determination that they should be preserved in the market. DOE uses its
authority under the product class provision at 42 U.S.C. 6295(q) to
then ensure that these performance characteristics, features, sizes,
capacities, and volumes are preserved in the market. Without the
product class authority, DOE would have to set one standard for a
covered product that preserves every aspect of a covered product
protected under the unavailability provision. For example, larger
capacity gas-fired storage water heaters are generally less-efficient
than smaller capacity units because standby losses are higher for
larger capacity storage tanks. As a result, the lower efficiency of the
largest capacity models could limit DOE's ability to set standards
under 42 U.S.C. 6295(o)(4). But 42 U.S.C. 6295(q) lets DOE set a more-
stringent standard for smaller capacity gas-fired storage water heaters
that saves more energy and a less-stringent standard for larger
capacity gas-fired storage water heaters that helps preserve their
presence in the market. Finally, it is important to note that the
product class provision is not just limited to implementing the
unavailability provision. As the product class provision contemplates
that the utility of some performance-related features to the consumer
may not justify preservation in the market under a separate product
class, it is clear that Congress intended this provision to apply to a
larger set of performance-related features than would be protected
under the unavailability provision.
As for Rinnai's statement that there is no reference to ``consumer
utility'' in the unavailability provision detailed in section
6295(o)(4) of EPCA, Rinnai's own comment also cited a House of
Representatives report that stated the purpose of the unavailability
provision is to ensure that an amended standard does not deprive
consumers of product choices and characteristics, features, sizes,
etc., and that significant energy savings can be achieved without
[[Page 105208]]
sacrificing the utility of an appliance to a consumer. (Rinnai, No.
1186 at pp. 10). Performance characteristics, features, sizes,
capacities, and volumes all offer some utility or benefit to the
consumer. To the extent that Rinnai is suggesting that the protection
of the unavailability provision in EPCA should be extended to aspects
of a covered product that offer no utility to a consumer during
operation, like the less-efficient heat exchanger design of a non-
condensing gas-fired water heater, or whether the venting material is
plastic or stainless steel, DOE strongly disagrees. Any interpretation
of the unavailability provision not based on the assumption that
Congress was concerned with preserving the utility of covered products,
results in a regulatory framework where DOE is forced to create so many
product classes that achieving any significant amount of energy savings
is all but impossible.
DOE also disagrees with Rinnai's contention that the specific
provisions of the unavailability provision--performance characteristics
(including reliability), features, sizes, capacities, and volumes--
should be read to also include, among other things, ``installation
costs'' and ``greater efficiency at lower cost than gas-fired storage
water heaters.'' Extending the unavailability provision to installation
costs and efficiency is demonstrably an impossibly broad interpretation
of what DOE is expected to preserve in the market under the
unavailability provision. Efficiency is certainly a performance
characteristic of a water heater as it measures how well a water heater
performs its intended function. However, it would be nonsensical for
efficiency to be a performance characteristic under the unavailability
provision as the express purpose of the statute is to improve the
energy efficiency of covered products and equipment, i.e., eliminate
less-efficient products and equipment from the market. Furthermore,
cost is certainly a feature of a product. Arguably, it is one of the
most important features of a product to a consumer. But again, the
energy-saving purposes of EPCA would be frustrated if DOE were required
to set standards under the unavailability provision that maintain less-
energy-efficient covered products based solely on the fact that they
cost less to install. Instead, EPCA expressly contemplates increases in
the installed cost of a covered product or equipment in the economic
justification analysis where DOE is directed to consider, among other
things, the savings in operating costs compared to any increase in the
initial and maintenance costs of a covered product. (42 U.S.C.
6295(o)(2)(B)(i)(II)). At bottom, Rinnai's argument is that DOE may not
eliminate one water-heating option (non-condensing gas instantaneous
water heaters) if that option is cheaper to install than another,
different option (condensing gas-fired instantaneous water heaters).
But, Congress made it clear that kind of comparative assessment is to
be done as part of the economic analysis and has no role under the
unavailability provision. As discussed at length elsewhere in this
document, DOE's economic analysis considers the extent to which its
standards for gas-fired instantaneous water heaters will affect the
market.
Additionally, in determining whether a standard is economically
justified under EPCA, DOE is directed, among other things, to consider
any lessening of the utility or performance of the covered product
likely to result from the standard. Thus, extending the unavailability
provision to preserve any performance characteristic or feature would
frustrate EPCA's purpose and statutory scheme. Simply put, EPCA
requires DOE to adopt standards set at the maximum improvement in
energy efficiency determined to be technologically feasible and
economically justified. EPCA anticipates that new or amended energy
conservation standards will result in the unavailability of certain
inefficient technologies. An overly broad reading of the unavailability
provision to include attributes of the covered product not addressed by
the text of that provision (i.e., efficiency, costs, installation
costs, etc.) would be at odds with the statute's energy-saving
purposes. Similarly, DOE disagrees with reading other qualifiers into
the unavailability provisions, including ``like-for-like replacements,
compatibility for easier and wider applications of installations,
compatibility with non-condensing venting, smaller space
requirements.'' As discussed further below, an existing non-condensing
gas-fired instantaneous water heater can always be replaced with a
condensing gas-fired instantaneous water heater in the same place
(i.e., it is always technically feasible).
As discussed previously, DOE's interpretation of the unavailability
provision does not require a redundant reading of 42 U.S.C. 6295(q).
Instead, DOE interprets these two provisions as complementing one
another. EPCA provides DOE some discretionary authority to establish
product classes with different standard levels under 42 U.S.C. 6295(q).
Under this authority, DOE has to determine if a performance-related
feature justifies a different standard by considering, among other
things, utility to the consumer. And based on DOE's own research as
well as information presented in stakeholder comments, differences in
cost or complexity of installation between different methods of venting
(e.g., a condensing water heater versus a non-condensing water heater)
do not make specific methods of venting a performance-related feature
under 42 U.S.C. 6295(q)(1)(B), so as to justify separating the products
into different product classes. In reaching this determination, DOE
considered Category III venting (for non-condensing designs) and
Category IV venting (for condensing designs), which are associated but
external to the covered product, and concluded that condensing gas-
fired instantaneous water heaters can be installed in the same
locations where non-condensing gas-fired water heaters are currently
installed. As stated throughout this rulemaking, installation costs and
considerations are very relevant to the establishment of energy
conservation standards, and are accounted for in the LCC analysis to
determine the economic justification of standards.
Unlike specific methods of venting, a covered product's capacity is
addressed under the unavailability provision in 42 U.S.C. 6295(o)(4),
and described under the product class provision in 42 U.S.C.
6295(q)(1)(B). DOE notes that a water heater's capacity provides
utility to a consumer during use (unlike the type of venting or
installation costs). For example, water heaters with higher capacities
enable consumers to run multiple applications requiring hot water at
the same time. Further, DOE is required to preserve the utility offered
by larger capacity water heaters in the market under the unavailability
provision in 42 U.S.C. 6295(o)(4). Unlike capacity, a lower
installation cost has no effect on the performance of a water heater
and offers no utility to a consumer during use. In addition to
capacity, DOE has also established product classes for water heaters
based on: volumes (e.g., a division at 2 gallons), input rating (e.g.,
a division at 50,000 Btu/h), delivery capacities (e.g., divisions for
the very small, low, medium, and high usage patterns), and demand type
(e.g., storage versus instantaneous); in addition to distinguishing by
context and applications (e.g., consumer product versus commercial
equipment) as well as fuel types (e.g., gas-fired, oil-fired, or
[[Page 105209]]
electric) as required under 42 U.S.C. 6295(q)(1)(A).
APCA opposed DOE's proposed standards for gas-fired instantaneous
water heaters because these standards would require condensing
operation. (APCA, No. 1152 at p. 1) The Governor of Georgia commented
that the proposed standards would limit consumer choice by reducing the
availability of many non-condensing tankless water heaters currently on
the market, negatively impact consumers through increased product
costs, and contradict EPCA requirements. (Governor of Georgia, No. 1157
at pp. 1-3)
ONE Gas indicated that non-condensing/positive vent pressure gas-
fired instantaneous water heaters peak at approximately 0.82 UEF and
that UEF ratings from 0.89 to 0.93 would be technologically infeasible
for non-condensing products. (ONE Gas, No. 1200 at pp. 2-3) Huntsville
Utilities expressed opposition to the proposed standards for gas-fired
water heaters, adding that it is especially concerned with the proposed
standards for gas-fired instantaneous water heaters that require an
efficiency level over 91 percent, effectively eliminating the non-
condensing option for this product class. (Huntsville Utilities, No.
1176 at p. 1) JEA, WMU, PGW, Southeast Gas, CEA, ASGE and ONE Gas
stated that the proposed standard for gas-fired water heaters would
effectively eliminate the option of a non-condensing instantaneous
water heater and requested that DOE reassess the negative impacts on
public gas utility customers and manufacturers of water heaters that
would result from the proposed standard for gas-fired water heaters.
(JEA, No. 865 at pp. 1-2; WMU, No. 872 at pp. 1-2; PGW, No. 886 at pp.
1-2; Southeast Gas, No. 887 at pp. 1-2; CEA, No. 914 at pp. 1-2; ASGE,
No. 976 at pp. 1-2; ONE Gas, No. 1200 at p. 2)
The Gas Association Commenters expressed that the transition to
condensing-level efficiencies for gas-fired instantaneous water heaters
would result in the unavailability of products with what it considered
to be performance characteristics and features provided by non-
condensing products. This group of commenters cited comments submitted
by Rinnai, stating that non-condensing gas-fired instantaneous water
heaters can be installed and used in cases where condensing products
cannot be (e.g., in high-rise buildings, historically protected
buildings, or any other building with complications to venting
capabilities). According to EPCA, the Gas Association Commenters
stated, DOE should decline to adopt the proposed standard for gas-fired
instantaneous water heaters on the grounds that it would result in the
unavailability of products with ``performance characteristics'' and
``features'' currently available to consumers in the United States.
(Gas Association Commenters, No. 1181 at p. 7)
In response to these comments, DOE acknowledges that the standards
for gas-fired instantaneous water heaters cannot be achieved by non-
condensing designs. Nevertheless, in response to comments from ONE Gas
suggesting that the amended standards are technologically infeasible,
condensing-level standards are still technologically feasible because
condensing designs are widely available on the market. DOE has
determined that non-condensing technology does not provide any inherent
performance benefit to consumers beyond what is provided by condensing
designs. Instead, as discussed previously in this section of this
document, DOE has determined that non-condensing technology does not
constitute a performance-related feature for which a separate product
class must be established under EPCA, nor does non-condensing
technology warrant preservation under the unavailability provision.
Condensing gas-fired instantaneous water heaters can be installed in
the same locations where non-condensing gas-fired water heaters are
currently installed with proper consideration for the venting
requirements of condensing water heaters. As discussed in section
IV.F.2 of this document, the venting requirements of each type of water
heater are considered in the analysis of installation costs. Moreover,
DOE has not identified, nor have commenters provided, any specific
examples of buildings that currently use gas-fired water heaters that
cannot be retrofitted to accommodate a condensing gas-fired water
heater in place of an existing non-condensing gas-fired water heater.
DOE research indicates that historically protected buildings can be
renovated with appropriate permitting from local jurisdictions.\39\ In
the case of buildings preserved under the U.S. General Services
Administration's stewardship program, HVAC renovations have increased
energy and water efficiency.\40\ When a chimney is not used to vent the
flue gases (such as when sidewall venting is used), venting
terminations on the exterior of a building are visually unobtrusive--
far less prominent than outdoor units for air-conditioning systems that
are often installed in privately-owned homes in historic districts.
With respect to high-rise buildings, DOE has found that these buildings
are uncommonly outfitted with consumer gas-fired instantaneous water
heaters at present because these types of buildings more commonly rely
on central domestic hot water production (i.e., commercial water
heaters). This is because if consumer gas-fired instantaneous water
heaters are centrally located in a multi-family building, they could
require multiple long vents for flue gases and for combustion air,
which can be generally prohibitive for both non-condensing and
condensing products alike. However, even if gas-fired instantaneous
water heaters are located in some high-rise buildings, they can be
located near exterior walls, and therefore each unit can have separate
venting. If high-rise buildings rely on non-condensing gas-fired
instantaneous water heaters that are installed in each individual
dwelling rather than in a central location, the building would already
have venting in place (which would need to be modified to accommodate a
condensing product, resulting in added installation cost, just as any
other case). In general, as any gas-fired instantaneous water heater
would already require venting to the outside, the existing non-
condensing venting can always be converted to condensing venting. These
installation costs and considerations have been included in the
quantitative factors of the analysis. See section IV.F.2 for details on
how they are accounted for in the installation cost analysis and the
development of LCC estimates. In summary, DOE has not found any cases
where complications in venting cannot be overcome. As a result, DOE
finds that interested persons have not established by a preponderance
of the evidence that the standard is likely to result in the
unavailability of gas-fired instantaneous water heaters in certain
applications, e.g., high-rise buildings, historically protected
buildings, or any other building with complications to venting
capabilities. So, any argument that non-condensing gas-fired
instantaneous
[[Page 105210]]
water heaters should be preserved in the market under 42 U.S.C.
6295(o)(4) must be based on a performance characteristic (e.g.,
reliability), feature, size, capacity, or volume that is unique to non-
condensing gas-fired instantaneous water heaters.
---------------------------------------------------------------------------
\39\ For example, the Historic Beacon Hill District in Boston,
Massachusetts has an architectural commission to review proposed
alterations to exterior architectural features within the district
that are open to view from a public way. Guidelines for this
district are provided by the City of Boston, available at:
www.cityofboston.gov/images_documents/Beacon%20Hill%20Architectural%20Commission%20Guidelines_tcm3-17489.pdf (last accessed August 6, 2024).
\40\ See, for example, the 2023 report by The Center for
Historic Buildings, available at: www.gsa.gov/system/files/Stewardship2023_0.pdf (last accessed August 8, 2024).
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First, regarding reliability, as discussed in the March 2022
preliminary analysis and the July 2023 NOPR, standards adopted at EL 2
would result in a transition towards condensing technology for gas-
fired instantaneous water heaters (for those with less than 2 gallons
of storage volume and more than 50,000 Btu/h of rated input) but would
not result in the unavailability of reliably-performing products. (See
chapter 2 of the preliminary analysis TSD; 88 FR 49058, 49079).
Condensing gas-fired instantaneous water heaters have been on the
market for many years. DOE has noted clusters of models at condensing
efficiency levels as far back as the April 2010 Final Rule. (See table
IV.11 at 75 FR 20112, 20145, which includes condensing technology at
efficiency level 7). Over time, condensing models have only grown in
popularity. Today, about two-thirds of gas-fired instantaneous water
heater shipments are condensing products. Given this substantial market
penetration, and the fact that a significant portion of these shipments
are installed in replacement applications where the upfront cost is
likely higher than for non-condensing products, and that DOE does not
expect that consumers on a large scale would trade off efficiency for
reliability, DOE concludes that condensing gas-fired instantaneous
water heaters are likely to be just as reliable as non-condensing
models--otherwise, they would not comprise more than half of nationwide
shipments. See chapter 9 of the final rule TSD for more details on
product shipments.
Regarding sizes, capacities and volumes, gas-fired instantaneous
water heaters are typically described in terms of capacity, i.e., Btu/
hr. Based on DOE's market assessment, gas-fired instantaneous water
heaters that meet the adopted EL 2 efficiency are available over the
full range of capacities up to the maximum input that is allowable by
statute (200,000 Btu/h), and models on the market also offer modulating
burners to meet reduced demands. Therefore, no sizes, capacities or
volumes \41\ will be made unavailable as a result of DOE not separating
product classes for non-condensing and condensing gas-fired
instantaneous water heaters in this rule. As a result, DOE finds that
interested persons have not established by a preponderance of the
evidence that the standard is likely to result in the unavailability of
any sizes, capacities, or volumes of gas-fired instantaneous water
heaters that are substantially the same as those generally available in
the market.
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\41\ Consumer gas-fired instantaneous water heaters often have
little to no storage volume (i.e., can have 0 gallons of rated
storage volume), however. These models are also referred to as
``tankless.'' Hence volume of the gas-fired instantaneous water
heater is not typically a consideration for most consumers, nor does
it substantially affect the model's ability to deliver hot water on-
demand.
---------------------------------------------------------------------------
DOE has found no sound statutory basis for interpreting ``size'' to
refer to the physical dimensions or total installation footprint of a
covered product. As technology advances, many products get smaller.
Computers used to be the size of rooms and now they can fit in a
pocket. Similarly, televisions, which are covered products under 42
U.S.C. 6292(a)(12) and are typically referred to by screen size, have
undergone significant technological advances over the past two decades
as the market has shifted from cathode-ray-tube (CRT) televisions and
rear-projection televisions to liquid-crystal-display (LCD)
televisions. LCD televisions are a fraction of the physical size of a
CRT television or rear-projection television for the same screen size.
It would make little sense for the unavailability provision to require
DOE to preserve CRT and rear-projection televisions in the market
because they take up more space than an LCD television with the same
screen size. As such, DOE views size, capacities, and volumes as
product-specific terms that all refer to the same aspect of a covered
product.
Nonetheless, even if a smaller installation footprint is considered
a performance characteristic or feature, interested persons have not
established by a preponderance of the evidence that the standard is
likely to result in the unavailability of gas-fired instantaneous water
heaters with smaller installation footprints. Gas-fired instantaneous
water heaters that only just meet the current standards (``baseline''
models) are designed with a combustion blower to help exhaust the flue
gases and improve heat exchange. These designs use ``category III''
\42\ venting, which is a type of vent made for pressurized flue gases
(such as those generated by a baseline gas-fired instantaneous water
heater with a combustion blower). While category III venting is for
non-condensing appliances, it is similar to category IV venting (used
for condensing appliances) because both types handle pressurized flue
gases from appliances with blowers. Condensing gas-fired instantaneous
water heaters also use combustion blowers. The primary difference in
the venting for these designs is the material that the vent is made of:
category III vents handle higher temperatures and are therefore made of
metal, whereas category IV vents have to be able to withstand corrosion
from condensate but can be made of less expensive plastics due to the
lower temperatures produced by condensing appliances (condensing
appliances do not exhaust as much heat as non-condensing appliances do
because condensing appliances are more effective at transferring the
heat to the water). In a replacement scenario, the existing category
III venting must be removed and replaced with category IV venting,
however the new venting can utilize the existing vent run because both
venting types operate with positive static pressure and can be
configured horizontally or vertically. As a result, the installation
footprint can be maintained when switching from a non-condensing to a
condensing gas-fired instantaneous water heater. As discussed
previously, the replacement of the venting will incur additional labor
and material costs, but it is technically feasible. See section IV.F.2
for further details on installation costs. See chapter 3 of the TSD for
more details on venting types and baseline components and operation.
---------------------------------------------------------------------------
\42\ In 2021, the National Fire Protection Association (NFPA)
and American National Standards Institute (ANSI) published the NFPA
54/ANSI Z223.1, ``National Fuel Gas Code.'' (NFPA 54-2021). Chapter
3 of NFPA 54-2021 divides the ``vented appliance'' definition into
four categories according to whether the appliance operates with
positive or nonpositive static pressure in the vent and whether
there is excessive condensate formation in the vent. NFPA 54-2021
can be found online at: www.nfpa.org/codes-and-standards/nfpa-54-standard-development/54. (Last accessed December 4, 2024).
---------------------------------------------------------------------------
For these reasons, DOE has concluded that interested persons have
not established by a preponderance of the evidence that the standard is
likely to result in the unavailability in the United States of gas-
fired instantaneous water heaters with performance characteristics
(including reliability), features, sizes, capacities, and volumes that
are substantially the same as those generally available in the United
States. Additionally, DOE has determined that separate product classes
for inefficient non-condensing technology and designs are not justified
under 42 U.S.C. 6295(q)(1)(B).
Lastly, DOE notes that the condensing-level standards adopted by
this final rule do not apply to all gas-
[[Page 105211]]
fired instantaneous water heaters, but only those with less than 2
gallons of storage volume and more than 50,000 Btu/h of rated input.
While these products comprise the vast majority of gas-fired
instantaneous water heaters, it is not the entirety. Further discussion
of condensing standards for other gas-fired instantaneous water heaters
is presented in section IV.C.2.b of this document.
2. Technology Options
In the July 2023 NOPR market analysis and technology assessment,
DOE identified several technology options initially determined to
improve the efficiency of gas-fired instantaneous water heaters, as
measured by the DOE test procedure. The technology options DOE
identified are listed in table IV.3. These technology options pertain
to gas-fired instantaneous water heaters with less than 2 gallons of
stored volume and over 50,000 Btu/h of rated input. Technology options
for other types of gas-fired instantaneous water heaters are largely
similar; however, additional options may be used to complement the
applications of those products. For example, gas-fired instantaneous
water heaters with substantial storage volume may employ thicker
insulation to improve UEF ratings by reducing standby losses. As
discussed in section IV.C of this document, the engineering analysis
for products with 2 or more gallons of storage volume and for products
with less than 50,000 Btu/h of rated input consists of a ``crosswalk,''
i.e., a translation of existing standards from one metric (EF) to
another (UEF). Because a crosswalk maintains the same stringency of
standards, DOE has not completed an assessment of the market for
technology options used to improve UEF in models subject to the
translated standards. DOE will continue to monitor the market and
assess the designs of these models as more information pertaining to
UEF ratings becomes available.
Table IV.3--Potential Technologies for Increasing Gas-Fired
Instantaneous Water Heater Efficiency
------------------------------------------------------------------------
------------------------------------------------------------------------
Technology option
------------------------------------------------------------------------
Electronic ignition........... Intermittent pilot ignition.
Intermittent direct ignition.
Hot surface ignition.
Improved burners.............. Condensing pulse combustion.
Power burner.
Reduced burner size (burner derating).
-----------------------------------------
Modulating burners.... Step modulating
burners.
Fully modulating
burners.
-----------------------------------------
Heat exchanger improvements... Increased heat exchanger surface area.
Flue baffle.
Condensing technology.
Improved venting.............. Direct venting.
Concentric direct venting.
Improved controls............. Modulating controls.
------------------------------------------------------------------------
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(a)(3)(iii) and 7(b).
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.
1. Screened-Out Technologies
In the July 2023 NOPR, DOE screened out the following technology
options pertaining to gas-fired instantaneous water heaters based on
the previously described criteria: condensing pulse combustion and
reduced burner size. 88 FR 49058, 49083. DOE did not modify its
screening analysis in the July 2024 NODA or in this final rule
analysis.
Regarding condensing pulse combustion, DOE has determined it is not
technologically feasible for the broader market and not likely to be
practicable to manufacture, install, and service this technology on the
scale necessary to serve the relevant market at the time of the
effective date of this standard. Although condensing pulse
[[Page 105212]]
combustion technology shows promising results in increasing efficiency,
it has not yet been demonstrated in any commercially-available consumer
gas-fired instantaneous water heaters. Similar efficiencies are
achievable with other technologies that have already been introduced on
the market such that it is unlikely for manufacturing with condensing
pulse combustion technology to be scaled up in the future. DOE screened
out reduced burner size due to adverse impacts to consumer utility
(because reducing the burner size reduces the amount of heat the water
heater can provide). Further details of the screening analysis are
provided in chapter 4 of the final rule TSD.
2. Remaining Technologies
Through a review of each technology, DOE tentatively concludes that
all of the other identified technologies listed in section IV.B.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:
Table IV.4--Remaining Technology Options
------------------------------------------------------------------------
------------------------------------------------------------------------
Technology option
------------------------------------------------------------------------
Electronic ignition........... Intermittent pilot ignition.
Intermittent direct ignition.
Hot surface ignition.
Burner improvements........... Power burner.
-----------------------------------------
Modulating burners.... Step modulating
burners.
Fully modulating
burners.
-----------------------------------------
Heat exchanger improvements... Increased heat exchanger surface area.
Flue baffle.
Condensing technology.
Improved venting.............. Direct venting.
Concentric direct venting.
Improved controls............. Modulating controls.
------------------------------------------------------------------------
DOE determined that these technology options are technologically
feasible because they are being used or have previously been used in
commercially available products or working prototypes. DOE also finds
that all of the remaining technology options meet the other screening
criteria (i.e., practicable to manufacture, install, and service; do
not result in adverse impacts on consumer utility, product
availability, health, or safety; and do not utilize unique-pathway
proprietary technologies). 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 the product. There are
two elements to consider in the engineering analysis: the selection of
efficiency levels to analyze (i.e., the ``efficiency analysis''), and
the determination of product cost at each efficiency level (i.e., the
``cost analysis''). In determining the performance of higher-efficiency
products, DOE considers technologies and design option combinations not
eliminated by the screening analysis. For each product class, DOE
estimates the baseline cost, as well as the incremental cost for the
product/equipment at efficiency levels above the baseline. The output
of the engineering analysis is a set of cost-efficiency ``curves'' that
are used in downstream analyses (i.e., the LCC and PBP analyses and the
NIA).
As discussed in section IV.A.1 of this document, certain classes of
gas-fired instantaneous water heaters currently have UEF-based
standards, while for others EPCA's EF-based standards apply. For this
rulemaking, DOE analyzed amended UEF standards for the product classes
that currently have standards in terms of UEF. For the product classes
with EF-based standards, DOE developed translated standards in terms of
UEF for use in the analysis but did not analyze higher efficiency
levels because, as discussed in section IV.C.2.b of this document, DOE
does not currently have sufficient information to determine which
higher efficiencies may be economically justified and result in
significant national energy savings.
DOE has analyzed standards with respect to the effective storage
volume metric (as proposed in the July 2023 NOPR) to allow consistency
between standards in different product classes. As outlined in the July
2023 NOPR, there are two types of water heaters that can cause the
system to store more energy than would be otherwise determined by the
rated storage volume: (1) water heaters capable of operating with an
elevated tank temperature, and (2) circulating water heaters.\43\ 88 FR
49058, 49086. For water heaters that are not capable of storing water
at elevated tank temperatures, including ``tankless'' models (e.g.,
products with current UEF-based standards), the effective storage
volume is equivalent to the rated storage volume. However, some gas-
fired instantaneous water heaters can include smaller tanks (i.e., the
product class for models with at least 2 gallons of storage volume),
therefore the effective storage volume metric was determined to be
useful for gas-fired instantaneous water heaters as well.
---------------------------------------------------------------------------
\43\ As discussed in section III.B of this document, circulating
gas-fired water heaters are storage-type water heaters that are
outside the scope of this final rule.
---------------------------------------------------------------------------
The product classes analyzed in this final rule and the respective
analytical approaches utilized are listed in table IV.5.
[[Page 105213]]
Table IV.5--Analysis Approach by Product Class
------------------------------------------------------------------------
Distinguishing
characteristics
Product category analyzed in (effective storage Analysis
this final rule volume and input
rating)
------------------------------------------------------------------------
Gas-fired Instantaneous Water <2 gal and Converting EF-
Heater. <=50,000 Btu/h. based standards
to UEF-based
standards.
<2 gal and >50,000 Amending UEF-based
Btu/h; All Draw standards.
Patterns.
>=2 gal and Converting EF-
<=200,000 Btu/h. based standards
to UEF-based
standards.
------------------------------------------------------------------------
1. Products With Current UEF-Based Standards
DOE typically uses one of two approaches to develop energy
efficiency levels for the engineering analysis: (1) relying on observed
efficiency levels in the market (i.e., the efficiency-level approach),
or (2) determining the incremental efficiency improvements associated
with incorporating specific design options to a baseline model (i.e.,
the design-option approach). Using the efficiency-level approach, the
efficiency levels established for the analysis are determined based on
the market distribution of existing products (in other words, based on
the range of efficiencies and efficiency level ``clusters'' that
already exist on the market). Using the design option approach, the
efficiency levels established for the analysis are determined through
detailed engineering calculations and/or computer simulations of the
efficiency improvements from implementing specific design options that
have been identified in the technology assessment. DOE may also rely on
a combination of these two approaches. For example, the efficiency-
level approach (based on actual products on the market) may be extended
using the design option approach to interpolate to define ``gap fill''
levels (to bridge large gaps between other identified efficiency
levels) and/or to extrapolate to the ``max-tech'' level (particularly
in cases where the ``max-tech'' level exceeds the maximum efficiency
level currently available on the market).
In the July 2023 NOPR, DOE developed efficiency levels with a
combination of the efficiency-level and design-option approaches. DOE
conducted a market analysis of currently available models listed in
DOE's Compliance Certification Database to determine which efficiency
levels were most representative of the current distribution of gas-
fired instantaneous water heaters available on the market. DOE also
completed physical teardowns of commercially available units to
determine which design options manufacturers may use to achieve certain
efficiency levels. DOE requested comments from stakeholders concerning
these efficiency levels, which, in this final rule, are consistent with
those analyzed in the July 2024 NODA.
a. Efficiency Levels
For each product class, DOE generally selects a baseline model as a
reference point for each class, and measures anticipated changes
resulting from potential energy conservation standards against the
baseline model. The baseline model in each product class represents the
characteristics of a product 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. 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.
In this final rule, DOE has analyzed the same efficiency levels as
were considered in the July 2023 NOPR and the July 2024 NODA. These
efficiency levels are presented in table IV.6. For each draw pattern,
EL 2 corresponded with the levels proposed in the Joint Stakeholder
Recommendation (``JSR'') as discussed in section II.B.2 of this
document. See chapter 5 of the final rule TSD for further details
regarding the efficiency level analysis.
Table IV.6--Efficiency Levels for Products With Veff <2 gal, Rated Input >50,000 Btu/h
----------------------------------------------------------------------------------------------------------------
UEF
Efficiency level ---------------------------------------------------------------
Very small * Low * Medium High
----------------------------------------------------------------------------------------------------------------
0 (Baseline).................................... 0.80 0.81 0.81 0.81
1............................................... [dagger] 0.86 [dagger] 0.87 0.87 0.89
2 (JSR)......................................... [dagger] 0.89 [dagger] 0.91 0.91 0.93
3............................................... [dagger] 0.90 [dagger] 0.92 0.92 0.95
4 (Max-Tech).................................... [dagger] 0.91 [dagger] 0.93 0.93 0.96
----------------------------------------------------------------------------------------------------------------
* Only one brand has commercially-available products in the very small draw pattern and low draw pattern at the
time of this analysis.
[dagger] DOE applied the differences in efficiency levels from the medium draw pattern to define the Efficiency
Levels 1 through 4 for the very small draw pattern and the low draw pattern.
In response to the July 2023 NOPR, ONE Gas stated that as
efficiencies of non-condensing instantaneous gas water heaters have
increased since their introduction, replacements would accrue
efficiency gains and emissions reductions over the products when first
introduced in the 2000s and now at the end of their predicted lives (20
years according to the Department's analysis). (ONE Gas, No. 1200 at p.
4)
DOE agrees that efficiencies of gas-fired instantaneous water
heaters have increased over time. In the present rulemaking, DOE
considered the baseline efficiency of gas-fired instantaneous water
heaters to be equivalent to the current standards. This efficiency was
required as a result of the April 2010 Final Rule, which set standards
at a level that typically corresponds to electronic ignition, larger
non-condensing heat exchangers, and power venting. As shown in chapter
3
[[Page 105214]]
of the final rule TSD, models are now able to achieve significantly
higher efficiencies (e.g., condensing levels).
With respect to efficiency level 2, Rinnai stated that DOE's
proposed standard is not technically achievable by non-condensing gas-
fired instantaneous water heaters, and, accordingly, will make them
obsolete. Rinnai noted that it had previously submitted comments on the
July 2023 NOPR, stating that the proposed rule would eliminate one of
Rinnai's two residential water heater product offerings and
significantly impact Rinnai's tankless water heater sales and
manufacturing facility. (Rinnai, No. 1443 at pp. 1-2)
DOE has concluded that the efficiency levels analyzed in this
rulemaking are technologically feasible for gas-fired instantaneous
water heaters through the use of condensing heat exchangers, which are
widely used in the market today. DOE understands Rinnai's concern
regarding the elimination of less-efficient models impacting the
manufacturer, and therefore these topics are addressed more in detail
in section IV.J.3 of this document, which discusses MIA comments. After
consideration of feedback from commenters, DOE is maintaining the
efficiency levels provided in the July 2024 NODA.
b. Design Options
Based on its teardown analyses and feedback provided by
manufacturers in confidential interviews, DOE determined the technology
options that are most likely to constitute the pathway to achieving the
efficiency levels assessed. These technology options are referred to as
``design options.'' While manufacturers may achieve a given efficiency
level using more than one design strategy, the selected design options
reflect what DOE expects to be the most likely approach (most likely to
prove cost-effective) for the market in general in a standards-case
scenario. Further details are provided in chapter 5 of the final rule
TSD.
DOE has found that gas-fired instantaneous water heaters are often
differentiated based on heat exchanger and burner designs. Step-
modulating burners feature a manifold with multiple solenoids
regulating the gas flow into the burner. Sections of the burner can be
shut off or opened up as demand for hot water varies. Each additional
open solenoid means another ``step up'' in heat input. By contrast,
fully modulating burners make use of the full combustion chamber and
heat exchanger surface area, modulating the input rate in tandem with
the combustion blower. Such systems tend to be more complex than step-
modulating gas-fired instantaneous water heaters. In the March 2022
Preliminary Analysis, DOE observed some manufacturers using fully
modulating burners in lieu of step-modulating burners at the max-tech
efficiency level. In the July 2023 NOPR, DOE analyzed an additional
efficiency level, EL 3, that was close to the max-tech level, EL 4, and
used generally similar design options. However, in the July 2024 NODA,
upon further review DOE found products that meet EL 3 but not EL 4
using step modulation. Thus, DOE tentatively determined that fully
modulating burners are more likely to be implemented in only EL 4
designs. In the July 2024 NODA, based on additional data collected in
its analyses, DOE also surmised that EL 4 efficiencies could still be
met without the use of fully modulating burners--i.e., relying mainly
on improvements to the condensing heat exchanger. DOE stated that this
result is consistent with the conclusion in the July 2023 NOPR because
the pathway relying on heat exchanger improvements could be more cost-
effective for manufacturers to mass-produce designs at a scale
necessary to meet national demand, therefore the Department expects
that such designs may be more common if standards were to be set at EL
4 than in the current market. As such, DOE analyzed EL 4 to be
achievable using either step modulating or fully modulating burners,
and the manufacturer production cost for EL 4 estimated in the July
2024 NODA reflected an average of these design pathways. 89 FR 59692,
59693-59694. Due to the uncertainty regarding which design pathway
would be more prevalent in the case of standards set at the max-tech
efficiency level, DOE raised the issue to seek additional information
from interested parties on this topic.
In response to the July 2024 NODA, AHRI disagreed with DOE's
assessment that EL 3 and EL 4 can be achieved using step modulating
burners. AHRI stated that fully modulating burners are required to
achieve EL 3 and EL 4. AHRI claimed that fully modulating burners
provide the precise control necessary to optimize combustion
efficiency, minimize energy waste, and consistently achieve the higher
performance levels associated with EL 3 and EL 4. AHRI claimed that
this is supported by current market data, which shows that the vast
majority of gas-fired instantaneous water heaters achieving high
efficiency levels, particularly those with a UEF above 0.93, rely on
fully modulating burners. AHRI claimed DOE's findings are not supported
by the existing market landscape. AHRI urged DOE to consider performing
a detailed review of the efficiency gains that can be realistically
expected from step modulating versus fully modulating burners, as well
as a comprehensive assessment of market data in order to support the
claim that step-modulating burners can be used to achieve EL 3 and EL
4. (AHRI, No. 1437 at pp. 1-2)
Rinnai requested that DOE analyze and validate the assumptions
regarding the feasibility of achieving EL 3 or EL 4 using step
modulating burners, a change made in the July 2024 NODA. According to
Rinnai, fully modulating burners consistently achieve EL 3 and EL 4,
which the July 2024 NODA now contradicts. (Rinnai, No. 1443 at p. 23)
Rheem disagreed with the design options for EL 3 and EL 4 as
described in the July 2024 NODA, claiming that step modulation was not
reflected in the MPCs. Rheem indicated that there are currently no
models utilizing step modulating burners on the market that meet EL 4.
In addition, Rheem stated that, while there are step modulating designs
currently on the market that meet EL 3, some are complex down-fired
designs that were not reflected in the technology options discussed in
the NOPR TSD. Finally, Rheem questioned whether traditional step
modulating designs can meet EL 3 at all input rates. (Rheem, No. 1436
at p. 2)
A.O. Smith stated that DOE's engineering analysis should reflect
the technologies and design pathways currently available on the market
and avoid making speculative assumptions regarding cost and performance
of theoretical designs which have not been fully vetted or proven to be
market ready and emphasized that the use of theoretical design pathways
is more prone to inaccurate or incomplete cost estimates. (A.O. Smith,
No. 1440 at pp. 5-6)
BWC agreed that designs utilizing step modulating burners can
achieve EL 4, but stated that manufacturers do not widely design their
products in this way due to their increased complexity, which
correlates with reduced product lifetimes. Additionally, the
manufacturer stressed that added product complexity would entail more
specialized manufacturing processes, leading to additional costs passed
on to consumers. (BWC, No. 1441 at pp. 1-2) BWC further stated that for
products achieving EL 4 efficiencies with the use of step modulating
burners the increased complexity of step modulating burners would make
[[Page 105215]]
products more difficult to efficiently mass produce, requiring the
development of more specialized manufacturing processes. BWC stated
that this would lead to increased production costs that may be passed
on to consumers. (BWC No. 1441 at p. 2)
To clarify, DOE bases its assignment of design options not only on
publicly available product literature, but also on its independent
analysis of teardown samples. DOE combines this information to
determine what the most cost-effective pathway to increasing efficiency
may be.
With respect to burner configuration (i.e., up-fired vs. down-
fired), DOE notes that it has not found evidence to suggest that the
configuration itself lends to improvements in UEF. Although the topic
was discussed, burner configuration was not attributed as a design
option to improve the efficiency of commercial gas-fired instantaneous
water heaters in DOE's recent rulemaking pertaining to standards for
that equipment.\44\ Traditional designs of consumer gas-fired
instantaneous water heaters utilize an ``up-fired'' approach where the
burner is located at the bottom and directs the flame upwards through a
heat exchanger above it. This configuration is the natural choice for
product lines that used buoyancy to vent the flue gases away because
the hot flue gases can rise through the heat exchanger and exit through
the vent. However, baseline models today utilize power burners with
blowers to expel the flue gases without the need for buoyancy to move
these gases out. Because of this, designs are no longer limited to up-
fired configurations. Down-fired configurations--where the burner and
blower are located above the heat exchanger--may be preferred by some
manufacturers due to this design's natural ability to manage condensate
in condensing models. In a down-fired configuration, gravity allows the
condensate to collect at a receiver near the secondary (condensing)
heat exchanger because, in this configuration, the condensing heat
exchanger is towards the bottom of the water heater. Teardown samples
show that both firing configurations are used in condensing models
today. As such, DOE finds that the burner configuration is likely the
manufacturer's preference rather than an inherent benefit to
efficiency. See chapters 3 and 5 of the final rule TSD for more
details.
---------------------------------------------------------------------------
\44\ See chapter 5 of the TSD to the October 2023 commercial
water heater standards final rule, available online at:
www.regulations.gov/document/EERE-2021-BT-STD-0027-0038.
---------------------------------------------------------------------------
Where DOE has found a correlation between down-fired configurations
and UEF is in the implementation of fully modulating burners. Down-
fired configurations tend to have higher UEF ratings because fully
modulating burners are typically always down-fired. This may be
because, as discussed further in the following paragraphs, fully
modulating burners require different manufacturing equipment and
production lines. For example, if a manufacturer is designing a new
production line for models with fully modulating burners, there may be
an opportunity to implement a down-fired design for the condensate.
However, the research and teardown analyses conducted by DOE did not
yield evidence to suggest that the down-fired configuration causes an
increase in UEF without the implementation of a fully modulating
burner. Hence DOE maintains that the pathway to increasing efficiencies
up to the max-tech level includes incorporating fully modulating burner
designs, which happen to be down-fired. For condensing efficiency
levels below the max-tech level, DOE's teardown analyses indicate that
there would not be a significant difference in MPC between a down-fired
design and an up-fired design, all else the same. Therefore, DOE has
not directly analyzed the incorporation of down-fired burners as a
design option in this engineering analysis except where fully
modulating burners are used.
With respect to the burner modulation type, DOE agrees that fully
modulating burners are capable of achieving higher efficiencies,
including those from EL 1 through EL 4. However, in its teardowns, DOE
identified samples of gas-fired instantaneous water heaters currently
on the market meeting the efficiencies as high as EL 3 using step-
modulating burners. Additionally, the comments from Rheem implicitly
provide that fully modulating designs are associated with higher costs
compared to step-modulating designs, which may be a reason step-
modulating burners are still commonly used at higher efficiencies.
DOE's teardown analyses verify this understanding--fully modulating
burners use more advanced components that cause MPCs to rise
commensurately. Responding to the comments from BWC, DOE understands
that a production line built to manufacture step-modulating burners
would have additional equipment that a fully modulating burner
production line would not require. For example, manufacturers typically
need additional metal presses and/or dies to stamp the compartments of
a step-modulated burner and combustion chamber. Each manufacturer has
the ability to choose which type of burner to implement in its designs,
taking into consideration the pros and cons of each approach (e.g.,
step-modulating burners may cost less overall, but have a trade-off in
that they require more equipment to manufacture). The availability of
step-modulating burners at various efficiency levels strongly suggests
that manufacturers do opt to use this pathway despite the added
complexity of the production line.
As stated earlier, DOE aims to identify the most cost-effective and
likely pathway to achieving higher efficiency levels. The cost-
efficiency curves serve as estimates for what the overall market--not
just one manufacturer--would experience in a scenario where standards
are set to that efficiency levels. In the July 2024 NODA, DOE
tentatively determined that the continued use of step-modulating
burners, along with heat exchanger improvements, would be the most
cost-effective pathway to achieve EL 3. Then, to reach EL 4, fully
modulating burners may have similar cost-effectiveness such that
manufacturers could opt to use either a step-modulating burner with an
even larger heat exchanger or a fully modulating burner at this level.
DOE once again reviewed its teardowns and online product literature
to assess how different manufacturers implement step-modulating and
fully modulating burner designs, as suggested by AHRI. To Rheem's
point, DOE once again found that step-modulating designs on the market
today can achieve EL 3 and can span the full range of capacities (up to
200,000 Btu/h), as described in chapter 5 of the final rule TSD. While
there may be some cases of product lines not reaching EL 3 across the
full span of capacities, DOE believes these discrepancies in efficiency
can be addressed by improving the heat exchanger (and the added costs
of doing so are included in DOE's estimates of MPCs). Considering this,
the Department has confirmed that the design option pathway to EL 3
could be more cost-effective using step-modulating burners.
DOE also found that, although step-modulating designs would be
capable of meeting EL 4 (as BWC indicated), more manufacturers use
fully-modulating burners at EL 4. To determine whether step-modulating
burners would be appropriate to consider for EL 4, DOE evaluated the
comments from manufacturers regarding manufacturing complexity.
Currently, approximately only 8 percent of shipments currently
[[Page 105216]]
meet EL 4. In a standards-case-scenario, manufacturers would have to
significantly ramp up production capacity such that 100 percent of
models sold in the U.S. would meet that efficiency level. The comments
from multiple manufacturers serve as a strong indication that, in a
standards-case-scenario where production capacity for these high-
efficiency models would have to be multiplied, it is more realistic to
expect designs to use fully modulating burners to simplify the
production process. Hence, DOE agrees with commenters indicating that
fully modulating burners are more appropriate for EL 4.
As a result, the design options analyzed in this final rule are
listed in table IV.7.
Table IV.7--Design Options for Gas-Fired Instantaneous: Veff <2 Gal,
Rated Input >50,000 Btu/h
------------------------------------------------------------------------
EL Design options
------------------------------------------------------------------------
0.................... Step modulating burner; Non-condensing tube-and-
fin heat exchanger.
1.................... Step modulating burner; Condensing tube heat
exchanger.
2.................... Step modulating burner; Larger condensing heat
exchanger.
3.................... Step modulating burner; Larger, flat plate
condensing heat exchanger.
4.................... Fully modulating burner; Larger condensing heat
exchanger.
------------------------------------------------------------------------
c. Cost Analysis
The cost analysis portion of the engineering analysis is conducted
using one or a combination of cost approaches. The selection of cost
approach depends on a suite of factors, including the availability and
reliability of public information, characteristics of the regulated
product, the availability and timeliness of purchasing the product on
the market. The cost approaches are summarized as follows:
Physical teardowns: Under this approach, DOE physically
dismantles a commercially available product, component-by-component, to
develop a detailed bill of materials for the product.
Catalog teardowns: In lieu of physically deconstructing a
product, DOE identifies each component using parts diagrams (available
from manufacturer websites or appliance repair websites, for example)
to develop the bill of materials for the product.
Price surveys: If neither a physical nor catalog teardown
is feasible (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 the analysis using a combination
of the physical and catalog teardown approaches to develop estimates of
the manufacturer production cost (``MPC'') at each UEF efficiency level
analyzed. Data from the teardowns were used to create bills of
materials (``BOMs'') that capture all of the materials, components, and
manufacturing processes necessary to manufacture products at various
efficiency levels spanning the full range of efficiencies from the
baseline to max-tech. DOE used the BOMs along with publicly available
material and component cost data as the basis for estimating the MPCs.
DOE refined its cost estimates and its material and component cost data
based on feedback received during confidential manufacturer interviews
conducted during this rulemaking.
To perform this analysis, DOE selects representative capacities for
each product class. These capacities reflect the most common or average
size of a gas-fired instantaneous water heater in that product class,
and this step is important because the MPC is dependent upon the size
of the water heater--water heaters with higher input rates cost more to
manufacture. In the July 2023 NOPR and July 2024 NODA, DOE analyzed
input rates of 120,000 Btu/h and 199,000 Btu/h as representative
capacities for the medium and high draw patterns, respectively. DOE has
determined that these capacities remain representative in this final
rule. Based on the results of the market assessment, DOE has determined
that there are very few models in the low draw pattern, with only one
manufacturer making these products. There are no very small draw
pattern gas-fired instantaneous water heaters greater than 50,000 Btu/h
in input rating. DOE's teardown analyses have shown that the design
option pathways and manufacturer production cost versus efficiency
curves are generally similar for all tankless gas-fired instantaneous
water heaters, such that the results from a direct analysis of the
medium and high draw patterns would be representative for the very
small and low draw patterns as well. Thus, the very small and low draw
patterns were not directly analyzed product classes in this final rule.
Rheem stated that the incremental MPCs from EL 2 to EL 3 and from
EL 3 to EL 4 are too low, and do not adequately capture the higher
costs associated with the new step modulation or fully modulating
burner systems. Furthermore, Rheem reiterated its comment in response
to the July 2023 NOPR that the incremental retail cost between step
modulating and fully modulating gas-fired instantaneous water heater
designs is 50 percent lower than expected. (Rheem, No. 1436 at pp. 2-3)
As described in section IV.C.1.b, DOE determined that the burner
design options for EL 3 and EL 4 would be step-modulating burners and
fully modulating burners, respectively. The July 2024 NODA assumed that
only a fraction of the market would switch to fully modulating burners
at EL 4, and, therefore, the incremental cost increase reflected an
average of some manufacturers retaining the step-modulating burner (no
additional burner cost) and some manufacturers switching to fully
modulating burners (significant additional burner cost). As a result,
the incremental MPC between EL 3 and EL 4 in the July 2024 NODA
averaged out to be lower than the estimated total cost of switching to
a fully modulating burner. In this final rule analysis, DOE assumes
that all models at EL 4 would utilize fully modulating burners. Hence,
the MPCs at EL 4 are increased to reflect this change in design
pathway, and this would in turn increase the incremental retail cost
between EL 3 and EL 4.
See chapter 5 of the final rule TSD for additional details.
d. Shipping Costs and Manufacturer Selling Price
As discussed in the July 2024 NODA, DOE similarly maintained the
methodology for shipping costs from the July 2023 NOPR (see 88 FR
49058, 49095-49096). DOE updated the cost per trailer using the most
recent data available. 89 FR 59692. Because many
[[Page 105217]]
gas-fired instantaneous water heaters sold in the United States are
manufactured overseas, these shipping costs include the cost of
shipping products from overseas to the United States, and then from the
coast to the middle of the country.
A.O. Smith stated that DOE does not account for the increase in
downstream shipping costs at EL 3 and EL 4 that would result from
incorporating larger heat exchangers into consumer gas fired
instantaneous water heaters. (A.O. Smith, No. 1440 at pp. 5-6)
DOE agrees that larger heat exchangers would increase the product
footprint. In some cases, this causes fewer units to fit in a container
or trailer, thereby increasing the per-unit outbound shipping cost to
manufacturers. To determine how many units would fit, DOE assumed
standard trailer dimensions and a nearly full truckload configuration
(see chapter 5 of the final rule TSD for details). In DOE's shipping
cost calculation, the maximum units that can fit is based not only on
the size of each unit, but also the possible orientations that boxes
can be loaded in with. Per DOE's analysis, the same number of units
could fit in one load whether the model is an EL 3 design or a slightly
larger EL 4 design. As a result, the shipping costs are estimated to be
the same at these two efficiency levels.
To account for manufacturers' non-production costs and profit
margin, DOE applies a multiplier (the manufacturer markup) to the MPC.
The resulting manufacturer selling price (``MSP'') is the price at
which the manufacturer distributes a unit into commerce. DOE developed
an average manufacturer markup by examining the annual Securities and
Exchange Commission (``SEC'') 10-K \45\ reports filed by publicly
traded manufacturers that produce gas-fired instantaneous water
heaters, the manufacturer markups from the April 2010 Final Rule, and
feedback from confidential manufacturer interviews. 75 FR 20112. See
section IV.J.2.d of this document and chapter 12 of the final rule TSD
for additional detail on the manufacturer markup.
---------------------------------------------------------------------------
\45\ U.S. Securities and Exchange Commission. Company Filings.
Available at www.sec.gov/search-filings (last accessed August 7,
2024).
---------------------------------------------------------------------------
e. Cost-Efficiency Results
The results of the engineering analysis are reported as cost-
efficiency data in the form of MPCs and shipping costs calculated for
each efficiency level of each product class for which DOE is proposing
amended UEF-based standards. As discussed previously, DOE determined
these costs by developing BOMs based on a combination of physical and
catalog teardowns and using information in the BOMs along with
component and material price data to estimate MPCs. As discussed in
section IV.C.1.c of this document, the very small and low draw patterns
were not directly analyzed due to the low number of basic models
identified in these draw patterns during the market and technology
assessment. However, as shown in section IV.C.1.a of this document,
higher efficiency levels of the very small and low draw pattern product
classes continue to be assessed. Further evaluation of the economic
justification of potential amended standards for gas-fired
instantaneous water heaters (all models with Veff <2 gal and
rated input >50,000 Btu/h) is based on the understanding that the
medium and high draw pattern results are representative of the overall
market given the very low shipments of very small and low draw pattern
models. The results of the engineering analysis, in 2023 dollars, are
summarized in table IV.8.
Table IV.8--Engineering Analysis Results for Gas-Fired Instantaneous: Veff <2 Gal, Rated Input >50,000 Btu/h
--------------------------------------------------------------------------------------------------------------------------------------------------------
UEF
----------------------------------------------------
EL Medium High MPC (2023$) MSP (2023$) Shipping (2023$)
Very small Low 120,000 Btu/ 199,000 Btu/
h h
--------------------------------------------------------------------------------------------------------------------------------------------------------
0 (Baseline).............. N/A N/A 0.81 0.81 Med: 310.51 High: Med: 450.24 High: Med: 4.52 High: 7.63.
327.89. 475.44.
1......................... N/A N/A 0.87 0.89 Med: 441.74 High: Med: 640.52 High: Med: 7.07 High: 9.49.
461.02. 668.48.
2 (JSR)................... N/A N/A 0.91 0.93 Med: 445.63 High: Med: 646.16 High: Med: 10.17 High:
466.00. 675.71. 11.45.
3 (E *)................... N/A N/A 0.92 0.95 Med: 451.39 High: Med: 654.52 High: Med: 10.17 High:
473.22. 686.17. 11.45.
4 (Max tech).............. N/A N/A 0.93 0.96 Med: 490.04 High: Med: 710.56 High: Med: 10.17 High:
514.99. 746.74. 11.45.
--------------------------------------------------------------------------------------------------------------------------------------------------------
2. Products Without Current UEF-Based Standards
In the December 2016 Conversion Factor Final Rule, DOE established
that EF-based standards as established by EPCA are applicable to
consumer water heaters but would not be enforced until conversion
factors and converted standards are adopted. 81 FR 96204, 96209-96211.
To convert these EF-based standards to UEF-based standards, DOE first
developed conversion factors that convert tested values measured under
the DOE test procedure in effect prior to the July 2014 TP Final Rule
(which produces the EF metric) to values found under the current DOE
test procedure (which produces the UEF metric). DOE then applied these
conversion factors to representative baseline models and derived the
UEF-based energy conservation standards from the resulting UEF values.
For the July 2023 NOPR, DOE applied a similar methodology to
translate from minimum efficiency levels denominated in EF to those in
UEF for classes of covered consumer water heaters that do not yet have
UEF-based standards. 88 FR 49058, 49098. The translated standards for
gas-fired instantaneous water heaters are shown in table IV.9. These
efficiencies all correspond to non-condensing operation.
[[Page 105218]]
Table IV.9--Translated UEF-Based Energy Conservation Standards for Product Classes Without Established UEF-Based Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
Product class Nominal input Effective storage volume Draw pattern Uniform energy factor
--------------------------------------------------------------------------------------------------------------------------------------------------------
Instantaneous Gas-fired Water Heater. <=50,000 Btu/h.......... <2 gal....................... Very Small.................. 0.64
Low......................... 0.64
Medium...................... 0.64
High........................ 0.64
<=200,000 Btu/h......... >=2 gal...................... Very Small.................. 0.2534-(0.0018 x Veff)
Low......................... 0.5226-(0.0022 x Veff)
Medium...................... 0.5919-(0.0020 x Veff)
High........................ 0.6540-(0.0017 x Veff)
--------------------------------------------------------------------------------------------------------------------------------------------------------
In the July 2023 NOPR, DOE proposed to adopt these translated
standards and reiterated that the stringency of the standards is not
increasing as a result of the conversion. 88 FR 49058, 49098-49100.
a. Crosswalk to Equivalent-Stringency UEF-Based Standards
In the July 2023 NOPR, DOE requested feedback regarding the
appropriateness of the proposed converted UEF-based standards and
whether products on the market can meet or exceed the proposed levels.
88 FR 49058, 49100.
The Gas Association Commenters stated that DOE did not justify the
proposed new standards for gas-fired instantaneous water heaters that
are <2 gallons and <50,000 Btu/h or greater than or equal to 2 gallons.
In its comments, the Gas Association Commenters interpreted the
economic analysis performed for gas-fired instantaneous water heaters
that are <2 gallons and >50,000 Btu/h as being treated as
representative for all gas-fired instantaneous water heater standards
being proposed in the July 2023 NOPR. These commenters noted that DOE
tentatively concluded these product classes are different enough to
warrant separate standards, but that there was no economic
justification provided for the two product categories remaining at non-
condensing efficiency levels. Citing the statutory requirement for any
new or amended energy conservation standards to be technologically
feasible and economically justified, the Gas Association Commenters
recommended that DOE modify its approach. (Gas Association Commenters,
No. 1181 at p. 8)
EPCA directed DOE to establish a uniform efficiency descriptor to
be used to regulate all covered water heaters, with certain exceptions
for water heaters used only in commercial applications. (42 U.S.C.
6295(e)(5)) Therefore, DOE has conducted this analysis in satisfaction
of its statutory obligation to delineate standards for all consumer
water heaters, including gas-fired instantaneous water heaters, in
terms of UEF. Because the statute requires that the UEF-based standards
for these product classes reflect the same stringency as the statutory
EF-based standards that are currently applicable--i.e., these are not
standards that would require higher efficiency to comply--it is not
necessary for DOE to conduct an assessment of energy savings or
economic justification prior to proposing such standards. (42 U.S.C.
6295(e)(5)(E)(iii) For example, the translated UEF standards can be met
by non-condensing models and products with standing pilot lights as
well. The Department believes that the Gas Association Commenters may
have misinterpreted the analysis for product classes with current UEF-
based standards as also applying to these product classes which have
EF-based standards. To reiterate, these standards are not being
established pursuant to EPCA provisions at 42 U.S.C. 6295(o)(A), but
instead in accordance with those at 42 U.S.C. 6295(e)(5). Additionally,
the statutory EF-based standards are provided within EPCA and do not
require separate justification to adopt these stringencies. 89 FR
37778, 37845.
b. Consideration of More Stringent Standards
In the July 2023 NOPR, DOE also requested information and data
regarding the UEF of products within these product classes if they are
found to generally exceed the proposed levels. 88 FR 49058, 49100.
Some commenters identified a need to consider more stringent
standards for gas-fired instantaneous water heaters with less than
50,000 Btu/h of input, discussed as follows.
A.O. Smith indicated that simultaneous establishment of baseline
UEF levels for converted product classes while increasing the standard
levels for existing product classes creates a scenario where new
products may emerge, and shipments may shift from product classes with
more stringent standards to very similar products in new product
classes with less stringent standards. (A.O. Smith, No. 1182 at p. 14)
A.O. Smith identified that product classes for <2 gallon and <50,000
Btu/h gas-fired instantaneous water heaters and >=2 gallon and
<=200,000 Btu/h gas-fired instantaneous water heaters with non-
condensing standard levels are likely to incentivize circumvention of
the <2 gallon and >50,000 Btu/h condensing standards. (A.O. Smith, No.
1182 at p. 14)
Bosch noted that there are still pathways for non-condensing gas-
fired instantaneous water heaters to stay in the market, which could be
realized by creating model lines that are either below 50,000 Btu/h in
input or above 2 gallons in storage capacity. To remedy this, Bosch
recommended DOE require condensing technology for all gas-fired
instantaneous water heaters. (Bosch, No. 1204 at pp. 2-3)
By contrast, the CA IOUs stated that the proposed product sub-class
with a rated volume of <2 gallons and an input rating of <=50,000 Btu/h
is appropriate for point-of-use applications and that this subclass
will not account for a significant amount of gas fired instantaneous
water heater shipments. (CA IOUs, No. 1442 at pp. 2-3) Rheem suggested
that DOE consider increasing the standards for gas-fired instantaneous
water heaters <2 gallons and less than or equal to 50,000 Btu/h of
input to an efficiency that corresponds to removal of standing pilot
lights, but not an efficiency that utilizes condensing technology.
Rheem stated that gas-fired instantaneous water heaters under 50,000
Btu/h exist and have residential applications (i.e., they are not
exclusively marketed for recreational vehicles or as portable
equipment). However, the commenter also wrote that these products are
not a direct replacement for the condensing gas-fired instantaneous
water heaters that
[[Page 105219]]
would be required for input rates greater than 50,000 Btu/h, and thus
generally supported the translated standards for these products.
(Rheem, No. 1177 at p. 12)
DOE agrees that there may be a market for gas-fired instantaneous
water heaters with less than 50,000 Btu/h of input based on the designs
it has reviewed. Gas-fired instantaneous water heaters with less than
50,000 Btu/h of heat input are typically used in ``point-of-use''
applications (e.g., affixed to a showerhead) because the heat input is
generally not high enough to serve an entire house. Hence, DOE expects
that shipments of these ``point-of-use'' tankless gas-fired
instantaneous water heaters would not easily replace shipments of
``whole-home'' tankless gas-fired instantaneous water heaters with
input rates higher than 50,000 Btu/h.
While DOE acknowledges that removing standing pilot lights would
result in additional energy savings, DOE does not currently possess
data supporting more stringent standards than those being established
as part of this rulemaking. However, DOE may analyze the benefits and
burdens of higher standards for these products at a later time.
Further, after the compliance date of this final rule, the availability
of UEF certification data for these products may inform a future
analysis of more stringent standards in a future rulemaking.
In addition to Bosch and A.O. Smith, several other commenters
raised concerns regarding non-condensing standards for larger gas-fired
instantaneous water heaters--those with 2 or more gallons of storage
volume.
Rheem commented that gas-fired instantaneous water heaters greater
than or equal to 2 gallons of rated storage volume do not currently
exist on the market because there is no need for them. (Rheem, No. 1177
at p. 13) Rheem stated that the >=2 gallons and <=200,000 Btu/h product
category could be used to circumvent the condensing-level standards for
<2 gallon and >50,000 Btu/h gas-fired instantaneous water heaters and
recommended aligning the standards to the condensing levels (e.g.,
change the intercepts in the standards equations for the >2 gallon
classes to match the amended standards for the <2 gallon classes).
(Rheem, No. 1177 at p. 13) Rheem reiterated these comments in response
to the July 2024 NODA. (Rheem, No. 1436 at p. 3)
In response to the July 2024 NODA, the CA IOUs stated that
manufacturers could produce gas fired instantaneous water heaters with
a rated volume of >=2 gallons and an input rating of <=200,000 Btu/h
that do not meet condensing standards. The CA IOUs expressed concern
that this would allow manufacturers to avoid meeting condensing
standards for all consumer gas fired instantaneous water heater
offerings. The CA IOUs expressed concern that, because of the low cost
to manufacturers of increasing the rated volume of existing non-
condensing gas fired instantaneous water heaters to 2 gallons or
higher, DOE's proposal could allow non-condensing products to remain in
the market at lower prices than condensing products. The CA IOUs urged
DOE to modify its proposed subclass definitions if it can do so in a
timely manner and to immediately begin a new rulemaking to address its
concerns should modifying product sub-classes present a significant
delay to a final rule being issued for gas fired instantaneous water
heaters (CA IOUs, No. 1442 at pp. 3-4). Specifically, the CA IOUs
recommended that DOE expand the existing subclass to include all gas
fired instantaneous water heaters with a volume less than 20 gallons
and an input rating >50,000 Btu/h and <=200,000 Btu/h. (CA IOUs, No.
1442 at pp. 3-4)
A.O. Smith claimed that, because some products >=2 gallons and
<=200,000 Btu/h are used only in commercial applications, condensing-
level standards are justified for these products, citing the
conclusions of DOE's rulemaking for commercial water heaters. (A.O.
Smith, No. 1440 at p. 4) A.O. Smith emphasized the importance of
establishing condensing-level standards for all gas-fired instantaneous
water heaters, noting that finalizing the proposed standard for this
product class leaves open the opportunity for the entry of new products
intended to circumvent both consumer condensing standards and
commercial condensing standards effective in October 2026. (A.O. Smith,
No. 1440 at p. 4) A.O. Smith stated that in this rulemaking, in
contrast with the conversion factor rulemaking, DOE is evaluating
whether more stringent standards for gas-fired instantaneous water
heaters would be technologically feasible, economically justified, and
result in significant energy savings and that in this context, DOE must
consider the factors outlined in EPCA at 42 U.S.C. 6295(q) for
establishing product classes and adjust the gas-instantaneous product
classes accordingly. (A.O. Smith, No. 1440 at p.4)
A.O. Smith recommended that DOE expand the analyzed product class
from <2 gallons and >50,000 Btu/h to <5 gallons and >50,000 Btu/h to
ensure that condensing standards are not circumvented through minor
design changes. (A.O. Smith, No. 1440 at p. 4) A.O. Smith claimed that
a gas-fired instantaneous water heater with a 5-gallon storage volume
would have negligible standby losses and a consistent UEF standard
value could apply to the entire zero-to-five-gallon range. A.O. Smith
noted that EPCA only established standby loss standards for commercial
gas-fired instantaneous water heaters with a rated storage volume
greater than 10 gallons, stating that this indicates that standby
losses are not expected to be significant enough to warrant separate
standards and separate product classes until 10 gallons of storage
volume for commercial gas-fired instantaneous water heaters. A.O. Smith
stated that this suggests that DOE expanding the storage capacity range
up to 5 gallons for the gas-fired instantaneous consumer water heater
product class under consideration for amended standards is appropriate.
(A.O. Smith, No. 1440 at pp. 4-5)
In response to A.O. Smith, DOE notes that the most recent
commercial water heaters rulemaking, which published in the Federal
Register a final rule on October 6, 2023 (the ``October 2023 Commercial
Water Heaters Final Rule''), analyzed gas-fired instantaneous water
heaters that are considered covered commercial equipment under EPCA. 88
FR 69686, 69706. Specifically, these commercial gas-fired instantaneous
water heaters are defined at 10 CFR 431.102 as having a rated input
above 200,000 Btu/h. Id. While the October 2023 Commercial Water
Heaters Final Rule established condensing-level standards for
commercial gas-fired instantaneous water heaters, the conclusions of
that rulemaking would not necessarily apply to gas-fired instantaneous
water heaters >=2 gallons and <=200,000 Btu/h because these are
consumer water heaters and were not analyzed in that rulemaking.
Further, DOE understands that the recommendations to expand the
applicability of the condensing-level standards to products with 2 or
more gallons of storage may be based on an assumption that such a
stringency increase would have minimal impact to the market. However,
contrary to the comments from Rheem, Bosch, and A.O. Smith, DOE has
identified several consumer gas-fired instantaneous water heaters on
the market with 2 or more gallons, as discussed in section IV.A.1 of
this document. Some of these models use non-condensing operation and
would not comply with condensing-level standards at efficiency level 2.
DOE does not currently possess data
[[Page 105220]]
supporting more stringent standards for these products or how more
stringent standards would affect the market share or consumers of these
products. Lastly, DOE believes the size of larger, non-condensing gas-
fired instantaneous water heaters may be a barrier for many consumers
choosing between products with 2 or more gallons of storage and
products with less than 2 gallons of storage. Many consumers who use
gas-fired instantaneous water heaters with less than 2 gallons of
storage do so because of how little space these units take up. As of
this final rule, all of the gas-fired instantaneous water heaters
certified to DOE have rated storage volumes of either 0 or 1 gallon--
hence, the term ``tankless'' is often used to describe these products.
A 2-gallon gas-fired instantaneous water heater would be much larger
than a model with 0 or 1 gallon of storage. DOE compared the sizes of
large (i.e., stored volume >=2 gallons) gas-fired instantaneous water
heaters to the average sizes determined in the engineering analysis for
products less than 2 gallons. For instance, based on product literature
published by one manufacturer of large gas-fired instantaneous water
heaters, its 2.3-gallon model and 3.5-gallon model are over twice as
deep and significantly taller compared to a typical model on the market
today.\46\ Thus, it is unclear to what extent consumers would choose to
install a gas-fired instantaneous water heater with stored volume >=2
gallons over one with <2 gallons.
---------------------------------------------------------------------------
\46\ For example, DOE reviewed the product dimensions of the HTP
Crossover series, a product line of larger gas-fired instantaneous
water heaters intended for residential wall-hung installations.
Product dimensions can be found online at: www.htproducts.com/literature/mktlit-118.pdf. (Last accessed on August 28, 2024).
---------------------------------------------------------------------------
In light of these considerations, DOE is maintaining the proposed
separation of product classes for products without current UEF-based
standards in this final rule as proposed in the July 2023 NOPR. DOE
will continue to monitor the market for these products and may address
consider potential more-stringent standards for larger gas-fired
instantaneous water heaters in a future rulemaking.
D. Markups Analysis
The markups analysis develops appropriate markups (e.g., retailer
markups, distributor markups, contractor markups) in the distribution
chain and sales taxes to convert the MSP estimates derived in the
engineering analysis to consumer prices, which are then used in the LCC
and PBP analysis. At each step in the distribution channel, companies
mark up the price of the product to cover business costs and profit
margin.
As part of the analysis, DOE identifies key market participants and
distribution channels. For consumer gas-fired instantaneous water
heaters, the main parties in the distribution chain are (1)
manufacturers, (2) wholesalers or distributors, (3) retailers, (4)
plumbing 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 this final rule, DOE characterized how consumer gas-fired
instantaneous water heater products pass from the manufacturer to
residential and commercial consumers \47\ by gathering data from
several sources, including consultant reports (available in appendix 6A
of the final rule TSD), the 2023 BRG report,\48\ and the 2022 Clear
Seas Research Water Heater contractor survey \49\ to determine the
distribution channels and fraction of shipments going through each
distribution channel. The distribution channels for replacement or new
owners of consumer water heaters in residential applications (not
including mobile homes) are characterized as follows: \50\
---------------------------------------------------------------------------
\47\ DOE estimates that 6 percent of gas-fired instantaneous
water heaters will be shipped to commercial applications in 2030.
\48\ BRG Building Solutions, The North American Heating &
Cooling Product Markets (2023 Edition). Available at
www.brgbuildingsolutions.com/reports-insights (last accessed August
29, 2024).
\49\ Clear Seas Research, 2022 Mechanical System--Water Heater.
Available at clearseasresearch.com/reports/industries/mechanical-systems/ (last accessed August 29, 2024).
\50\ Based on available data, DOE assumed that for replacement
or new owners in residential applications consumer gas-fired
instantaneous water heaters go through the wholesaler/contractor 55
percent of the time, directly form the retailer 40 percent of the
time, and through the retailer/contractor 5 percent of the time.
Manufacturer [rarr] Wholesaler [rarr] Plumbing Contractor [rarr]
Consumer
Manufacturer [rarr] Retailer [rarr] Consumer
Manufacturer [rarr] Retailer [rarr] Plumbing Contractor [rarr] Consumer
For mobile home replacement or new owner applications, the same
distribution channels are applicable for consumer gas-fired
instantaneous water heaters.\51\
---------------------------------------------------------------------------
\51\ Based on available data, DOE assumed that consumer gas-
fired instantaneous water heaters in mobile homes go through the
wholesaler/contractor 55 percent of the time, directly form the
retailer 40 percent of the time, and though the retailer/contractor
5 percent of the time. The data indicate that gas-fired
instantaneous water heaters are almost never sold directly through a
mobile home retailer.
---------------------------------------------------------------------------
For consumer gas-fired instantaneous water heaters in commercial
applications, DOE considers an additional distribution channel for
which the manufacturer sells the equipment to the wholesaler and then
to the consumer through a national account in both replacement and new
construction markets.
The new construction distribution channel includes an additional
link in the chain--the builder. The distribution channels for consumer
gas-fired instantaneous water heaters in new construction \52\ in
residential applications (not including mobile homes) are characterized
as follows: \53\
---------------------------------------------------------------------------
\52\ DOE estimates that in the residential market 48 percent of
gas-fired instantaneous water heaters will be shipped to new
construction applications in 2030.
\53\ DOE's analysis indicates that many builders are large
enough to have a master plumber and not hire a separate contractor,
and assigned approximately half of water heater shipments to new
construction to this channel. DOE estimated that in the new
construction market, 90 percent of the residential (not including
mobile homes) and 80 percent in commercial applications goes through
a wholesaler to builders channel and the rest go through national
account distribution channel.
Manufacturer [rarr] Wholesaler [rarr] Plumbing Contractor [rarr]
Builder [rarr] Consumer
Manufacturer [rarr] Wholesaler [rarr] Builder [rarr] Consumer
Manufacturer [rarr] Wholesaler (National Account) [rarr] Consumer
DOE developed baseline and incremental markups for each actor in
the distribution chain. Baseline markups are applied to the price of
products with baseline efficiency, while incremental markups are
applied to the difference in price between baseline and higher-
efficiency models (the incremental cost increase). The incremental
markup is typically less than the baseline markup and is designed to
maintain similar per-unit operating profit before and after new or
amended standards.\54\
---------------------------------------------------------------------------
\54\ Because the projected price of standards-compliant products
is typically higher than the price of baseline products, using the
same markup for the incremental cost and the baseline cost would
result in higher per-unit operating profit. While such an outcome is
possible, DOE maintains that in markets that are reasonably
competitive it is unlikely that standards would lead to a
sustainable increase in profitability in the long run.
---------------------------------------------------------------------------
To estimate average baseline and incremental markups, DOE relied on
several sources, including: (1) form 10-K \55\ from U.S. Securities and
Exchange Commission (``SEC'') for Home Depot, Lowe's, Wal-Mart, and
Costco (for retailers); (2) U.S. Census Bureau 2017 Annual Retail Trade
Report for
[[Page 105221]]
miscellaneous store retailers (NAICS 453) (for online retailers); \56\
(3) U.S. Census Bureau 2017 Economic Census data \57\ on the
residential and commercial building construction industry (for builder,
plumbing contractor, mobile home manufacturer); and (4) the U.S. Census
Bureau 2017 Annual Wholesale Trade Report data \58\ (for wholesalers).
DOE assumes that the markups for national accounts is half of the value
of wholesaler markups. 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 \59\ to disaggregate the mechanical contractor
markups into replacement and new construction markets for consumer gas-
fired instantaneous water heaters used in commercial applications.
---------------------------------------------------------------------------
\55\ U.S. Securities and Exchange Commission. Company Filings.
Available at www.sec.gov/search-filings (last accessed August 29,
2024).
\56\ U.S. Census Bureau, 2017 Annual Retail Trade Report,
available at www.census.gov/programs-surveys/arts.html (last
accessed August 29, 2024). Note that the 2017 Annual Retail Trade
Report was the latest version of the report that includes detailed
operating expenses data at the time of the analysis.
\57\ U.S. Census Bureau, 2017 Economic Census Data. available at
www.census.gov/programs-surveys/economic-census.html (last accessed
August 29, 2024). Note that the 2017 Economic Census Data is the
latest version of this data.
\58\ U.S. Census Bureau, 2017 Annual Wholesale Trade Report.
available at www.census.gov/wholesale/ (last accessed
August 29, 2024). Note that the 2017 AWTR Census Data is the latest
version of the report that includes detailed operating expenses
data.
\59\ Air Conditioning Contractors of America (``ACCA''),
Financial Analysis for the HVACR Contracting Industry (2005),
available at www.acca.org/store#/storefront (last accessed August
29, 2024). Note that the 2005 Financial Analysis for the HVACR
Contracting Industry is the latest version of the report and is only
used to disaggregate the mechanical contractor markups into
replacement and new construction markets.
---------------------------------------------------------------------------
E. Energy Use Analysis
The purpose of the energy use analysis is to determine the annual
energy consumption of consumer gas-fired instantaneous water heaters at
different efficiencies in representative U.S. single-family homes,
mobile homes, multi-family residences, and commercial buildings, and to
assess the energy savings potential of increased consumer gas-fired
instantaneous water heater efficiency. The energy use analysis
estimates the range of energy use of consumer gas-fired instantaneous
water heaters 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 consumer gas-fired
instantaneous water heaters at specific energy efficiency levels across
a range of climate zones, building characteristics, and water heating
applications. The annual energy consumption includes the natural gas,
liquid petroleum gas (``LPG''), and electricity used by the consumer
gas-fired instantaneous water heater.
1. Building Sample
To determine the field energy use of consumer water heaters used in
homes, DOE established a sample of households using consumer water
heaters from EIA's 2015 Residential Energy Consumption Survey (``RECS
2015'') in the July 2023 NOPR, which was the most recent such survey
that was then fully available.\60\ DOE selected the household sample
based on the reported variables from RECS on water heating equipment
type. The RECS data provide information on the vintage of the home, as
well as water heating energy use in each household. These data reflect
how water heaters are actually used by consumers. DOE used the
household samples not only to determine water heater annual energy
consumption, but also as the basis for conducting the LCC and PBP
analyses. DOE projected household weights and household characteristics
in 2030, the first year of compliance with any amended or new energy
conservation standards for consumer water heaters. To characterize
future new homes, DOE used a subset of homes in RECS that were built
after 2000.
---------------------------------------------------------------------------
\60\ Energy Information Administration (``EIA''), 2015
Residential Energy Consumption Survey (``RECS''). Available at
www.eia.gov/consumption/residential/ (last accessed August 29,
2024).
---------------------------------------------------------------------------
For this final rule, DOE incorporated RECS 2020 as the basis of the
building sample development and updated the analyses accordingly.\61\
Incorporating RECS 2020 improves the representativeness of the
residential building sample as RECS 2020 brings a threefold increase in
sample size compared to RECS 2015.\62\ A larger sample size generally
results in smaller standard errors, especially for estimates of smaller
subpopulations. In this final rule, DOE maintains the same methodology
in residential sample development as the July 2023 NOPR, using the
updated RECS.
---------------------------------------------------------------------------
\61\ Energy Information Administration (``EIA''), 2020
Residential Energy Consumption Survey (``RECS''). Available at
www.eia.gov/consumption/residential/ (last accessed August 29,
2024).
\62\ According to published data and EIA website, RECS 2020 is
based upon responses collected from in total 18,496 households which
is three times greater than 5,686 respondents in RECS 2015.
---------------------------------------------------------------------------
To determine the field energy use of consumer water heaters used in
commercial buildings, DOE established a sample of buildings using
consumer water heaters from EIA's 2018 Commercial Building Energy
Consumption Survey (``CBECS 2018''), which is the most recent such
survey that is currently fully available.\63\ DOE has maintained its
sample development methodology used in July 2023 NOPR for consumer gas-
fired instantaneous water heaters used in commercial applications.
---------------------------------------------------------------------------
\63\ U.S. Department of Energy: Energy Information
Administration, Commercial Buildings Energy Consumption Survey
(2018). Available at: www.eia.gov/consumption/commercial/data/2018/index.php?view=microdata (last accessed August 29, 2024).
---------------------------------------------------------------------------
AGA et al. supported DOE's incorporation of EIA's 2020 RECS data in
the July 2024 NODA. (AGA et al., No. 1439 at p. 10)
2. Hot Water Use Determination
Based on the reported water heating energy use from RECS and CBECS,
DOE estimated the hot water use for each sampled household and
building. Then, in order to disaggregate the selected sampled gas-fired
instantaneous water heaters into draw patterns, DOE used model data
from DOE's public CCD \64\ and AHRI certification directory \65\
together with other publicly available data from manufacturers'
catalogs of consumer water heaters. DOE also used a combination of
confidential data provided by AHRI from 2004-2007 \66\ and shipments
data from BRG Building Solutions 2023 report from 2007 to 2022.\67\
---------------------------------------------------------------------------
\64\ U.S. Department of Energy's Compliance Certification
Database is available at regulations.doe.gov/certification-data
(last accessed August 29, 2024).
\65\ Air Conditioning Heating and Refrigeration Institute.
Consumer's Directory of Certified Efficiency Ratings for Heating and
Water Heating Equipment. December 1, 2023. (Available at
www.ahridirectory.org) (last accessed August 29, 2024).
\66\ AHRI. Confidential Instantaneous Gas-fired Water Heater
Shipments Data from 2004-2007 to LBNL. December 1, 2023
\67\ BRG Building Solutions. The North American Heating &
Cooling Product Markets (2023 Edition). 2023.
---------------------------------------------------------------------------
Responding to the July 2023 NOPR, AHRI recommended DOE explain its
inputs in the energy use calculations. AHRI commented that DOE's use of
nesting of various assumptions for residential water heaters leads to
unlikely results that DOE does not, or cannot, explain. AHRI raised
concerns on two oddities in the energy use calculations for gas-fired
instantaneous water heaters. First, the water
[[Page 105222]]
consumption for residential use as computed for the median RECS
building is 41 gallons per day and the 95th highest use (95th
percentile) is 3.5 times as much (141 gallons per day) and the
remaining 5 percent of RECS buildings use between 141 and 997 gallons
per day, or up to 24 times as much water per day, an unlikely amount
for a residential household. AHRI stated that this high usage rate for
these 5 percent heavy users raises the average consumption to 61
gallons per day, or 50 percent more than the typical or median user.
AHRI commented that presence and magnitude of these outlier 5 percent,
heavy users raise serious questions about the accuracy and reliability
of either (or both) the data that DOE used and/or the methodology it
used to compute water consumption. Second, even assuming some market
inefficiencies, AHRI claimed that there still should be a general trend
towards RECS buildings with greater water use selecting more efficient
water heaters absent standards. DOE contends that at least some
purchasers make economically efficient choices. In that circumstance,
the data should show a trend toward the highest-consuming RECS
buildings appearing in the higher ELs absent standards. AHRI commented
that this is not the case in the actual DOE data. Instead, if anything,
the highest-consuming RECS buildings are assumed to purchase baseline
water heaters. (AHRI, No. 1167 at p. 19) AHRI asked for an explanation
of these outlier data points and asked how DOE validated its
methodology to assure that these are accurate representations of real
life. AHRI also asked why DOE has not accepted the suggestion by AHRI
and others to use median, not the mean values for consumption and LCC
savings to avoid the effects of these outliers and to alleviate, at
least in part, the deficiencies of its base case efficiency assignment
issue. (AHRI, No. 1167 at p. 20)
Gas Association Commenters argued that water consumption should be
based on household size and that there are problems with water
consumption calculations, particularly for gas-fired instantaneous
water heaters. Gas Association Commenters argue that for gas-fired
instantaneous water heaters, DOE models incorrect tankless water heater
results (greater outliers than there are for storage unit equivalents)
in regard to household size. Gas Association Commenters argue the model
results in unrealistic outliers for smaller households reaching
consumption levels equivalent to space heating. Gas Association
Commenters argue that a potential reason for this failure is how the
model calculates daily water usage. For example, Gas Association
Commenters argued that in DOE's model, some single person households
use 200-350 gallons a day which is far from reasonable (4-7 baths of
water a day every day of the year). Gas Association Commenters argued
that Draw Pattern ID is based on randomly assigned distribution. Gas
Association Commenters state that DOE assumes that households will
always use more water if they use an instantaneous unit. Gas
Association Commenters argue that while for small storage units, there
is a 5 percent chance of a large draw pattern but there is a 75 percent
chance for instantaneous. Gas Association Commenters argued that if
consumption behavior was more consistent between the gas storage water
heaters and gas-fired instantaneous water heaters, LCC savings would be
lower. Gas Association Commenters argues that a better solution would
be to use the test procedure for water heaters as a basis for modeling
energy usage rather than assuming draw rates based on the size of the
original equipment in RECS. Gas Association Commenters suggested that
alternately, gas-fired instantaneous water heaters could just have the
same assumptions about water usage as their gas storage water heaters
counterparts. (Gas Association Commenters, No. 1181 at pp. 25-31)
Similarly, in response to the July 2024 NODA, Rinnai stated that the
energy use estimates in the energy conservation standard should use the
same standardized draw patterns outlined in the UEF test method rather
than relying on RECS, which the commenters characterized as unreliable.
Rinnai recommended that the Department use the hot water draw patterns
from the UEF test method as the basis for comparing efficiency
proposals and reserve the RECS hot water consumption data for
estimating national energy savings potential and other downstream
impacts. (Rinnai, No. 1443 at p. 20)
In response, DOE notes that RECS and CBECS data provide the
information on the household size and water heating energy use in
buildings. RECS and CBECS are the most comprehensive, nationally-
representative, and robust data source on actual household and
commercial building energy consumption available to DOE. In general,
DOE has found that the weighted average energy use for water heating
correlates with the size of the household, i.e., the reported number of
people in that household. Greater energy expenditure on water heating
largely falls into the bins of households of larger sizes (4 people and
above). The hot water use derived based on the water heating energy use
follows similar pattern (see chapter 7 of the final rule TSD for the
calculation of hot water use). In terms of AHRI and Gas Association
Commenters' concern over the heavy users of hot water in the sample,
when reporting the distribution of the derived hot water use, DOE takes
into account both consumer water heaters used in residential as well as
commercial applications. In the final rule analysis, DOE estimated that
close to 40 percent of the top 5 percent of water-consuming sample
buildings/households are commercial applications which generally have
higher upper bound of hot water use. These outlier data points
therefore represent either data directly reported from RECS or CBECS
for larger households or commercial applications using consumer water
heaters, both of which represent real-world usage. In addition, DOE
evaluates each sampled building/household individually by calculating
its hot water use and the corresponding cost efficiency thereafter such
that the average LCC savings as reported is a good representation of
the aggregated national values. Nevertheless, the LCC spreadsheet
includes a calculation of median LCC savings, as well as LCC savings at
various percentiles. These results are publicly available. Even if DOE
were to rely on the median LCC savings instead of the mean LCC savings,
DOE's conclusion of economic justification would remain the same.\68\
---------------------------------------------------------------------------
\68\ See LCC analytical tool spreadsheet for gas-fired
instantaneous water heater final rule.
---------------------------------------------------------------------------
For this final rule, DOE incorporated the latest RECS 2020 data for
its analyses. With the increased sample size and the most recent
timeline of the fielding of the survey, RECS 2020 provides a large
sample pool with current national representation of housing
characteristics and energy consumption. Specifically, for gas-fired
instantaneous water heaters, which historically have had a lower market
share relative to the gas storage type, RECS 2020 reports over 800
sample households utilizing a gas-fired instantaneous water heater. As
discussed previously, the weighted average of the energy use on water
heating and the derived hot water use generally correlates with the
size of the household with deviations that represent the real world
complexities of the use of a hot water heater in households of
different types. With the update to RECS 2020, for example, the
[[Page 105223]]
estimate for the hot water use in a single-person household is now
between 7 and 91 gallons for gas-fired instantaneous water heaters,
with a weighted average of 32 gallons. The average hot water use across
all household sizes is 73 gallons, relatively stable compared to 71
gallons DOE estimated with RECS 2015 in the July 2023 NOPR. DOE
continues to rely on RECS as the basis of its analyses for its
incomparable scope of coverage on housing characteristics and energy
consumption. RECS 2020 is a reflection of the real-world usage in the
national water heater market. In terms of the assignment of draw
pattern for gas-fired instantaneous water heaters, DOE derived the
distribution of different draw patterns based on market research of the
number of models in each bin that are available on the market. The
breakdown can be found in chapter 7 of the final rule TSD.
3. Energy Use Determination
To calculate the energy use of consumer water heaters, DOE
determined the energy consumption associated with water heating and any
auxiliary electrical use. DOE calculated the energy use of water
heaters using a simplified energy equation, the water heater analysis
model (``WHAM''). WHAM accounts for a range of operating conditions and
energy efficiency characteristics of water heaters. The current version
of WHAM is most appropriate for calculating the energy use of electric
resistance storage water heaters. To account for the characteristics of
consumer gas-fired instantaneous water heaters, energy use must be
calculated using modified versions of the WHAM equation. For gas-fired
instantaneous water heaters, the water heater operating conditions are
indicated by the daily hot water draw volume, inlet water temperature,
and thermostat setting. To describe energy efficiency characteristics
of water heaters, WHAM also uses parameters in the DOE test procedure
including recovery efficiency (``RE'') and rated input power (``PON'').
These modified versions are further discussed in chapter 7 and appendix
7B of the final rule TSD.
The daily hot water draw volume is estimated based on the gas-fired
instantaneous water heater energy use from RECS 2020 and CBECS 2018.
The inlet water temperature is based on weather station temperature
data and RECS 2020 ground water temperature data for each household.
The consumer gas-fired instantaneous water heater thermostat setting is
based on multiple sources including contractor survey data and field
data.
AGA et al. stated that electricity consumption should be slightly
higher for all units installed in unconditioned spaces in the winter
that are exposed to freezing temperatures because of freeze protection.
(AGA et al., No. 1439 at p. 7) Similarly, Rinnai noted that the absence
of freeze protection in the model doesn't adequately account for
seasonal variation in electricity use and higher consumption for all
units in unconditioned spaces during winter. (Rinnai, No. 1443 at p.18)
In response, DOE acknowledges that freeze protection is an integrated
feature in many tankless water heaters. A freeze protection electric
heater will activate to protect the internal of the water heater from
freezing when it reaches certain ambient temperatures. Power
consumption varies slightly by models but generally is up to 200 Watts
during freeze protection mode. DOE's energy use analysis is aimed to
evaluate the electricity and fuel consumption associated with water
heating, where the electricity use covers the burner operating mode and
standby mode, and then compare the energy consumed by models at various
analyzed efficiency levels. Taking into consideration the electricity
consumption associated with freeze protection mode not only will have
trivial impact to the total annual electricity use results, given the
negligible fraction of time the water heater being in such mode
throughout the year, but also will be inconsequential to the
electricity use differential between different efficiency levels.
Therefore, for this final rule DOE maintained its energy use analysis
method without taking into account electricity use from freeze
protection operation.
Gas Association Commenters commented that there is a bug in the LCC
tool that causes it to use only a single year of weather data rather
than 10-year average, which they believe impacts gas-fired
instantaneous water heater results. (Gas Association Commenters, No.
1181 at p. 34) In response, DOE notes that the analysis uses the NOAA's
30 year average weather data for the outside air temperature.
Chapter 7 of the final rule TSD provides details on DOE's energy
use analysis for consumer gas-fired instantaneous water heaters.
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
consumer gas-fired instantaneous water heaters. The effect of new or
amended energy conservation standards on individual consumers usually
involves a reduction in operating cost and an increase in purchase
cost. DOE used the following two metrics to measure consumer impacts:
The LCC is the total consumer expense of an appliance or
product over the life of that product, consisting of total installed
cost (manufacturer selling price, shipping costs, distribution chain
markups, sales tax, and installation costs) plus operating costs
(expenses for energy use, maintenance, and repair). To compute the
operating costs, DOE discounts future operating costs to the time of
purchase and sums them over the lifetime of the product.
The PBP is the estimated amount of time (in years) it
takes consumers to recover the increased purchase cost (including
installation) of a more-efficient product through lower operating
costs. DOE calculates the PBP by dividing the change in purchase cost
at higher efficiency levels by the change in annual operating cost for
the year that amended or new standards are assumed to take effect.
For any given efficiency level, DOE measures the change in LCC
relative to the LCC in the no-new-standards case, which reflects the
estimated efficiency distribution of consumer gas-fired instantaneous
water heaters 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, DOE calculated the LCC and
PBP for a nationally representative set of housing units and commercial
buildings. As stated previously, DOE developed household samples from
the RECS 2020 and CBECS 2018. For each sample household and commercial
building, DOE determined the energy consumption for the consumer gas-
fired instantaneous water heaters and the appropriate energy price. By
developing a representative sample of households and commercial
buildings, the analysis captured the variability in energy consumption
and energy prices associated with the use of consumer gas-fired
instantaneous water heaters.
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, retailer and distributor markups,
[[Page 105224]]
shipping costs, and sales taxes--and installation costs. Inputs to the
calculation of operating expenses include annual energy consumption,
energy prices and price projections, repair and maintenance costs,
product lifetimes, and discount rates. Inputs to the PBP calculation
include the installed cost to the consumer and first year operating
expenses. DOE created distributions of values for product lifetime,
discount rates, and sales taxes, with probabilities attached to each
value, to account for their uncertainty and variability.
The computer model DOE uses to calculate the LCC relies on a Monte
Carlo simulation to incorporate uncertainty and variability into the
analysis. The Monte Carlo simulations sample input values from
constrained probability distributions based on available data and
consumer water heater user samples. For this rulemaking, the Monte
Carlo approach is implemented in MS Excel together with the Crystal
Ball\TM\ add-on.\69\ The model calculated the LCC for products at each
efficiency level for 10,000 gas-fired instantaneous water heater
installations in housing and commercial building units 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 (as shown
in chapter 8 of the final rule TSD). In performing an iteration of the
Monte Carlo simulation for a given consumer, product efficiency is
chosen based on its probability. At the high end of the range, if the
chosen product efficiency is greater than or equal to the efficiency of
the standard level under consideration, the LCC calculation reveals
that the hypothetical consumer represented by that data point is not
impacted by the standard level because that consumer is already
purchasing a more-efficient product. At the low end of the range, if
the chosen product efficiency is less than the efficiency of the
standard level under consideration, the LCC calculation reveals that
the hypothetical consumer represented by that data point is impacted by
the standard level. By accounting for consumers who are already
projected to purchase more-efficient products, DOE avoids overstating
the potential benefits from increasing product efficiency.
---------------------------------------------------------------------------
\69\ Crystal Ball\TM\ is commercially-available software tool to
facilitate the creation of these types of models by generating
probability distributions and summarizing results within Excel,
available at www.oracle.com/technetwork/middleware/crystalball/overview/ (last accessed August 29, 2024).
---------------------------------------------------------------------------
DOE calculated the LCC and PBP for consumers of consumer gas-fired
instantaneous water heaters as if each were to purchase a new product
in the first year of required compliance with new or amended standards.
New and amended standards apply to consumer water heaters manufactured
5 years after the date on which any new or amended standard is
published. (42 U.S.C. 6295(m)(4)(A)(ii)) Therefore, DOE used 2030 as
the first full year of compliance with any amended standards for
consumer gas-fired instantaneous water heaters.
Table IV.10 summarizes the approach and data DOE used to derive
inputs to the LCC and PBP calculations. The subsections that follow
provide further discussion. Details of the spreadsheet model, and of
all the inputs to the LCC and PBP analyses, are contained in chapter 8
of the final rule TSD and its appendices.
Table IV.10--Summary of Inputs and Methods for the LCC and PBP Analysis *
----------------------------------------------------------------------------------------------------------------
Inputs Source/method
----------------------------------------------------------------------------------------------------------------
Product Cost............................................ Derived by multiplying MPCs by manufacturer and
distribution chain markups and sales tax, as
appropriate. Used historical data to derive a price
scaling index to project future product costs.
Installation Costs...................................... Determined with labor and material cost data from
RSMeans.
Annual Energy Use....................................... Including fuel use and electricity use.
Variability: Based on the RECS 2020 and CBECS 2018.
Energy Prices........................................... Natural Gas: Based on EIA's Natural Gas Navigator data
for 2022.
Electricity: Based on EIA's Form 861 data for 2022.
Propane: Based on EIA's State Energy Data System
(``SEDS'') for 2021.
Variability: Regional energy prices determined for 50
states and District of Columbia for residential and
commercial applications.
Marginal prices used for natural gas and electricity
prices.
Energy Price Trends..................................... Based on AEO2023 price projections.
Repair and Maintenance Costs............................ Based on RSMeans 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.
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. Primary data source was Damodaran Online.
Compliance Date......................................... 2030.
----------------------------------------------------------------------------------------------------------------
* Not used for PBP calculation. References for the data sources mentioned in this table are provided in the
sections following the table or in chapter 8 of the final rule TSD.
1. Product Cost
To calculate consumer product costs, DOE multiplied the total
manufacturer price, which is MSPs developed in the engineering analysis
plus shipping cost, 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 total manufacturer price associated with higher-
efficiency products.
Examination of historical price data for certain appliances and
equipment that have been subject to energy conservation standards
indicates that the assumption of constant real prices may, in many
cases, overestimate long-term trends in appliance and equipment prices.
Economic literature and historical data suggest that the real costs of
these products may in fact trend
[[Page 105225]]
downward over time according to ``learning'' or ``experience''
curves.\70\
---------------------------------------------------------------------------
\70\ Desroches, L.-B., K. Garbesi, C. Kantner, R. Van Buskirk,
and H.-C. Yang. Incorporating Experience Curves in Appliance
Standards Analysis. Energy Policy. 2013. 52 pp. 402-416; Weiss, M.,
M. Junginger, M. K. Patel, and K. Blok. A Review of Experience Curve
Analyses for Energy Demand Technologies. Technological Forecasting
and Social Change. 2010. 77(3): pp. 411-428.
---------------------------------------------------------------------------
In the experience curve method, the real cost of production is
related to the cumulative production or ``experience'' with a
manufactured product. This experience is usually measured in terms of
cumulative production. As experience (production) accumulates, the cost
of producing the next unit decreases. The percentage reduction in cost
that occurs with each doubling of cumulative production is known as the
learning rate. In typical experience curve formulations, the learning
rate parameter is derived using two historical data series: cumulative
production and price (or cost). DOE obtained historical PPI data for
water heating equipment from 1967-1973 and 1977-2022 for all other
consumer water heaters from the U.S. Bureau of Labor Statistics'
(``BLS'').\71\ The PPI data reflect nominal prices, adjusted for
product quality changes. An inflation-adjusted (deflated) price index
for heating equipment manufacturing was calculated by dividing the PPI
series by the implicit price deflator for Gross Domestic Product
Chained Price Index.
---------------------------------------------------------------------------
\71\ Series ID PCU 33522033522083; see www.bls.gov/ppi/.
---------------------------------------------------------------------------
From 1967 to 2002, the deflated price index for consumer gas-fired
instantaneous water heaters was mostly decreasing, or staying flat.
Since then, the index has risen, primarily due to rising prices of
copper, aluminum, and steel products which are the major raw material
used in water heating equipment. The rising prices for copper and steel
products were attributed to a series of global events, from strong
demand from China and other emerging economies to the recent severe
delay in commodity shipping due to the COVID-19 pandemic. Given the
slowdown in global economic activity in recent years and the lingering
impact from the global pandemic, DOE believes that the extent to which
the trends of the past five years will continue is very uncertain. DOE
also assumes that any current supply chain constraints are short-lived
and will not persist to the first year of compliance. Given the
uncertainty regarding the magnitude and direction of potential future
price trends, DOE decided to use constant prices as the default price
assumption to project future consumer gas-fired instantaneous water
heater prices. Thus, projected prices for the LCC and PBP analysis are
equal to the 2023 values for each efficiency level in each product
class. However, DOE performed a sensitivity analysis utilizing both a
decreasing and an increasing price trend (see appendix 8C). The
relative comparison of potential standard levels remains the same
regardless of which price trend is utilized and the conclusions of the
analysis do not change.
BWC requested that DOE detail its methods in utilizing price
learning curves for condensing gas products, as was indicated in
section IV(F)(1) of the July 2023 NOPR, so that stakeholders may review
them. BWC suggested the additional components required to manufacture
higher efficiency products required by this proposal, in addition to
their more complex manufacturing processes, will continue to compel
higher product costs than is currently expected of non-condensing gas
water heaters common in the market today, economies of scale
notwithstanding. (BWC No. 1164 at p. 17) The available data only allow
estimation of price trends for water heaters as a group, not for
different efficiency levels of water heaters. DOE agrees that the
product costs of condensing gas products will continue to be higher
than non-condensing gas water heaters. However, it is reasonable to
expect that factors affecting water heaters as a whole, such as growing
experience in production or changes in commodity prices, will affect
all water heaters. Thus, for this final rule, DOE maintained that same
methodology as the July 2023 NOPR and assumed the same price trend
assumptions would apply to all gas-fired instantaneous water heater
efficiency levels. To assess the impact of alternative price learning
assumptions, DOE analyzed scenarios using low- and high-price trends in
the LCC. From this sensitivity analysis, DOE finds that LCC savings for
alternative price trends are similar to the reference case results and
DOE would arrive at the same policy conclusion. See appendix 8C for
details.
Responding to the July 2023 NOPR, Ecotemp stated that non-
condensing tankless water heaters typically cost half the price of
comparable condensing tankless water heaters. (Ecotemp, No. 1092 at p.
1) Rinnai argued that the marginal price for non-condensing to
condensing gas-fired instantaneous water heater prices are too low and
should be $450 rather than the $310 calculated by DOE. (Rinnai, No.
1186 at p. 24) Rinnai claimed DOE's installed cost differential of $200
between non-condensing and condensing is too low and based on data
collected from installers and distributors the value is closer to $665.
(Rinnai, No. 1443 at p. 19)
To investigate stakeholder concerns, DOE reviewed present-day
retail prices for non-condensing and condensing models for this final
rule. Overall, DOE determined that comparable non-condensing and
condensing gas-fired instantaneous water heater models can retail for
similar prices, with condensing models priced competitively at 1.2-1.3
times the retail price of non-condensing models. In this final rule LCC
analysis, DOE estimates average retail prices of gas-fired
instantaneous water heaters at condensing efficiency levels are 1.30-
1.42 times that of the baseline non-condensing gas-fired instantaneous
water heater corresponding to incremental retail price of $294 to $414.
DOE notes that gas-fired instantaneous water heaters are marked up
differently per distribution channels, as discussed in section IV.D,
and that the incremental in retail prices between any given condensing
and non-condensing models can be higher or lower than the reported
values above. DOE's analysis calculated weighted averages taking into
account both the markup associated with individual distribution
channels and the probability of water heaters sold to customers through
each channel. In response to Rinnai's comment on installed cost, which
is the sum of retail price and installation cost, DOE estimated that
the differential between non-condensing and condensing slightly lowered
to between $217 and $337. This is due to average installation cost for
condensing gas-fired instantaneous water heaters being slightly lower
than that for non-condensing baseline. See section IV.F.2 for more
details in the calculation of installation cost.
Rheem believes that incremental retail costs between step and fully
modulating designs is about 50 percent too low. (Rheem, No. 1436 at p.
3; Rheem, No. 1177 at p.12)
In response, DOE revised the manufacturer production cost for EL 4
for the final rule such that retail price estimates for max-tech
designs, which incorporate fully modulating burners, have increased in
this final rule analysis. The incremental retail price between step
modulating burner and fully modulating burner gas-fired instantaneous
water heaters, taking EL 2 and EL 4 as an example, is $106, increasing
from $56 (in 2022$) in the July 2024 NODA (see section IV.C.1.c for
more details).
[[Page 105226]]
2. Installation Cost
The installation cost is the cost to the consumer of installing the
consumer gas-fired instantaneous water heater, in addition to the cost
of the water heater itself. The cost of installation covers all labor,
overhead, and material costs associated with the replacement of an
existing water heater or the installation of a water heater in a new
home, as well as delivery of the new water heater, removal of the
existing water heater, and any applicable permit fees. Higher-
efficiency water heaters may require consumers 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 and CBECS 2018. For this final rule,
DOE used 2023 RSMeans data for the installation cost estimates,
including labor costs.72 73 74 75 DOE's analysis of
installation costs accounted for regional differences in labor costs by
aggregating city-level labor rates from RSMeans into 50 U.S. States and
the District of Columbia to match RECS 2020 data and CBECS 2018 data.
---------------------------------------------------------------------------
\72\ RSMeans Company Inc., RSMeans Mechanical Cost Data.
Kingston, MA (2023) (Available at: www.rsmeans.com/products/books/2022-cost-data-books) (Last accessed August 29, 2024).
\73\ RSMeans Company Inc., RSMeans Residential Repair &
Remodeling Cost Data. Kingston, MA (2023) (Available at:
www.rsmeans.com/products/books/2022-cost-data-books) (Last accessed
August 29, 2024).
\74\ RSMeans Company Inc., RSMeans Plumbing Cost Data. Kingston,
MA (2023) (Available at: www.rsmeans.com/products/books/2022-cost-data-books) (Last accessed August 29, 2024).
\75\ RSMeans Company Inc., RSMeans Electrical Cost Data.
Kingston, MA (2023) (Available at: www.rsmeans.com/products/books/2022-cost-data-books) (Last accessed August 29, 2024).
---------------------------------------------------------------------------
AHRI stated that replacement costs are not uniform across the
country and vary by regional labor rates, building codes, and
availability of skilled installers. AHRI believes that this variability
should be factored in each state when assessing economic impacts.
(AHRI, No. 1437 at p. 3) In response, as stated above, DOE has
accounted for the regional difference in labor rates by incorporating
regional labor cost factors derived from RSMeans. DOE believes that,
therefore, variability in state level labor costs is factored in in its
analysis.
a. Basic Installation Costs
First, DOE estimated basic installation costs that are applicable
to all consumer gas-fired instantaneous water heaters, in replacement,
new owner, and new home or building installations. These costs include
putting in place and setting up the consumer water heater, gas piping
and/or electrical hookup, permits, water piping, removal of the
existing consumer water heater, and removal or disposal fees.
AGA et al. stated that DOE's final Furnaces rule and pending
Boilers rule show that market shares for condensing and non-condensing
units vary significantly across different climates, which they believed
is likely true for gas-fired instantaneous water heaters suggesting
that different climates and household characteristics could heavily
influence not only the type of products installed but also the required
venting parts to ensure safe and effective operation. (AGA et al., No.
1439 at p. 7) In response to AGA et al.'s comment, it is true that
space heating products typically have some regionalities, which is
mainly driven by the varying heating needs across different climate
zones. For water heating equipment like gas-fired instantaneous water
heater, however, DOE has not found, nor have stakeholders pointed to,
any data showing that there would be a similar level of impact of the
climate on market adoption. In terms of the required venting parts, DOE
calculated the costs for venting based on the vent material suggested
by manufacturers and code.
b. Venting Costs
After accounting for the basic costs for removing the old water
heater and setting up the new, DOE considered the installation costs
associated with venting. Non-condensing gas-fired instantaneous water
heaters are Category III appliances that operate under positive
pressure. They require stainless steel vent material. Condensing gas-
fired instantaneous water heaters are Category IV appliance that can be
vented through a PVC, CPVC, or polypropylene vent material. In its
analysis, DOE accounted for the cost for setting up the vent pipes,
vent elbows, and terminations of the appropriate material and the air
intake pipe for those that are direct vented (i.e. combustion air is
brought in from outdoors).
DOE received comments after the publication of July 2023 NOPR and
July 2024 NODA regarding the use of concentric vent, vent length, and
outdoor installations.
In response to July 2023 NOPR, Rinnai stated the Department's
estimated venting costs of $499 for non-condensing gas-fired
instantaneous water heater and $263 for condensing gas-fired
instantaneous water heater overstate the cost differential, if any even
exists. (Rinnai, No. 1186 at p. 24) Rinnai stated that most non-
condensing gas-fired instantaneous water heaters require 3'' diameter
venting and not 4'' diameter venting as is used in the analysis,
leading to 25 percent reduction in the cost of venting materials.
Rinnai stated that more than 75 percent of non-condensing models do not
use stainless steel venting and instead use concentric and aluminum
venting. Rinnai stated that 20ft of venting and associated fittings
used in the LCC analysis needs to be subjected to additional
sensitivity analysis, including the variation in installed vent
lengths, materials used, concentric versus single wall vents, and
product installation location. Rinnai stated that tankless water
heaters are installed typically on an outside wall, which would require
far less than 20 feet of venting, and for outdoor installations, no
venting would be required. (Rinnai, No. 1186 at p. 24)
In response to July 2024 NODA, Rinnai claimed that the analysis
overlooks that gas-fired instantaneous water heater installation uses a
different pipe installation from furnaces that is cheaper and
significantly shorter than vertical venting. Rinnai stated that they
account for half of sales for non-condensing gas-fired instantaneous
water heater units and those units use aluminum/plastic concentric
venting and have on average 1-2 feet of venting because they are mostly
installed outside or on outside walls (e.g., garages). Rinnai claimed
that DOE's estimate for venting components is overestimated compared to
costs found on retailer websites ($131 vs $85). (Rinnai, No. 1443 at
pp. 14-15) BWC disagreed with DOE considering a 1 ft. minimum vent
length as part of their analysis for this July 2024 NODA. They
commented that while it may be true that some manufacturers of gas-
fired instantaneous water heaters indicate this vent length is possible
in their literature, according to their experience this is rarely.
(BWC, No. 1441 at p. 3)
Rinnai claimed DOE's model makes unjustified assumptions on the
gas-fired instantaneous water heater installation location. Rinnai
claimed that the July 2024 NODA only estimates 12 percent of gas-fired
instantaneous water heaters installed outdoors which is much lower than
the value inferred from RECS 2020 which reports half of households
install their water heater in an ``outdoor closet, crawlspace, or
outdoor''. Rinnai stated their data indicate 23 percent of gas-fired
instantaneous water heaters are installed outdoors. Rinnai further
stated that their data show that an additional 55 percent of gas-fired
instantaneous water heater installations are likely to be located close
to outside walls in order to minimize venting. (Rinnai, No. 1443 at
p.18)
[[Page 105227]]
Rheem believed that only 20 percent of condensing units would be
installed with concentric venting due to lower relative costs of
plastic venting and wall/roof penetrations. Rheem estimated that up to
50 percent of non-condensing units are installed outdoors in new
construction where non-condensing is more common. Rheem estimated that
about 40 percent of outdoor installations use recess boxes or pipe
covers (split evenly between the two). Rheem estimated that 7 percent
of condensing units are installed outdoors and expects that number to
rise if energy conservation standards are amended. (Rheem, No. 1436 at
p. 2-3)
A.O. Smith and BWC commented that they found DOE's estimate of 50
percent of condensing gas-fired instantaneous water heaters using
concentric vent to be high. BWC did not provide a percentage that they
believe is reasonable. A.O. Smith commented that they would estimate
only 20 percent of condensing gas-fired instantaneous water heaters use
a concentric pipe. (A.O. Smith, No. 1440 at p. 6; BWC, No. 1441 at p.
3)
BWC stated that DOE underestimated the installed costs for gas-
fired instantaneous water heaters in the July 2024 NODA when assuming
half of these products installed outdoors, in outdoor closets, or
crawlspaces, would not require venting. BWC countered that the need for
venting in these install locations is not uncommon, particularly in
crawlspaces, which are often located within the building envelope. BWC
added that some outdoor units require use of a special vent kit, or a
box that would protect product controls from inclement weather, both of
which would add to the installed cost of the product. (BWC, No. 1441 at
p. 3)
In response, for the July 2024 NODA, DOE made further improvements
to its methodology used in the July 2023 NOPR to account for the
venting costs for gas-fired instantaneous water heaters. First, DOE
took into account the use of a concentric pipe (a pipe used for both
air intake and venting) for some installations in its analysis, which
was not previously included in the NOPR analysis. There are two main
vent configurations for gas-fired instantaneous water heaters--(1)
single pipe for venting with room air intake or two pipes with one for
outdoor air intake and one for venting; (2) concentric pipe for both
air intake and venting. DOE estimated that 90 percent of the non-
condensing and 50 percent of the condensing gas-fired instantaneous
water heaters that would be direct vented would use concentric pipes
for the benefit of only having to make one wall penetration. Among all
installations, these updates result in approximately 22 percent of
condensing gas-fired instantaneous water heaters and 41 percent of non-
condensing gas-fired instantaneous water heaters being installed with a
concentric vent. In terms of its impact to the total installation
costs, because a single concentric pipe is cheaper to install than two
separate pipes (one for air intake and one for venting) this
installation scenario reduced overall installation costs, particularly
for non-condensing gas-fired instantaneous water heaters. Additionally,
because metal venting for non-condensing water heaters is more
expensive per foot than plastic venting for condensing water heaters,
updates to the analysis that decrease the length of total venting
required for some installations will lower the LCC savings when
replacing a non-condensing gas-fired instantaneous water heater with a
condensing gas-fired instantaneous water heater for these
installations. For this final rule, DOE maintained the methodology used
in July 2024 NODA.
Second, DOE adjusted its methodology of estimating the minimum
length of the vent run in the July 2024 NODA. In the July 2023 NOPR,
DOE calculated the minimum vent length based on housing configuration
and installation location and estimated that the shortest route to vent
a gas-fired instantaneous water heater is 3 ft. DOE conducted further
research of product literature and concluded that for many
installations a shorter vent run could be achieved, primarily by
venting through a side wall. Therefore, DOE recalibrated its
methodology and estimated that the minimum vent length can be as low as
1 ft for a certain subset of installations.
Lastly, in the July 2023 NOPR, DOE did not account for the outdoor
installation of gas-fired tankless water heaters. In the July 2024
NODA, DOE utilized the location information from RECS 2020 and assumed
that half of the residential households that report their water heaters
being installed in an ``outdoor closet, crawlspace, or outdoor'' would
actually install the tankless water heater on the outside of a wall
without venting. Therefore, DOE estimated that among the entire sample,
about 12 percent of gas-fired instantaneous water heaters are installed
outdoors. For the outdoor installations, DOE assumed no venting costs
but a cost for an outdoor installation conversion kit or box needed to
protect the water heater from weather impacts. As with lowering the
minimum vent length above, this update to the analysis reduces LCC
savings when replacing a non-condensing gas-fired instantaneous water
heater with a condensing gas-fired instantaneous water heater for these
installations.
Rinnai asserted that the vent cost distributions used in the July
2024 NODA are skewed with the average vent cost for non-condensing
units being higher than the average for condensing units. Additionally,
Rinnai noted that for EL 0, the vent cost distribution has a border
spread of higher costs relative to EL1-3 which have a gradual taper
with more concentration in lower cost brackets. Rinnai claimed that, on
average, the two types of venting installations are not significantly
different, though noted that there is a small increase for non-
condensing units due to the venting materials used. (Rinnai, No. 1443
at pp.15-16) Rinnai pointed to a particular simulation case in which
the venting cost for EL 0 is $841 and the venting cost at higher ELs is
$83 and noted that this variation is not supported by typical data and
affect the accuracy of the July 2024 NODA's economic assessments.
(Rinnai, No. 1443 at p. 16)
In response, the difference between the venting costs for non-
condensing and condensing gas-fired instantaneous water heaters depends
largely on the vent configuration (type of vent pipe and vent length).
As indicated by Rinnai, the non-condensing units generally have higher
installation cost because of the more expensive vent material required.
For this final rule, after accounting for concentric pipes, shorter
vent lengths, and outdoor installations, as elaborated above, DOE noted
a decrease in the differential in installation cost between non-
condensing and condensing. The installation cost for non-condensing
gas-fired instantaneous water heaters is 7 percent higher than the
condensing, instead of 10 percent higher compared to the July 2023
NOPR. For this final rule analysis, DOE estimated an average
installation cost of $1,102 for non-condensing units and $1,025 for
condensing units. Further details regarding installation cost
methodology can be found in chapter 8 and appendix 8D of the final rule
TSD.
PHCC commented that DOE did not mention additional installation
costs for vertical vents. PHCC commented that in most vertical
instances, the installation will require walls to be opened for vent
removal, new vents and supports installed, and the finished surfaces
replaced and it appears that DOE did not consider these costs. (PHCC,
No. 1151 at p. 3) In response, DOE determined that for a fraction of
[[Page 105228]]
replacement installations of gas tankless water heater in an indoor
closet, the household may opt to conceal the vent pipe that passes
through the living space. For the length of the concealing needed, DOE
determined that for most household configurations, when concealing is
needed, typically the horizontal vent is more likely to pass through
living space. Vertical run is more likely to be installed by the
plumber where it is enclosed and outside of living space.
In response to July 2024 NODA, AGA et al. and Rinnai claimed that
DOE had applied the same installation cost and venting assumptions from
gas furnaces to gas-fired instantaneous water heaters which led to
overestimation of both labor hours and material costs. They noted that
Category I furnaces operate under negative pressure and are mainly
vented vertically with substantially longer venting systems, which does
not reflect the typical venting of a gas-fired instantaneous water
heater. (AGA et al., No. 1439 at pp. 3-5 and p. 6; Rinnai, No. 1443 at
pp. 11-14) AGA et al. and Rinnai claimed that in the model 100 percent
of installations were assumed to use stainless steel parts with
associated high labor costs due to the complexity of vertical
installations and that the model failed to account for the fact that
gas-fired instantaneous water heaters do not universally require such
extensive venting solutions. They later acknowledged that DOE's model
had identified 86 percent of installations as horizontal but still
believed that the percentage of vertical installations was
overestimated. Additionally, they stated that the average horizontal
system requires less than 7 feet of venting and follows a
straightforward work plan like that of a condensing unit, and that
DOE's model applied the same labor costs to horizontal installations as
it does to vertical, which resulted in an overestimation. Rinnai also
echoed this comment. (AGA et al., No. 1439 at pp. 3-5 and p. 6; Rinnai,
No. 1143, at p. 13)
AGA et al. claimed that while DOE's model includes cost data for
alternative materials like double-walled aluminum flex pipe, which is
approximately half the cost of stainless steel, these alternatives were
not applied in any of the 10,000 trials, which led to inflated
installation cost estimates for gas-fired instantaneous water heaters.
(AGA et al., No. 1439 at p. 4) Similarly, Rinnai commented that the
July 2024 NODA model incorrectly assumed that stainless-steel pipes are
used in all 10,000 trials with the end result being venting costs are
significantly overstated. Furthermore, both AGA et al. and Rinnai
stated that an additional markup of 39 percent is applied to metal
venting which further widens the gap in installation cost between EL 0
and higher efficiency levels. (AGA et al., No. 1439 at p. 5; Rinnai,
No. 1443 at pp. 14-15)
In response, DOE believes that commenters have misinterpreted
documentation in July 2023 NOPR TSD and the July 2024 NODA analytical
tool. As discussed above, non-condensing gas-fired instantaneous water
heaters are Category III appliance that operates under positive
pressure requiring stainless steel vent material. Condensing gas-fired
instantaneous water heaters are Category IV appliance that can be
vented through a PVC, CPVC, or polypropylene vent material. DOE did not
assume the same venting for gas-fired instantaneous water heaters as
for furnaces. DOE also did not assume 100 percent of non-condensing
gas-fired instantaneous water heater installations to be using
stainless steel vent pipe. To further clarify, for the 41 percent of
non-condensing gas-fired instantaneous water heater installations that
are assumed to be using a concentric pipe, DOE applied the material
cost estimated based on market research of aluminum/PVC concentric pipe
which is the most affordable option on the market. In its analytical
tool, a conversion factor of 1.33 was applied to convert the material
price data for a regular 4'' stainless steel vent to that of a
concentric pipe for simplicity. Note that the conversion factor changed
slightly from 1.39 in July 2024 NODA because of the update from 2022$
to 2023$.
Rinnai claimed that in the July 2024 NODA, DOE ignored the
replacement market where consumers already using a non-condensing gas-
fired instantaneous water heaters will have no venting cost with a
like-for-like replacement. (Rinnai, No. 1443 at p.18) In response, DOE
believes that it is unlikely for a new gas-fired instantaneous water
heater to be compatible with the old vent of a unit being replaced,
even if both water heaters fall under the same vent category. According
to product literature, many models recommend installation with vent
pipes from a suggested list of specific brands. Even if the new non-
condensing water heater is from the same manufacturer, the model is not
likely to be the same since the model nomenclature, specifications and
designs change every several years and therefore such installation will
likely require a new venting system. Therefore, DOE did not consider
the case of reusing stainless steel vent. DOE notes that even if no
venting cost was associated with a like-for-like replacement of non-
condensing units, given the limited market share of non-condensing gas-
fired instantaneous water heaters in no-new-standards case, this
assumption will not impact the economic justification reflected in the
positive LCC savings at the adopted TSL.
c. Condensate Management Costs
Besides the basic installation cost for removing the old water
heater and setting up the new and the venting cost associated with
setting up the flue vent and air intake pipework, DOE also considered
specifically for condensing gas-fired instantaneous water heaters the
cost of condensate management. In order to drain condensate properly,
cost items can apply based on the specifics of the installation
including condensate pipe, condensate pump, condensate neutralizer, and
condensate drain. DOE additionally considered cases where a heat tape
is applied and cases where an electric connection setup is needed.
In response to the June 2023 NOPR, Rinnai stated that DOE excluded
from its analysis of condensing gas-fired instantaneous water heaters
many of the costs of condensate management including drains, pumps,
neutralizers, and associated and recurring maintenance costs. (Rinnai,
No. 1186 at pp. 24-25) In response to July 2024 NODA, Rinnai further
claimed that the analysis underestimates the cost of condensate
management and states that DOE either omits typical costs needed for
condensing installations or applies them to a relatively small
proportion of condensing gas-fired instantaneous water heater
installations. For example, Rinnai claimed that the July 2024 NODA only
applies a condensate neutralizer to 12.5 percent of installations
rather than 25 percent of cases. Rinnai further requested DOE provide
evidence that the default of 12.5 percent represents a survey of
installations and market conditions. (Rinnai, No. 1443 at p. 17) In
response, as mentioned above, DOE took into account various cost items
for condensate management. DOE assumed that some cost items would apply
to only a certain fraction of installation. For example, DOE assumed
that condensate pipe cost is needed for both replacement and new
construction installations but then only 12.5 percent of replacement
installations where the household does not have a central AC or heat
pump would need to be applied the cost of a condensate pump. As Rinnai
pointed out, DOE assumed that 12.5 percent of all installations would
be applied the cost of condensate neutralizer. DOE adopted this
estimate
[[Page 105229]]
based on its market and technology assessment, engineering analysis,
and its expert consultant feedback. Rinnai however provided no basis to
support doubling the installation of condensate neutralizers to 25% of
all cases. Nor has DOE found any other market data to support an
alternative estimate. For lack of further data and evidence, DOE
maintained its assumption of 12.5 percent of condensate neutralizer
installations in this final rule.
PHCC commented that DOE's assumption that drains are required at or
near water heaters is wrong as codes do not require it. They commented
that changing to an appliance that produces condensate will require a
pump or drain that is near the heater because that condensate cannot
drain routinely across the floor as it can create slippery surfaces,
and that an installed pipe to a remote drain can be a trip hazard. PHCC
commented that the cost for adding a drain should be allocated against
all replacement water heaters that will produce condensate. (PHCC, No.
1151 at p. 3) In response, DOE took into consideration the cost items
of setting up a condensate pump and condensate drain in its analysis.
Condensate pump is usually needed when the water heater is below the
closest drain or when without an immediate drain the condensate need to
be pumped to a remote drain. DOE assumed that for gas-fired
instantaneous water heaters, around 12.5 percent of the replacements
will need to set up a new condensate pump when the households do not
have installed central air conditioner or heat pump that may already be
equipped with a condensate pump. Accordingly, DOE applied the cost of
non-corrosive drain to those installations that require the setup of a
condensate pump. On average, DOE estimated a cost of $36 for condensate
management in total.
Noritz commented that the ability to replace a water heater in an
emergency is an important attribute of value to consumers, and changes
in installation patterns raise costs and impose other time-related
constraints such as changing venting patterns, carpentry to make
changes to the house, and possible electrical work to complete
installation. Noritz commented that a condensing gas-fired
instantaneous water heater does provide the same utility to customers,
but as noted in the NOPR there are significant installation changes
which would require significant cost. (Noritz, No. 1202 at pp. 1-2) DOE
agrees that in emergency replacement, like-for-like equipment provides
the most convenience to the consumer. However, DOE estimates that the
installation of condensing equipment, including the flue venting, the
condensate pipe, and pump can be accomplished as part of an emergency
replacement, meaning that for emergency replacements, non-condensing
equipment do not necessarily bring significant additional value.
3. Annual Energy Consumption
For each sampled household and building, DOE determined the energy
consumption for consumer gas-fired instantaneous water heaters at
different efficiency levels using the approach described previously in
section IV.E of this document.
Higher-efficiency gas-fired instantaneous water heaters reduce the
operating costs for a consumer, which can lead to greater use of the
water heater. 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. Although some households may
increase their water heater use in response to increased efficiency,
DOE does not include the rebound effect in the LCC analysis because the
increased utilization of the water heater provides value to the
consumer, thus it is not simply an added cost. DOE does include rebound
in the NIA for a conservative estimate of national energy savings and
the corresponding impact to consumer NPV. See chapter 10 of the final
rule TSD for more details.
4. Energy Prices
Because marginal energy 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 energy prices for the energy use of the product
purchased in the no-new-standards case, and marginal energy 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.76 77 78 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 and
natural gas. For the derivation of monthly price factors and marginal
price factors, DOE used historical data from EIA from 2003 up to 2022
and from 2013 up to 2022, respectively. DOE adjusted energy prices to
2023$ using the Consumer Price Index. Further details may be found in
chapter 8 of the final rule TSD.
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\76\ 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 29, 2024).
\77\ U.S. Department of Energy--Energy Information
Administration, Natural Gas Navigator (2022) (Available at:
www.eia.gov/naturalgas/data.php) (Last accessed August 29, 2024).
\78\ U.S. Department of Energy--Energy Information
Administration, State Energy Data System (``SEDS'') (2021)
(Available at: www.eia.gov/state/seds/) (Last accessed August 29,
2024).
---------------------------------------------------------------------------
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 50 U.S. states and District of Columbia from the reference
case in AEO2023, which has an end year of 2050.\79\ To estimate price
trends after 2050, DOE used the average annual growth rate in prices
from 2046 to 2050 based on the methods used in the 2022 Life-Cycle
Costing Manual for the Federal Energy Management Program
(``FEMP'').\80\
---------------------------------------------------------------------------
\79\ EIA. Annual Energy Outlook 2023 with Projections to 2050.
Washington, DC. Available at www.eia.gov/forecasts/aeo/ (last
accessed August 29, 2024).
\80\ Lavappa, Priya D. and J.D. Kneifel. Energy Price Indices
and Discount Factors for Life-Cycle Cost Analysis--2022 Annual
Supplement to NIST Handbook 135. National Institute of Standards and
Technology (NIST). NISTIR 85-3273-37, available at www.nist.gov/publications/energy-price-indices-and-discount-factors-life-cycle-cost-analysis-2022-annual (last accessed August 29, 2024).
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Rinnai stated that the July 2024 NODA improperly uses national
averages in its state-level analysis and failed to account for regional
differences in cost and utilization. Rinnai noted that there are
significant regional and state differences that directly impact water
heating demands, the efficiency and operational costs of water heating.
Rinnai encouraged DOE to consider state-specific data in its
distribution using discrete inputs to ensure results reflect diverse
conditions across the U.S. (Rinnai, No. 1443 at p. 20) In response to
Rinnai's concern, DOE reiterates that, given that the hot water use was
derived based on representative energy consumption data reported from
RECS 2020, there is already embedded regionality accounted for in the
results. For no-new-standards case efficiency distribution, for lack of
more granular data, DOE did not derive a market share that varies by
state. In terms of operating costs of water heating, as discussed
above, DOE utilized state-level energy prices for calculating the
operating
[[Page 105230]]
costs. See appendix 8E of the final rule TSD for more details.
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 included
additional maintenance and repair costs for higher efficiency consumer
gas-fired instantaneous water heaters (including maintenance costs
associated with condensate withdrawal and deliming of the heat
exchanger and repair costs associated with burner and blower assembly)
based on 2023 RSMeans data.\81\ DOE accounted for regional differences
in labor costs by using RSMeans regional cost factors.
---------------------------------------------------------------------------
\81\ RSMeans Company, Inc., RS Means Facilities Repair and
Maintenance (2023), available at www.rsmeans.com/ (last accessed
August 29, 2024).
---------------------------------------------------------------------------
Rinnai and AGA et al. claimed that the July 2024 NODA
underestimated the maintenance cost associated with general condensate
withdrawal for condensing gas-fired instantaneous water heater units.
Rinnai claimed that a basic neutralizer refill can cost between $35-50
(instead of $20 as assumed in July 2024 NODA). Rinnai also requested
clarification on the source of the $20 estimate. (Rinnai, No. 1443 at
p. 17; AGA et al., No. 1439 at p. 7) In response, DOE derived the
material cost of $20 for condensate management maintenance based on its
consultant report included in the appendix 8F of the final rule TSD.
For this final rule, given that the market price can change between the
time of the final rule analysis and that of the report, DOE reviewed
the current market prices for refills of condensate neutralizer and
decided that an average price of $41.17 would be more representative of
the price paid by the consumers. DOE has updated the LCC analytical
tool and the final rule TSD accordingly to reflect the market prices it
reviewed and the updated cost assumption.
6. Product Lifetime
Product lifetime is the age at which an appliance is retired from
service. DOE conducted an analysis of gas-fired instantaneous water
heater lifetimes based on the methodology described in a journal
paper.\82\ For this analysis, DOE relied on RECS 1990, 1993, 2001,
2005, 2009, 2015, and 2020.\83\ 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.\84\
DOE used the appliance age data from these surveys, as well as the
historical water heater 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 around 20 years for instantaneous water
heaters.
---------------------------------------------------------------------------
\82\ 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): pp. 28
(Available at: www.tandfonline.com/doi/abs/10.1080/10789669.2011.558166) (Last accessed August 29, 2024).
\83\ 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 29, 2024).
\84\ 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 29, 2024).
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Noritz disputed that condensing and non-condensing products have
the same average lifespan based on their internal testing. Noritz
argued that the less complex nature of the non-condensing product in
their testing typically lasts between 10 and 20 percent longer than a
similar condensing product. Noritz argued that the analysis conducted
by DOE that proposes the average lifespan of the two products to be
identical will impact the LCC and payback analysis. (Noritz, No. 1202
at p. 3). In response, DOE has not found any evidence in its research
pointing to a significantly different lifespan for the two types of
water heaters. As described in appendix 8G of the final rule TSD, the
data sources cited did not indicate any systematic decrease in lifetime
for gas-fired condensing products (additionally, a majority of gas-
fired instantaneous water heaters in the market are condensing). For
this final rule, DOE maintains its methodology of assuming the same
lifetime for all gas-fired instantaneous water heaters.
In order to evaluate the impact of the lifetime on the economic
analysis results, for this final rule DOE conducted a sensitivity
analysis, where two additional lifetime scenarios were evaluated. The
sensitivity results do not change DOE's conclusion of economic
justification of the adopted standards (see appendix 8G of the final
rule TSD for the comparison of results).
7. Discount Rates
In the calculation of LCC, DOE applies discount rates appropriate
to households to estimate the present value of future operating cost
savings. DOE estimated a distribution of discount rates for consumer
gas-fired instantaneous water heaters based on the opportunity cost of
consumer funds.
DOE applies weighted average discount rates calculated from
consumer debt and asset data, rather than marginal or implicit discount
rates.\85\ 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 analysis,
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.
---------------------------------------------------------------------------
\85\ The implicit discount rate is inferred from a consumer
purchase decision between two otherwise identical goods with
different first cost and operating cost. It is the interest rate
that equates the increment of first cost to the difference in net
present value of lifetime operating cost, incorporating the
influence of several factors: transaction costs; risk premiums and
response to uncertainty; time preferences; interest rates at which a
consumer is able to borrow or lend. The implicit discount rate is
not appropriate for the LCC analysis because it reflects a range of
factors that influence consumer purchase decisions, rather than the
opportunity cost of the funds that are used in purchases.
---------------------------------------------------------------------------
To establish residential discount rates for the LCC analysis, DOE
identified all relevant household debt or asset classes in order to
approximate a consumer's opportunity cost of funds related to appliance
energy cost savings. It estimated the average percentage shares of the
various types of debt and equity by household income group using data
from the Federal Reserve Board's triennial Survey of Consumer Finances
\86\ (``SCF'') starting in 1995 and ending in 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 standards would take effect.
[[Page 105231]]
DOE assigned each sample household a specific discount rate drawn from
one of the distributions. The average rate across all types of
household debt and equity and income groups is 4.2 percent. See chapter
8 of the final rule TSD for further details on the development of
consumer discount rates.
---------------------------------------------------------------------------
\86\ 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 29, 2024). The Federal Reserve Board is currently
processing the 2022 Survey of Consumer Finances, which is expected
to be fully available in late 2023.
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To establish commercial discount rates for the small fraction of
consumer gas-fired instantaneous water heaters installed in commercial
buildings, DOE estimated the weighted-average cost of capital using
data from Damodaran Online.\87\ 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 methodology
described in a Lawrence Berkeley National Laboratory report, and the
distribution varies by business activity.\88\ The average rate for
consumer gas-fired instantaneous water heaters used in commercial
applications in this final rule analysis, across all business activity,
is 6.9 percent.
---------------------------------------------------------------------------
\87\ Damodaran Online, Data Page: Costs of Capital by Industry
Sector (2021) (Available at: pages.stern.nyu.edu/~adamodar/) (Last
accessed August 29, 2024).
\88\ Fujita, S., Commercial, Industrial, and Institutional
Discount Rate Estimation for Efficiency Standards Analysis: Sector-
Level Data 1998-2018 (Available at: ees.lbl.gov/publications/commercial-industrial-and) (Last accessed August 29, 2024).
---------------------------------------------------------------------------
See chapter 8 of this 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 (market shares) of product efficiencies under the no-new-
standards case (i.e., the case without amended or new energy
conservation standards). This approach reflects the fact that some
consumers may purchase products with efficiencies greater than the
baseline levels.
To estimate the energy efficiency distribution of consumer gas-
fired instantaneous water heaters for 2030, DOE used available
shipments data by efficiency including in previous AHRI submitted
historical shipment data,\89\ ENERGY STAR unit shipments data,\90\ and
data from a 2023 BRG Building Solutions report.\91\ To cover gaps in
the available shipments data, DOE used DOE's public CCD model database
\92\ and AHRI certification directory.\93\
---------------------------------------------------------------------------
\89\ AHRI. Confidential Instantaneous Gas-fired Water Heater
Shipments Data from 2004-2007 to LBNL. March 3, 2008.
\90\ ENERGY STAR. Unit Shipments data 2010-2021. multiple
reports. (Available at: www.energystar.gov/partner_resources/products_partner_resources/brand_owner_resources/unit_shipment_data)
(Last accessed August 29, 2024).
\91\ BRG Building Solutions. The North American Heating &
Cooling Product Markets (2023 Edition). 2023.
\92\ U.S. Department of Energy's Compliance Certification
Database is available at regulations.doe.gov/certification-data
(last accessed August 29, 2024).
\93\ Air Conditioning Heating and Refrigeration Institute.
Consumer's Directory of Certified Efficiency Ratings for Heating and
Water Heating Equipment. May 16, 2023. (Available at
www.ahridirectory.org) (Last accessed August 29, 2024).
---------------------------------------------------------------------------
The estimated market shares for the no-new-standards case for
consumer gas-fired instantaneous water heaters are shown in table
IV.11. See chapter 8 of the final rule TSD for further information on
the derivation of the efficiency distributions.
Table IV.11--No-New-Standards Case Energy Efficiency Distributions in 2030 for Consumer Gas-Fired Instantaneous Water Heaters
--------------------------------------------------------------------------------------------------------------------------------------------------------
Draw pattern
-----------------------------------------------------------------------------------------------
Low Medium High
Efficiency level -----------------------------------------------------------------------------------------------
Market share Market share Market share
UEF * (%) UEF * (%) UEF * (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Gas-Fired Instantaneous Water Heaters, <2 gal and 50,000 Btu/h
--------------------------------------------------------------------------------------------------------------------------------------------------------
0....................................................... .............. .............. 0.81 30% 0.81 30%
1....................................................... .............. .............. 0.87 8 0.89 8
2....................................................... .............. .............. 0.91 48 0.93 47
3....................................................... .............. .............. 0.92 6 0.95 7
4....................................................... .............. .............. 0.93 8 0.96 8
--------------------------------------------------------------------------------------------------------------------------------------------------------
* UEF at the representative rated capacity.
The LCC Monte Carlo simulations draw from the efficiency
distributions and assign an efficiency to the gas-fired instantaneous
water heater purchased by each sample household in the no-new-standards
case according to these distributions.
Finally, DOE considered the 2019 AHCS survey,\94\ which 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. DOE did not find similar data for consumer
water heaters, but believes that the HVAC data is relevant to other
larger appliances such as consumer water heaters since they similarly
represent large energy end uses. From these data, DOE found that
households with larger square footage exhibited a higher fraction of
High- or Super-High efficiency equipment installed. The fraction of
respondents with ``super high efficiency'' equipment was larger by
approximately 5 percent for larger households and correspondingly
smaller for smaller households. DOE therefore used the AHCS data to
adjust its water heater efficiency distributions as follows: (1) the
market share of higher efficiency equipment for households under 1,500
sq. ft. was decreased by 5 percentage
[[Page 105232]]
points; and (2) the market share of condensing equipment for households
above 2,500 sq. ft. was increased by 5 percentage points. Other
household and demographic characteristics in the survey did not exhibit
any statistical correlations with efficiency.
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\94\ Decision Analysts, 2019 American Home Comfort Studies
(Available at: www.decisionanalyst.com/syndicated/homecomfort/)
(Last accessed August 29, 2024).
---------------------------------------------------------------------------
DOE acknowledges that economic factors may play a role when
consumers, commercial building owners, or builders decide on what type
of water heater to install. However, assignment of water heater
efficiency for a given installation based solely on economic measures
such as life-cycle cost or simple payback period does not fully and
accurately reflect actual real-world installations. There are a number
of market failures discussed in the economics literature that
illustrate how purchasing decisions with respect to energy efficiency
are unlikely to be perfectly correlated with energy use, as described
below. While this literature is not specific to water heaters, DOE
finds that the method of assignment simulates behavior in the water
heater market, where market failures and other consumer preferences
result in purchasing decisions not being perfectly aligned with
economic interests, 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 water heaters make economically irrational
decisions (i.e., the lack of a correlation is not the same as a
negative correlation). As part of the sample assignment, some homes or
buildings with large hot water use will be assigned higher efficiency
water heaters, and some homes or buildings with particularly low hot
water use will be assigned baseline water heaters. By using this
approach, DOE acknowledges the variety of market failures and other
consumer behaviors present in the water heater market, and does not
assume certain market conditions unsupported by the available evidence.
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.\95\ There are also several behavioral factors that can
influence the purchasing decisions of complicated multi-attribute
products, such as water heaters. 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're presented for any given choice scenario.\96\ 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.\97\ R.H. 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.\98\ These characteristics describe almost all
purchasing situations of appliances and equipment, including water
heaters. The installation of a new or replacement water heater is done
infrequently, as evidenced by the mean lifetime for water heaters.
Additionally, it would take at least one full water heating season for
any impacts on operating costs to be fully apparent. Further, if the
purchaser of the water heater 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.
---------------------------------------------------------------------------
\95\ 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 January 5, 2024).
\96\ Thaler, R.H., Sunstein, C.R., and Balz, J.P. (2014).
``Choice Architecture'' in The Behavioral Foundations of Public
Policy, Eldar Shafir (ed).
\97\ 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).
\98\ Thaler, R.H., and Sunstein, C.R. (2008). Nudge: Improving
Decisions on Health, Wealth, and Happiness. New Haven, CT: Yale
University Press.
---------------------------------------------------------------------------
The first of these market failures--the split-incentive or
principal-agent problem--is likely to affect water heaters 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 water heater to install,
whereas the renter is responsible for paying energy bills In the LCC
sample, for gas-fired instantaneous water heaters, approximately 10
percent of households are renters. Given the greater market share of
instantaneous water heaters in new construction compared to other water
heater product classes, this fraction of renters is lower than the
national average (which is approximately one third). For low-income
households (see section IV.I of this document and chapter 11 of the
final rule TSD), however, the fraction of renters increases to 38
percent of households. The principle-agent problem can also impact
homeowners. For example, in new construction, builders influence the
type of water heater used in many homes but do not pay operating costs.
Finally, contractors install a large share of water heaters in
replacement situations, and they can exert a high degree of influence
over the type of water heater purchased based on which products they
are familiar with.
In addition to the split-incentive problem, there are other market
failures that are likely to affect the choice of water heater
efficiency made by consumers. For example, emergency replacements of
essential equipment such as water heaters 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 it may not be possible to
consider the full range of available options on the market. The
consideration of alternative product options is far more likely for
planned replacements and installations in new construction.
Additionally, Davis and Metcalf \99\ 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
[[Page 105233]]
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).
---------------------------------------------------------------------------
\99\ 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 January 5, 2024).
---------------------------------------------------------------------------
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.\100\ show that consumers tend to underestimate the energy use of
large energy-intensive appliances but tend to overestimate the energy
use of small appliances. Water heaters are one of the largest energy-
consuming end-uses in a home. Therefore, it is likely that consumers
systematically underestimate the energy use associated with water
heater, resulting in less cost-effective water heater purchases.
---------------------------------------------------------------------------
\100\ 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 January 5, 2024).
---------------------------------------------------------------------------
These market failures may affect a sizeable share of the consumer
population. A study by Houde \101\ 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, though subsequent studies using alternative methodologies have
highlighted other consumer groups who are to some extent responsive to
local energy prices with their appliance purchases.\102\ The extent to
which consumers are perceptive of energy prices and product efficiency
when making appliance purchasing decisions is a topic of ongoing
research.
---------------------------------------------------------------------------
\101\ 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 January 5, 2024).
\102\ Houde, S. and Meyers, E. (2021). ``Are consumers attentive
to local energy costs? Evidence from the appliance market,'' Journal
of Public Economics, 201 (Available at: sciencedirect.com/science/article/pii/S004727272100116X) (Last accessed March 7, 2024).
---------------------------------------------------------------------------
Although consumer gas-fired instantaneous water heaters are
predominantly installed in the residential sector, some are also
installed in commercial buildings (6 percent of projected shipments;
see chapter 9 of the final rule TSD). There are market failures
relevant to consumer gas-fired instantaneous water heaters 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 energy costs.103 104 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 in some cases is not
responsible for paying energy costs). Additionally, some commercial
buildings have multiple tenants. There are other similar misaligned
incentives embedded in the organizational structure within a given firm
or business that can impact the choice of a water heater. 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.\105\ 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.\106\ 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.\107\
---------------------------------------------------------------------------
\103\ 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.
\104\ 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 January 5, 2024).
\105\ 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).
\106\ Bushee, B.J. (1998). ``The influence of institutional
investors on myopic R&D investment behavior,'' Accounting Review,
305-333. DeCanio, SJ. (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).
\107\ 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
January 5, 2024)
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Second, the nature of the organizational structure and design can
influence priorities for capital budgeting, resulting in choices that
do not necessarily maximize profitability.\108\ 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.\109\ U.S. tax
rules for
[[Page 105234]]
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.\110\
---------------------------------------------------------------------------
\108\ DeCanio, S.J. (1994). ``Agency and control problems in US
corporations: the case of energy-efficient investment projects,''
Journal of the Economics of Business, 1(1), 105-124.
Stole, L.A., and Zwiebel, J. (1996). ``Organizational design and
technology choice under intrafirm bargaining,'' The American
Economic Review, 195-222.
\109\ 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), 2150-2159.
Muthulingam, S., et al. (2013). ``Energy Efficiency in Small and
Medium-Sized Manufacturing Firms,'' Manufacturing & Service
Operations Management, 15(4), 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 US manufacturing: Spillovers from firm management
practices to energy efficiency,'' Journal of Environmental Economics
and Management, 68(3), 463-479.
\110\ Lovins, A. (1992). Energy-Efficient Buildings:
Institutional Barriers and Opportunities. (Available at: rmi.org/insight/energy-efficient-buildings-institutional-barriers-and-opportunities/) (Last accessed January 5, 2024).
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.
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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.\111\ Asymmetric
information in financial markets is particularly pronounced with regard
to energy efficiency investments.\112\ 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,\113\ 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.\114\ 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).\115\
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 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.\116\
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\112\ 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.
\113\ 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
January 5, 2024).
\114\ Cooremans, C. (2012). ``Investment in energy efficiency:
do the characteristics of investments matter?'' Energy Efficiency,
5(4), 497-518.
\115\ 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 January 5, 2024).
\116\ 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
January 5, 2024).
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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 \117\ and
required payback periods of many firms are higher than the appropriate
cost of capital for the investment.\118\ 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.\119\ 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.\120\ For small businesses, the payback periods for higher
efficiency gas-fired instantaneous water heaters are typically 7 to 8
years on average, longer than the usual requirement of 1 to 2 years,
which ultimately discounts the significant long-term savings from these
higher efficiency products. 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,\121\ supermarkets,\122\ and the
electric motor market.\123\
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\117\ 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.
\118\ DeCanio 1994, op. cit.
\119\ DeCanio, S.J. (1998). ``The Efficiency Paradox:
Bureaucratic and Organizational Barriers to Profitable Energy-Saving
Investments,'' Energy Policy, 26(5), 441-454.
\120\ 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.
\121\ 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.
\122\ 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.
\123\ 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 January 5, 2024).
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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. Although these studies are not specifically targeted
to the water heater market, they cover decision-making generally and
the impact of energy efficiency, operating costs, and future savings/
expenditures on those decisions, all of which apply to the purchase of
a consumer gas-fired instantaneous water heater. DOE is not aware of
any market failure studies specifically and narrowly focused on gas-
fired instantaneous water heaters and so relies on the available
literature discussed above. If DOE developed an efficiency distribution
that assigned water heater 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
[[Page 105235]]
would not reflect any of the market failures or behavioral factors
above. DOE thus concludes such a distribution would not be
representative of the water heater market.
AGA et al. stated that DOE's model makes several assumptions that
significantly impact its outcomes. According to AGA et al., DOE does
not account for regional variations when implementing a national market
share for each product level, and bases installation on square footage
rather than other household attributes such as the number of bathrooms,
bedrooms, or inhabitants. (AGA et al., No. 1439 at p. 7)
Rinnai asserted that installations of condensing and non-condensing
units vary regionally and DOE should account for this in the model
instead of using national market share for each product level and
assuming an increased likelihood a consumer purchases a more efficient
option based on square footage. (Rinnai, No. 1443 at p.18)
In response, DOE notes that the market share data for gas-fired
instantaneous water heaters are not available at a regional or State
level. Manufacturer and industry associations did not provide any
regional or State-level shipments data by efficiency level to be
incorporated into the analyses. There is similarly no data set DOE is
aware of, nor that any stakeholder pointed to, that correlates gas-
fired instantaneous water heater efficiency to household attributes or
consumer demographics. DOE therefore used national-level data to
estimate the market share by efficiency level for gas-fired
instantaneous water heaters. However, RECS 2020 is a nationally
representative survey of energy consumption and incorporates regional
variation with respect to household attributes, water heater usage,
water inlet temperature, and energy consumption. Therefore, the LCC
analysis does include regional variation with respect to housing
characteristics, sample location, labor cost (and therefore
installation cost), and estimates of water heating usage. The total
costs are therefore not based solely on square footage, but rather on
multiple household attributes. Square footage is used to adjust the
national efficiency distribution based on the observed consumer
behavior that larger homes are more likely to invest in more efficient
water heating equipment, as discussed above.
Rinnai objected to DOE's use of the Monte Carlo method for
estimating energy savings, which Rinnai argues overstates benefits by
ignoring rational consumer choice. Rinnai further stated that this
error is compounded by not analyzing product switching. (Rinnai, No.
1443 at pp. 22-23)
In response, DOE notes that there are a multitude of market
failures present in the water heater market that can influence the
efficiency of water heater chosen by consumers in the absence of new
standards, as discussed above. DOE is not ignoring rational consumer
choice, rather the methodology acknowledges the range in consumer
behavior present in the market, including those who make equipment
choices that minimize their costs. Those consumers are indeed reflected
in the analysis, along with other consumers who do not or cannot make
choices that minimize their costs for a variety of reasons. With
respect to switching to other types of water heaters, as discussed in
greater detail in section IV.F.10 of this document, the LCC savings
over a longer product lifetime, other attributes of instantaneous water
heaters valued by consumers, logistical barriers to switching in some
housing contexts, and marginal installed cost differences will minimize
the incentives for consumers to switch to alternative water heater
product classes rather than simply adopting a standards-compliant gas-
fired instantaneous water heater. DOE therefore concludes that the
likelihood of an adopted standard for gas-fired instantaneous water
heaters driving any significant product class switching to be
negligible.
AGA et al. commented that DOE's assignment methodology is
unreasonable and simulates extreme and unreasonable purchasing behavior
as well as skews the result of DOE's analysis. They contended that
economic considerations do influence purchasing behavior yet DOE's
assignment methodology assumes that economic considerations never
matter. (AGA et al., No. 1439 at pp. 8-9)
In response, DOE has never stated that economic considerations
never matter. This is a mischaracterization of the analysis. DOE
acknowledges the full range of consumer behaviors in the water heater
market and the analysis is modeled to reflect this range. As discussed
below, the model produces a variety of outcomes including a significant
fraction of consumers who choose an efficiency level that minimizes
their life-cycle costs in the absence of new standards. These are
consumers that the commenter would characterize as ``reasonable'' and
they are reflected in the total sample. However, DOE also acknowledges
that other groups of consumers exist who face a variety of market
failures, preventing from choosing an efficiency level that minimizes
their life-cycle costs in the absence of new standards.
DOE's focus on a limited number of variables in projecting the
efficiency assignment in the no-new-standards case reflects the limits
that constrain consumer decision-making. A full life-cycle analysis
requires a variety of inputs, such as product prices, product energy
consumption, energy prices, maintenance and repair costs, product
lifetime, and discount rates. All of these figures are--by their
nature--forward looking, predictive, and, therefore, subject to
uncertainty. To account for uncertainty and variability in specific
inputs, such as equipment lifetime and discount rate, DOE uses a
distribution of values, with probabilities attached to each value.
In terms of how consumers make purchase decisions in the real
world, a typical consumer has neither the expertise nor the time to
review information about discount rates, projected price trends, or the
host of other variables included in DOE's own calculations. Instead,
consumers generally rely on the appliances recommended by contractors,
who typically prefer to install appliances that are in stock and with
which they are familiar. That is particularly true in emergency
replacement situations, such as when an appliance and a replacement
must be obtained and installed quickly. Consumer decisions, therefore,
do not necessarily involve an exhaustive review of all variables that
may affect long-run costs, but instead primarily reflect the prevalence
of existing units in the relevant market.
There are many reasons to conclude that this imperfect decision-
making environment leads consumers to purchase fewer condensing gas-
fired instantaneous water heaters than would be economically justified.
Studies show that consumers tend to undervalue energy efficiency and
that a subset appear to purchase appliances without taking into account
their energy efficiency and operating costs at all.
The market failures that generally affect energy-related decisions
are particularly pernicious in the context of consumer water heaters.
As discussed elsewhere in this document, landlords, contractors, and
developers often make the choice of what appliance to install but do
not benefit from the lower operating costs associated with condensing
units (or suffer from the higher utility bills associated with non-
condensing units).
As courts have found, EPCA itself recognizes that consumers do not
invariably select appliances that are cost-justified in the long-term,
but
[[Page 105236]]
instead, the statute reflects Congress's ``concern[] over the tendency
of consumers to reject efficiency-improving appliances with long
payback periods.'' Natural Res. Def. Council, Inc. v. Herrington, 768
F.2d 1355, 1405 (D.C. Cir. 1985). Indeed, ``[n]umerous witnesses
[before Congress] . . . testified that the average consumer looks for a
payback from higher purchase prices within 3 years.'' Id. (quotation
marks omitted). This propensity to focus on the short term is
especially unfortunate here, where the benefits of condensing units
extend for two decades or more. By authorizing DOE to amend efficiency
standards, Congress acted in part to rectify this and other distortions
in appliance markets. See id. (noting that ``Congress viewed this
consumer behavior as a kind of market failure'').
In promulgating EPCA (Pub. L. 94-163, 89 Stat. 871 (1975)),
Congress itself expressed a view that markets are not perfect, enacting
the statute to promote national ``energy conservation,'' including by
improving the energy efficiency of certain ``major appliances'' and
``consumer products.'' (42 U.S.C. 6201(4), (5)) Congress initially
established a voluntary, market-based program for achieving that goal
(see Sec. 325, 89 Stat. 923-26), but it soon amended EPCA to require
mandatory energy conservation standards (see National Energy
Conservation Policy Act, Pub. L. 95-619, tit. IV, pt. 2, Sec. 422, 92
Stat. 3206, 3259-62 (1978)), and Congress has continued to amend EPCA
over time to revise those standards and to advance the goal of energy
conservation.
The use of the efficiency assignment methodology of the gas-fired
instantaneous water heater efficiency in the no-new-standards case in
the LCC model is a methodological approach that reflects the full range
of consumer behaviors in this market, including consumers who make
informed and beneficial cost-minimizing decisions and other consumers
who, due to the market failures discussed, do not or cannot make such
perfectly beneficial decisions. The methodology is further constrained
by shipments data by efficiency level; it must produce an overall
distribution that matches the available market data. For example, for
the gas-fired instantaneous water heater consumer sample at the adopted
standard level (EL 2), DOE's methodology results in the following
groups of consumers:
(1) Consumers who, in the absence of standards, choose a lower
efficiency product with a lower life-cycle cost based on their surveyed
hot water usage. These consumers are making an optimal choice from the
perspective of cost savings in the model in the no-new-standards case.
These are consumers who are choosing a baseline non-condensing gas-
fired instantaneous water heater (EL 0) or consumers choosing a
condensing gas-fired instantaneous water heater with the lowest
efficiency (EL 1). With amended standards, they are made to purchase a
more efficient product at EL 2 and therefore experience a net cost in
the standards case. (15 percent of the gas-fired instantaneous water
heater sample.) These consumers represent nearly half of all consumers
choosing EL 0 in the no-new-standards case, therefore the efficiency
assignment model is already assigning minimum-cost choices to this
fraction of consumers in the no-new-standards case.
(2) Consumers who, in the absence of standards, choose a higher
efficiency product that also lowers their life-cycle cost compared to
the baseline efficiency product. These are consumers who are choosing a
condensing gas-fired instantaneous water heater with higher efficiency,
including at the adopted standard level (EL 2, EL 3, and EL 4). These
consumers are making a cost-minimizing choice in the model in the no-
new-standards case. With amended standards, these consumers are not
impacted because they are already purchasing a standards-compliant
product. (34 percent of the gas-fired instantaneous water heater
sample.) The efficiency assignment model is already assigning minimum-
cost choices to this fraction of consumers in the no-new-standards
case.
(3) Consumers who, in the absence of standards, choose a lower
efficiency product that does not minimize the life-cycle cost. These
are consumers who are choosing a baseline non-condensing gas-fired
instantaneous water heater (EL 0) or consumers choosing a condensing
gas-fired instantaneous water heater with the lowest efficiency (EL 1).
The market failures discussed above apply to these consumers,
preventing them from making the choice that minimizes their life-cycle
costs in the no-new-standards case. With amended standards, they are
made to purchase a more efficient product at EL 2 that ultimately
results in a lower life-cycle cost. These consumers experience a net
benefit as a result of the standard. (23 percent of the gas-fired
instantaneous water heater sample)
(4) Consumers who, in the absence of standards, choose a higher
efficiency product that does not lower their life-cycle cost compare to
the baseline or lower efficiency product. These are consumers who are
choosing a condensing gas-fired instantaneous water heater with higher
efficiency, including at the adopted standard level (EL 2, EL 3, and EL
4). Although these consumers are choosing a higher efficiency product
in the no-new-standards case, they may have incomplete knowledge of the
energy consumption of the equipment or may value environmental features
such as efficiency more heavily, resulting in a choice of a higher
efficiency product that does not lower life-cycle cost compared to a
baseline or lower efficiency product. With amended standards, these
consumers are not impacted because they are already purchasing a
standards-compliant product. (29 percent of the gas-fired instantaneous
water heater sample)
DOE's methodological approach is a proxy that ultimately reflects a
diversity of scenarios for consumers and therefore the range of
outcomes that will result from this diversity. The approach already
reflects market share outcomes with some degree of market efficiency
and optimal decision-making among some consumers, but the approach also
acknowledges a number of factors that hinder perfect decision-making
for others. Furthermore, the model produces an overall distribution of
efficiency that matches the available shipments data.
Although DOE's efficiency assignment methodology does not
explicitly model consumer decision making, nor does it take a stance on
the rationality or irrationality of specific consumers, DOE believes
that the approach would be consistent with a model in which some share
of consumers make optimal cost-minimizing decisions, and some
consumers--in the face of market failures--do not. The use of an
assignment of gas-fired instantaneous water heater efficiency is a
methodological approach that reflects the full range of consumer
behaviors in this market, including consumers who make beneficial
decisions that minimize their costs and consumers who, due to market
failures, do not or cannot make such beneficial decisions, both of
which occur in reality. Within those constraints, DOE then assigns
product efficiencies to consumers in the LCC, consistent with the
economics literature discussed above, to reflect neither purely
rational nor purely irrational decision-making.
DOE's analytical approach reflects some degree of market
efficiency. An alternative approach which assumes consumer behavior is
based solely on cost outcomes, for example by ranking
[[Page 105237]]
LCCs and using those to assign efficiencies, is not evidenced by the
scientific literature surveyed above or by any data submitted in the
course of this rulemaking. This approach depends on the assumption, for
example, that homeowners know--as a rule--the efficiency of their
homes' water heater and water heating energy use, such that they always
make water heating investments accordingly. Similarly, this approach
assumes that, faced with a water heater failure, homeowners will always
select as a replacement the most economically beneficial available
model. Given the work documenting market failures in the energy
efficiency contexts described above, DOE believes that such assumptions
would bias the outcome of the analysis to the least favorable results.
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 assignment, some households or buildings with large
water heating loads will be assigned higher-efficiency water heaters in
the no-new-standards case, and some households or buildings with
particularly low water heating loads will be assigned baseline water
heaters--i.e., the lowest cost investments.
Regarding the role of contractors, DOE notes that they can exert a
high degree of influence over the type of water heater purchased. DOE
acknowledges that they can serve as an information mediator. However,
it is possible for a contractor to also influence the decision toward a
familiar like-for-like replacement, for example, or perhaps the
quickest replacement option available (e.g., based on equipment
availability). Ultimately, there are multiple actors involved in the
decision-making process which results in complex purchasing behavior.
As DOE has noted, there is a complex set of behavioral factors,
with sometimes opposing effects, affecting the water heater 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 would be very scattered with high
variability. It is for this reason DOE utilizes a probability
distribution (after accounting for market share constraints) to
approximate these effects. This is the standard methodological approach
used on all of DOE's prior rules. The methodology is not an assertion
of economic irrationality, but instead, it is a methodological
approximation of complex consumer behavior. The analysis is neither
necessarily biased toward high or low energy savings. The methodology
does not preferentially assign lower-efficiency gas-fired instantaneous
water heaters to households in the no-new-standards case where savings
from the rule would be greatest, nor does it preferentially assign
lower-efficiency gas-fired instantaneous water heaters to households in
the no-new-standards case where savings from the rule would be
smallest. However, it is worth noting that energy use could be
improperly estimated if preferences for energy efficiency are
correlated with demand for hot water. Some consumers were assigned the
water heaters that they would have chosen if they had engaged in
perfect economic thinking. Others were assigned less-efficient water
heaters even where a more-efficient water heater 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 water heaters 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
in other appliance markets which would give rise to such a
distribution, and has requested more data or studies on this topic in
the May 2020 RFI, March 2022 preliminary analysis, and July 2023 NOPR.
DOE is not aware of any specific study regarding how consumer water
heaters (and their efficiency) are purchased.
DOE acknowledges that in the LCC, there are a handful of outcomes
with large benefits as a consequence of the assignment methodology.
Nevertheless, the median results (instead of the average results) from
the LCC continue to show positive LCC savings at the adopted standard
levels. However, for gas-fired instantaneous water heaters, DOE
considered a sensitivity analysis that eliminated these outcomes with
large benefits. Under certain combinations of parameters, particularly
in new construction, the total installed cost of a condensing, higher
efficiency gas-fired instantaneous water heater can be lower than a
non-condensing baseline gas-fired instantaneous water heater (due to
the differing vent lengths and material costs). With assignment
methodology used by DOE (and the constraints of the market data by
efficiency level), there are a handful of individual gas-fired
instantaneous water heater LCC consumers assigned a baseline non-
condensing gas-fired instantaneous water heater even though a higher
efficiency product would cost less. This is a rare outcome and only
occurs for approximately 2.5 percent of the sample. In the sensitivity
analysis, DOE removed these outlier consumers from the analysis in case
they may be overly biasing the overall results. This sensitivity
scenario therefore eliminates any instance of a consumer assigned EL 0
even though EL 2 would cost less to install. The resulting average LCC
savings are reduced to $87 across the rest of the entire gas-fired
instantaneous water heater consumer sample, with 15 percent of
consumers experiencing a net cost, 20 percent experiencing a net
savings, and 65 percent of consumers not impacted by the rule. Although
the average LCC savings are reduced in this sensitivity analysis, and
slightly more consumers are negatively impacted by the adopted
standards, the average (and median) LCC savings remain positive and
there continue to be significant energy and environment savings. DOE
continues to conclude that the adopted standard level for gas-fired
instantaneous water heaters is economically justified even in this
sensitivity analysis that eliminates outlier results.\124\
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\124\ These sensitivity results can be found in the LCC Results
spreadsheet, available at www.regulations.gov/docket/EERE-2017-BT-STD-0019 (docket reference).
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In summary, DOE's efficiency assignment methodology produces
overall results that are consistent with the observed distribution of
efficiency across products as seen in the shipments data. The
methodology also results in a share of consumers being assigned product
efficiencies that minimize their life-cycle costs in the absence of
standards. This represents consumers making informed decisions
regarding the efficiency of their products, without amended standards.
These consumers will be negatively impacted by the adopted standard
levels and the analysis accounts for these impacts. However, the
methodology also acknowledges that some consumers are unable to
minimize the life-cycle costs of their products for a variety of
reasons discussed in the economics literature (e.g., renters with no
say in the products purchased for their household). Even for motivated
and informed consumers, the information and data required to ultimately
make the best product choice that minimizes life-cycle cost is
[[Page 105238]]
complex and time-consuming. As a result, there are a subset of
consumers for whom adopting more stringent standard levels will result
in life-cycle savings. DOE's methodology reflects some degree of market
efficiency in terms of consumer choice of product efficiency, but it
also reflects a variety of observed effects that inhibit perfect market
efficiency. This is representative of the water heater market. On the
whole, when accounting for both consumers negatively impacted by, as
well as those benefiting from, amended standards, DOE's analysis
demonstrates that there are economically justified savings.
9. 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. DOE
refers to this as a ``simple PBP'' because it does not consider changes
over time in operating cost savings. The PBP calculation uses the same
inputs as the LCC analysis when deriving first-year operating costs.
As noted previously, 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.
10. Accounting for Product Switching
For the preliminary analysis, DOE did not account for product
switching under potential standards. For the July 2023 NOPR and this
final rule, DOE maintained the same approach and did not include any
product switching with respect to gas-fired instantaneous water heaters
in its analysis. DOE assumes that any product switching as a result of
the adopted standards is likely to be minimal.
As discussed in the specific examples in the following paragraphs
and in section 9.4 of the final rule TSD, the costs to switch to
another product class can be higher than simply purchasing a standards-
compliant product in the same product class. When faced with the need
to replace a gas-fired instantaneous water, a consumer can either
install a standards-compliant product of the same product class as they
originally had, or consider a switch to a standards-compliant product
of an alternative product class. Similarly, when faced with the need to
install a consumer water heater in new construction, the consumer can
choose from available standards-compliant products across various
product classes. As part of considering which water heater to purchase,
consumers look at the first cost, the installation cost, expected
energy savings, and the amenities provided by the water heaters such as
the location within the residence and the amount of hot water the water
heater could deliver.
In consumer hot water heater replacement scenarios, shipments data
demonstrate purchasers mostly replace their existing water heater with
the same product class when purchase price is similar (see section
9.3.1 of chapter 9 of the TSD for details). In the case of gas-fired
instantaneous water heaters, other product classes often cost more to
switch to and install than a standards-compliant gas-fired
instantaneous water heater (as discussed below). Even if, for a given
household, another product class costs less, DOE expects other factors
(including logistical barriers, lower LCC savings, shorter product
lifetimes, and other attributes consumers value in instantaneous water
heaters) to limit product-switching. Because of the higher cost in some
scenarios, consumer preferences, and other limitations on product-
switching, DOE concludes it is extremely unlikely that consumers would
choose to switch product classes specifically in response to these
amended standards. In the absence of amended standards, some consumers
choose to switch for reasons other than simply cost, and that is
reflected in historical market trends that are incorporated into the
analysis. However, for the purposes of the analysis, the issue is
whether more consumers would switch due to the higher incremental costs
of standards-compliant products. DOE concludes that this is very
unlikely and therefore market trends will be unaffected.
DOE compared the costs of a consumer switching from a baseline non-
condensing gas-fired instantaneous water heater to three potential
replacement options (standards-compliant gas-fired instantaneous water
heater, baseline gas-fired storage water heater under the recently
updated standard, and baseline electric storage water heater under the
recently updated standard), in both residential new construction and
replacement scenarios for existing households. In the new construction
scenario, the analysis shows that average total installed costs are
typically lowest for a standards-compliant gas-fired instantaneous
water heater. In the replacement scenario, the factors considered in
DOE's analysis show that average total installed costs are lower in
some cases and marginally higher in others. However, switching to an
alternative option also involves several additional costs to
accommodate the alternative water heater, including new venting,
electrical upgrades, and potential relocation of the water heater.
Accordingly, even if, for a given household, a potential replacement
option other than a standards-compliant gas-fired instantaneous water
heater is cheaper to install, DOE expects that other factors will limit
consumer incentives for product switching: logistical barriers arising
from different physical and space requirements as described below, the
greater LCC savings of a gas-fired instantaneous water heater, the
longer lifetime of a gas-fired instantaneous water heater, and consumer
preferences for instantaneous water heater attributes such as limitless
hot water supply. DOE notes many consumers have already switched from a
gas-fired storage to a gas-fired instantaneous water heater despite the
high costs of doing so (to replace all the venting and potentially
relocate the water heater), and does not expect this trend to reverse
as a result of the amended standards.
In the hypothetical case of a consumer switching from a gas-fired
instantaneous water heater to an electric storage water heater when
replacing a water heater in an existing household, there are likely
additional installation costs necessary to add an electrical connection
since this type of water heater typically requires high wattage. These
are costs above and beyond the normal equipment and installation costs.
In some cases, it may be possible to install a 120-volt heat pump
storage water heater with minimal additional installation costs,
particularly if there is a standard electrical outlet nearby already.
In most
[[Page 105239]]
cases, however, a standard 240-volt electrical storage water heater
would be installed. To do so, the consumer would need to add a 240-volt
circuit to either an existing electrical panel or upgrade the entire
panel if there is insufficient room for the additional amperage. The
installation of a new 240-volt circuit by a qualified electrician will
be at least several hundred dollars. Panel upgrade costs are
significant and can be approximately $750-$2,000 to upgrade to a 200-
amp electrical panel.\125\ Older homes and homes with gas-fired space
heating (e.g., homes with gas furnaces) are more likely to need an
electrical panel upgrade in order to install an electric storage water
heater, given the relatively modest electrical needs of the home at the
time of construction. The average total installed cost of a replacement
standards-compliant electric storage water heater is $1,913,\126\
therefore the average total costs to switch to an electric storage
water heater, after accounting for electrical upgrade costs, easily
exceed the average replacement cost of a standards-compliant gas-fired
instantaneous water heater ($2,499). Given the significant additional
installation costs for nearly all homes potentially switching to an
electric water heater, DOE estimates that very few consumers would
switch from gas-fired instantaneous water heaters to electric water
heaters as a result of an energy conservation standard, especially at
the adopted standard at TSL 2. When including the above additional
costs, the average total installed cost to switch to an electric water
heater is higher than the standards-compliant gas-fired instantaneous
water heater. Instantaneous water heaters also provide differing
utility to consumers compared to storage water waters (e.g., limitless
hot water) and thus these products are not perfect substitutes.
Additionally, storage water heaters require more space than a gas-fired
instantaneous water heater and may require relocating the water heater,
incurring even greater costs. Switching from a gas-fired instantaneous
water heater to an electrical water heater is especially unlikely in
the case of an emergency replacement where time is a critical factor.
When a water heater fails, consumers typically have limited time to
make a decision on what new water heater to purchase and rely upon
replacing the water heater with one that is similar to the one that
failed. Consumers are unlikely to invest in switching fuels to a water
heater that utilizes a different fuel source in the emergency
replacement scenario. See section 9.4 of the final rule TSD for a
summary comparison of costs.
---------------------------------------------------------------------------
\125\ For example, see: www.homeadvisor.com/cost/electrical/upgrade-an-electrical-panel/#upgrade (last accessed August 29,
2024).
\126\ These results are available in the May 2024 final rule LCC
Results spreadsheet (EERE-2017-BT-STD-0019-1424), where LCC results
are available separately for replacements and new construction.
Available at: www.regulations.gov/document/EERE-2017-BT-STD-0019-1424 (last accessed: Aug. 29, 2024).
---------------------------------------------------------------------------
In the hypothetical case of a consumer switching from a gas-fired
instantaneous water heater to a gas-fired storage water heater when
replacing a water heater in an existing household, there are additional
installation costs necessary as well. The vast majority of gas-fired
storage water heaters (``GSWHs'') utilize non-condensing technology
that utilizes Category I type B metal vent material, whereas gas-fired
instantaneous water heaters require Category III or Category IV venting
material, depending on the existing efficiency level. Regarding
existing non-condensing gas-fired instantaneous water heaters, A.O.
Smith and Rinnai noted that these utilize Category III venting (A.O.
Smith, No. 1182 at p. 15; Rinnai, No. 1443 at p. 12). Condensing gas-
fired instantaneous water heaters require Category IV venting.
Switching from a gas-fired instantaneous water heater to a baseline
GSWH would therefore require replacing the venting regardless of the
existing efficiency of the gas-fired instantaneous water heater.
Replacing the venting system would result in significant additional
installation costs if a consumer opted to switch to a GSWH. The most
comparable cost for this scenario is the average cost to install a GSWH
in new construction ($2,095),\127\ which requires all-new venting,
however this estimate does not include removal and disposal costs for
the old equipment or potentially relocating the water heater. GSWHs and
gas-fired instantaneous water heaters have very different physical
dimensions and space requirements, with GSWHs being significantly
larger water heaters. Switching from a gas-fired instantaneous water
heater to a GSWH may not always be possible in the available space and
may require even larger costs to accommodate a GSWH (e.g., relocating
the water heater in the home). This may be particularly acute in
smaller households where space is at a premium (e.g., townhomes). All
of these additional costs can easily exceed many hundreds of dollars,
if not higher, depending on need to relocate the water heater.\128\
Therefore, the total cost to switch to a GSWH can exceed the cost to
simply replace with a standards-compliant gas-fired instantaneous water
heater ($2,499). This situation is the same as exists today, prior to
the amendment of standards for either gas-fired instantaneous water
heaters or for GSWHs. The cost differential is very similar between the
two and the market share of instantaneous water heaters is growing
relative to storage tank water heaters, not the reverse. See section
9.4 of the final rule TSD for a summary comparison of costs.
---------------------------------------------------------------------------
\127\ These results are available in the May 2024 final rule LCC
Results spreadsheet (EERE-2017-BT-STD-0019-1424), where LCC results
are available separately for replacements and new construction.
Available at: www.regulations.gov/document/EERE-2017-BT-STD-0019-1424 (last accessed: Aug. 29, 2024).
\128\ As an example of such costs, table 8D.5.66 in the final
rule TSD estimates permitting, removal, and disposal costs of $260.
Section 8D.3.5.3 (3) of the May 2024 final rule TSD estimates that
relocation costs in the case of electric storage water heaters could
range up to $2,000. Relocating GSWHs would incur similar costs to
accommodate all-new water and gas lines in a relocation. Available
at: www.regulations.gov/document/EERE-2017-BT-STD-0019-1416 (last
accessed: Aug. 29, 2024).
---------------------------------------------------------------------------
Furthermore, the average lifetime of a gas-fired instantaneous
water heater is approximately 20 years, compared to approximately 14.5
years for GSWHs, which results in a total annualized cost of ownership
for instantaneous water heaters that is even lower compared to GSWHs.
Instantaneous water heaters also provide differing utility to consumers
(e.g., limitless hot water) and thus these products are not perfect
substitutes. These attributes are clearly valued by consumers, given
the recent increasing market share of gas-fired instantaneous water
heaters. Consumers that have already paid the costs to switch from an
existing GSWH to a gas-fired instantaneous water heater in the absence
of any amended standard are highly unlikely to switch back to a GSWH
due to amended standards and pay all of those extra costs again.
As a result of all the cost and other considerations above, DOE
estimates that it is highly unlikely that consumers would switch from
gas-fired instantaneous water heaters to GSWHs when needing to replace
their existing water heater, specifically as a result of the
incremental costs of an energy conservation standard, particularly in
the case of an emergency replacement.
Even if some small subset of existing gas-fired instantaneous water
heater consumers opt to switch to GSWHs instead of replacing their gas-
fired instantaneous water heaters with a more efficient unit as a
result of the adopted standards, despite the additional costs in doing
so, those consumers would still need to switch to a more efficient
[[Page 105240]]
GSWH at the newly adopted standard level. 89 FR 37778. While this would
result in a marginal increase in energy consumption and life-cycle
costs for these consumers, those increases are smaller than if the
consumers switched to a previous baseline GSWH. Furthermore, these
marginal increases would be outweighed by the energy savings and life
cycle savings of the remaining consumers of gas-fired instantaneous
water heaters. For example, even if 10 percent of gas-fired
instantaneous water heater consumers elected to switch to GSWHs despite
the costs, the percentage of consumers experiencing a net cost would
increase by at most 10 percent and the average LCC savings for gas-
fired instantaneous water heater consumers would still be positive,
which would not change the conclusion of economic justification. It
would likely take approximately half of the GIWH purchasers to choose a
gas storage water heater instead of a GIWH in order for the economic
justification to come into question, which is not a plausible scenario
given the facts and analysis concerning the costs associated with
switching as presented above.
In new construction, the average total installed costs are
different because new venting is always required if installed indoors,
however the location of the water heater can be optimized to limit
those venting costs for gas-fired instantaneous water heaters. Water
heaters can also be installed outdoors in some cases. In today's
market, the total installed cost of a gas-fired instantaneous water
heater in new construction is typically less than a GSWH, a factor in
the increasing market share of gas-fired instantaneous water heaters
seen in recent historical shipments (as described in section IV.G) and
projected in the no-new-standards case. With newly adopted standards
for both GSWHs and gas-fired instantaneous water heaters, the average
total installed cost (including all venting) of a minimally standards-
compliant GSWH in residential new construction is $2,095,\129\ which is
similar to and slightly higher than a minimally compliant gas-fired
instantaneous water heater in residential new construction at the
amended standard level ($2,070). The adopted standard levels for both
GSWHs and gas-fired instantaneous water heaters therefore preserve this
market dynamic and gas-fired instantaneous water heaters will continue
to have total installed costs that are similar to or lower on average
in new construction compared to GSWHs. Furthermore, gas-fired
instantaneous water heaters have longer lifetimes (representing a more
cost-effective investment) and additional features (such as a smaller
footprint and endless hot water supply) that will continue to be
attractive to some builders and consumers. As a result, DOE estimates
that the existing trend of increasing gas-fired instantaneous water
heater market share in new construction will continue.
---------------------------------------------------------------------------
\129\ These results are available in the May 2024 final rule LCC
Results spreadsheet (EERE-2017-BT-STD-0019-1424), where LCC results
are available separately for replacements and new construction. The
total installed costs for baseline models (reflecting the current
minimally compliant models) are similarly less for gas-fired
instantaneous water heaters compared to GSWHs. Available at:
www.regulations.gov/document/EERE-2017-BT-STD-0019-1424 (last
accessed: Aug. 29, 2024).
---------------------------------------------------------------------------
In existing installations of GSWHs, there are significant costs to
switch from a GSWH to a gas-fired instantaneous water heater, since new
venting is required. In today's market, however, some consumers are
electing to make that switch despite the extra costs, because
instantaneous water heaters have certain attributes that consumers
value (e.g., smaller footprint, endless supply of hot water). Even with
the adopted standard for gas-fired instantaneous water heaters, the
relative incremental cost will be similar because DOE also recently
adopted a revised standard for GSWH in a May 2024 final rule, so costs
for both product classes will increase. 89 FR 37778. For example, the
average total installed cost of a pre-standard baseline GSWH in a
residential replacement installation was estimated to be $1,376 in the
May 2024 final rule, whereas the average total installed cost of a
baseline gas-fired instantaneous water heater in a residential
replacement installation is estimated to be $2,282.\130\ Therefore,
switching to baseline gas-fired instantaneous water heaters in existing
GSWH installations in today's market already represents a significant
additional cost, estimated to be $906 on average, nearly twice the cost
of simply replacing a GSWH with another GSWH. Despite this extra cost,
the market share of gas-fired instantaneous water heaters in
replacement installations is increasing. With newly adopted standards
for both product classes, the average installed costs in residential
replacement installations for minimally compliant products are
estimated to be $1,523 and $2,499 for GSWHs and gas-fired instantaneous
water heaters, respectively, with a difference of $976. Therefore,
there is still a significant additional cost to switch after the
adoption of new standards, just as in today's market. However,
instantaneous water heaters will continue to have the same attributes
and features that some consumers prefer and those consumers will
continue to make the switch when replacing their existing storage water
heaters, despite the costs of doing so. The adopted standard level for
gas-fired instantaneous water heaters is unlikely to significantly
disrupt this existing market dynamic because there was already a high
cost to switch from existing GSWHs to gas-fired instantaneous water
heaters.
---------------------------------------------------------------------------
\130\ Separate LCC results for residential vs. commercial
buildings and replacement installations vs. new construction are
available in the LCC results spreadsheets. The May 2024 final rule
LCC results spreadsheet is available at: www.regulations.gov/document/EERE-2017-BT-STD-0019-1424 (last accessed Sept. 17, 2024).
---------------------------------------------------------------------------
Even if a small subset of existing GSWH consumers, who would have
switched to gas-fired instantaneous water heaters in the no-new-
standards case, instead remain with GSWHs as a result of the adopted
standards, the adopted rule for gas-fired instantaneous water heaters
will still result in significant energy savings even though the overall
energy savings might be incrementally lower than estimated in this
final rule analysis. In this hypothetical scenario, even if the market
growth of gas-fired instantaneous water heaters slows down and more
consumers remain with GSWHs, there are still energy and LCC savings for
gas-fired instantaneous water heaters, the rule as a whole saves a
significant amount of energy, and therefore the conclusion of economic
justification remains unchanged.
DOE received comments from stakeholders who were concerned that, if
DOE were to adopt more stringent standards for gas-fired instantaneous
water heaters compared to the standards adopted for gas-fired storage
water heaters, consumers would opt for gas-fired storage water heaters
instead of gas-fired instantaneous water heaters, which could have
negative impacts to the outcome of this rulemaking.
TPPF stated that consumers recognize the differences between
condensing and non-condensing products, which leads consumers to
purchase products at different price points. Because condensing
products are more expensive, TPPF stated, consumers will instead opt
for non-condensing gas-fired storage water heaters, and these economic
tradeoffs illustrate that condensing and non-condensing water heaters
are not interchangeable. (TPPF, No. 1153 at pp. 3-4)
Rinnai stated their expectation that most would-be consumers of
non-condensing tankless water heaters would instead purchase less
efficient
[[Page 105241]]
gas-fired storage water heaters if the proposed standards are
finalized. Rinnai asserted that, because DOE does not adequately
account for such product switching, DOE's analysis overstates LCC and
energy savings for gas-fired instantaneous water heaters. Rinnai
estimated that at least 80 percent of their current non-condensing gas-
fired instantaneous water heater sales would switch to non-condensing
gas-fired storage water heaters as a result of the proposed rule.
Rinnai added that based on their calculations, if 31 percent of the
market switched, there would be a net loss of 0.4 percent in energy
savings and 0.04 percent in emissions reductions as compared to the
manufacturer's analysis of a no-new-standards case scenario over the
first 20 years the proposed rule goes into effect. (Rinnai, No. 1186 at
pp. 2-18)
The Attorney General of GA commented that condensing and non-
condensing gas-fired tankless water heaters are highly efficient and
reduce standby heat loss as compared to traditional storage-type units.
The Attorney General of GA commented that both types (condensing and
non-condensing) of tankless water heaters require less energy and have
higher lifespans than units with tanks, and both types currently
satisfy DOE's minimum efficiency requirement. (Attorney General of GA,
No. 1026 at p. 1) In response to the July 2024 NODA, Commenters from
the U.S. House of Representatives claimed that the ``unique design'' of
non-condensing gas-fired instantaneous water heaters yields a longer
appliance life-cycle by heating water only on demand, limiting exposure
to corrosive elements. (U.S. House of Representatives, No. 1445 at p.
1)
DOE agrees with the commenters that instantaneous water heaters are
different from storage water heaters because they heat water on demand;
however, this ability is not unique to non-condensing gas-fired
products. ``Tankless'' models are instantaneous water heaters with very
little storage volume. They are equipped with sensors that activate the
heating process based on water flow to produce hot water on demand.
Endless hot water is a feature that is valued by some consumers, as
indicated by the recent increasing market share of gas-fired
instantaneous water heaters. Furthermore, DOE's analysis shows that
gas-fired instantaneous water heaters can have longer lifetimes than
gas-fired storage water heaters. The estimated average lifetime for a
gas-fired instantaneous water heater is about 20 years, whereas gas-
fired storage water heaters operate for about 14 to 15 years. This is
one reason why there has been a historical trend of increasing
shipments of gas-fired instantaneous water heaters--both non-condensing
and condensing--and why it is reasonable to expect consumers to
continue opting for gas-fired instantaneous water heaters in a scenario
where standards are set at a condensing efficiency level.
Rinnai noted that the efficiency levels for gas-fired instantaneous
water heaters proposed in the July 2023 NOPR represent a much larger
increase from existing standards than the proposed efficiency levels
for gas-fired storage water heaters. (Rinnai, No. 1186 at pp. 6-7)
Commenters from the U.S. House of Representatives expressed concern
that the efficiency level for the proposed standards for gas-fired
storage water heaters are less stringent than the efficiency level
proposed for gas tankless water heaters. Commenters from the U.S. House
of Representatives asserted that this efficiency difference would
restrict consumer choice and increase prices. (U.S. House of
Representatives, No. 1025 at pp. 1-2) Commenters from the U.S. House of
Representatives reiterated these concerns in response to the July 2024
NODA, claiming that the proposed standards would eliminate non-
condensing gas-fired instantaneous water heaters from the market. The
U.S. House of Representatives stated that the proposed standards would
leave condensing gas-fired instantaneous water heaters, which are
significantly more expensive, and gas-fired storage water heaters,
which have significantly higher emissions profiles, on the market.
(U.S. House of Representatives, No. 1445 at p. 1) Commenters from the
U.S. House of Representatives claimed that the proposed standards would
harm consumers who rely on the size, cost, and flexibility of gas-fired
instantaneous water heaters. (U.S. House of Representatives, No. 1445
at p. 1)
CNGC urged DOE to reconsider the implications on both consumers and
manufacturers, stating that if efficiency standards exceed 91 percent,
it becomes technologically infeasible to produce non-condensing gas-
fired tankless water heaters at their current affordable price, leaving
consumers to choose less-efficient storage water heaters and undermine
environmental goals. (CNGC, No. 648 at p. 1) CHPK and Huntsville
Utilities also stated that the unattainable energy efficiency
requirements for gas-fired instantaneous water heaters utilizing non-
condensing technology would discourage consumers from investing in
tankless models, and instead they would purchase less-efficient water
heaters. (CHPK, No. 1008 at pp. 1-2; Huntsville Utilities, No. 1176 at
p. 1) The Attorney General of GA commented that the proposed standards
are feasible only for condensing units and would make tankless water
heaters unaffordable for many consumers. The Attorney General of GA
added that the proposed rulemaking will effectively eliminate non-
condensing gas-fired tankless water heaters and leave consumers with a
choice between less-efficient storage water heaters, or more expensive
condensing tankless water heaters, and suggested that if consumers are
incentivized to purchase inefficient storage water heaters, the rule
will violate DOE's requirement that any new or amended standards must
result in a significant conservation of energy. (Attorney General of
GA, No. 1026 at pp. 1-2)
DOE recognizes that total installed cost is a significant factor in
consumer decision-making when purchasing a new water heater. In this
final rule, DOE has incorporated specific feedback from stakeholders to
improve its life-cycle cost analysis with respect to installation cost
estimates. As discussed above, DOE concludes that, based on costs,
consumers who already have gas-fired instantaneous water heaters would
not switch to a gas-fired storage water heater when making a
replacement. Secondly, in new construction, installing a gas-fired
instantaneous water heater is still less expensive on average than
installing a gas-fired storage water heater with the adoption of
amended standards. Thirdly, consumers switching from gas-fired storage
water heaters to gas-fired instantaneous water heaters in the no-new-
standards case will require a change to the venting configuration
regardless of whether the gas-fired instantaneous water heater is non-
condensing or condensing. The choice to switch from a storage water
heater to an instantaneous water heater in the no-new-standards case is
influenced by other factors beyond just cost. Based on its assessments
of total installed costs in the life-cycle cost analysis, DOE has
determined that it is unlikely for consumers to stop switching from
gas-fired storage water heaters to gas-fired instantaneous water
heaters only as a result of the adopted rule. Even if that premise was
true, where a fraction of consumers in the amended standards case, as
compared to the no-new-standards case, opted to stay with storage water
heaters instead of switching to instantaneous water heaters, DOE would
still find economic justification with the adopted rule. A majority of
consumers would have to
[[Page 105242]]
forgo adopting instantaneous water heaters in the standards case for
the rule to result in an increase in energy consumption, a scenario DOE
has determined to not be remotely plausible given the discussion of
total installed costs above.
The Attorney General of TN commented that the proposed rulemaking
does not consider the loss of consumer utility that could occur from
the implementation of these standards, particularly consumers' needs
for different types of water heaters (i.e., condensing versus non-
condensing) depending on the configuration of their home. The Attorney
General of TN commented that by reducing market availability for non-
condensing, gas-fired, instantaneous water heaters in favor of less
affordable electric-powered water heaters, the proposed rulemaking
would lead consumers to purchase less-efficient non-condensing gas-
storage water heaters. (Attorney General of TN, No. 1149 at p. 3)
In the July 2023 NOPR, DOE explained why non-condensing versus
condensing gas-fired appliances do not constitute a consumer utility
for which the Department can justify separate standards. 88 FR 49058,
49079. This determination is discussed further in section IV.A.1 of
this document.
NPGA, APGA, AGA, and Rinnai stated that DOE misunderstands the
consumer water heater market due to its claim that consumers do not
make decisions based on rational economic terms, but conceded that many
water heater decisions are made in emergencies where price and
immediate availability are the strongest factors in decision-making.
According to NPGA, APGA, AGA, and Rinnai, DOE rejects the idea that
consumers would switch products across various product classes and does
not evaluate associated market shifts, and by failing to understand
that by limiting or eliminating the market for non-condensing
instantaneous water heaters, consumers may choose to switch to a non-
condensing gas-fired storage water heaters, resulting in a lower UEF
and enhanced emissions from their water heater and has not accounted
for installation costs of this potential product class switch. (NPGA,
APGA, AGA, and Rinnai, No. 441 at p. 3)
In response, DOE notes that its assessment is based on the
comparison of total installed costs needed to switch from product class
to product class, as noted above. The total costs to switch product
classes in response to an amended standard are higher than simply
purchasing a compliant product in the same product class. Therefore,
DOE estimates no switching in response to an amended standard as a
result of incremental costs. DOE does not reject the idea that this may
happen in the no-new-standards case for reasons other than just total
cost. Indeed, the shipments projection accounts for recent market
trends that show growing consumer demand for gas-fired instantaneous
water heaters compared to GSWHs. Consumers are valuing instantaneous
water heater features beyond just cost. DOE estimates that this trend
will not substantively change in the standards case, given that cost
comparison between GSWHs and gas-fired instantaneous water heaters is
similar, whether at baseline ELs or at the adopted ELs.
Commenting on the July 2023 NOPR, Ecotemp commented that product
switching, from tankless to tank water heaters is likely to happen as a
result of this rule and DOE not modeling that possibility is missing a
huge consumer base doing exactly that. (Ecotemp, No. 1092 at p. 2) NMHC
and NAA stated that DOE fails to properly evaluate the impacts of
market unavailability that forces product switching with the example of
the elimination of non-condensing tankless water heaters from the
proposed standard potentially requiring a non-condensing gas storage
water heater over a traditional replacement of non-condensing tankless
water heaters, and the 25 percent drop in efficiency associated with
these products. NMHC and NAA stated that this rule will result in
greater use of electric water heaters in replacement of existing gas
water heaters which will require more interconnectivity, changes to
power systems, and upgrades to electrical infrastructure. (NMHC and
NAA, No. 996 at p. 5)
In response, DOE notes that existing market trends are incorporated
into the shipments analysis and projection. To the extent that some
product classes are becoming more prevalent in certain types of
buildings, that is reflected in the no-new-standards case shipments
projection. With respect to switching from a tankless to storage tank
water heater, as summarized above, DOE determines that minimal
switching would happen to either a gas-fired storage or electric
storage water heater. As DOE has discussed above, the costs to switch
product classes in response to amended standards are larger than simply
purchasing standards-compliant products within the same product
classes. Therefore, DOE estimates that no additional switching will
occur beyond existing market trends.
Atmos Energy argued that because the cost to fuel switch is high,
DOE fails to ``acknowledge the equally prohibitive costs that will be
associated with high efficiency gas appliances as a result of this
proposal and the lack of gas-fired replacements in the market.'' (Atmos
Energy, No. 1183 at p. 6). Rinnai argued that DOE has failed to take
into account substitution effects in replacement markets, especially in
regards to non-condensing gas-fired instantaneous water heater. Rinnai
argued that in particular the lack of consideration of non-condensing
gas-fired instantaneous water heater to gas storage water heater (due
to lack of condensing gas-fired instantaneous water heater option) is
not being represented. (Rinnai, No. 1186 at pp. 30-31) As discussed
above, DOE estimates that switching away from gas-fired instantaneous
water heaters as a result of the rule is likely to be negligible, due
to the high installation costs of such switching, (costs that are
acknowledged to be high by Atmos Energy in their comment). DOE finds no
evidence that there would be a lack of condensing gas-fired
instantaneous water heater models available in the standards case for
replacements. Many such models for gas-fired instantaneous water
heaters are currently available on the market by multiple
manufacturers. See chapter 8 and appendix 8D of the final rule TSD for
detailed description of the installation costs.
Rinnai stated that the July 2024 NODA declares that no consumers
would switch between product categories, including to gas storage water
heaters, an assumption that Rinnai stated would contradict historic
market data and evidence of consumer purchasing behavior. According to
Rinnai, gas tankless water heaters are taking market share from gas
tank sales, with GSWH sales declining at the same time gas-fired
instantaneous water heater sales have increased. Rinnai speculated that
this may be due to consumer purchasing decisions due to the increased
cost to purchase and install gas-fired instantaneous water heater.
Rinnai also note that by removing non-condensing gas-fired
instantaneous water heater options, consumers may be less inclined to
replace an existing GWSH with an even more expensive condensing gas-
fired instantaneous water heater unit. Rinnai stated that DOE's
position that consumers purchasing gas tankless water heaters will
never consider buying a gas tank in contrary to observable market
behavior. (Rinnai, No. 1443, at p. 2 and pp. 5-8)
In contrast, the Joint Advocates supported DOE's conclusion that
the proposed standards for gas-fired instantaneous water heaters would
not
[[Page 105243]]
result in any significant product switching among consumers. The Joint
Advocates commented that, contrary to one manufacturer's assumption,
such an outcome is highly unlikely for the following reasons: (1) gas-
fired instantaneous water heaters are already significantly more
expensive than gas storage water heaters and that the total installed
cost of a gas-fired instantaneous water heater that just meets the
current standard is 41 percent higher than that of a gas storage water
heater; (2) the cost differential between gas storage and gas-fired
instantaneous water heaters would remain essentially unchanged at the
proposed standard level (i.e., the estimated total installed cost of
gas-fired instantaneous water heaters would remain at 41 percent higher
than gas storage water heaters); (3) consumers with an existing gas-
fired instantaneous water heater would be unlikely to replace it with a
gas storage water heater due to space and venting issues; and (4) DOE
data show that 70 percent of current gas-fired instantaneous water
heater sales are already at condensing levels and more than 60 percent
of current sales meet EL 2. For these reasons, the Joint Advocates
supported DOE's determination that additional consumer product
switching is unlikely as a result of amended standards for gas-fired
instantaneous water heaters. (Joint Advocates, No. 1444 at pp. 2-3)
A.O. Smith agreed with DOE's conclusion that condensing standards
for gas-instantaneous water heaters would not shift shipments away from
tankless products due to significant cost for changing venting system.
The commenter also noted that approximately 65 percent of shipments are
already condensing products and it suggests that consumers are already
voluntarily opting for condensing tankless products despite their
higher initial costs over non-condensing tankless products. (A.O.
Smith, No. 1440 at p. 6)
In response, DOE acknowledges that historic and present-day market
trends show an increasing demand for gas-fired instantaneous water
heaters over GSWHs. This overall trend is incorporated into the
shipments analysis and shipment projections, as discussed in section
IV.G of this document. However, this market dynamic is occurring in the
absence of any new energy conservation standard for gas-fired
instantaneous water heaters. In new construction, instantaneous water
heaters are becoming popular in large part because the total installed
cost of a gas-fired instantaneous water heater is, on average, similar
to or less than a GSWH, since new venting is required in either case
and the venting length can be very short for gas-fired instantaneous
water heaters. Even with the adopted standard level, gas-fired
instantaneous water heaters will continue to be similar to or less
expensive to install in new construction, on average, and therefore the
standard is highly unlikely to cause significant product switching to
GSWHs. Furthermore, instantaneous water heaters also provide differing
utility to consumers (e.g., limitless hot water, smaller footprint)
compared to storage water heaters. These attributes are clearly valued
by consumers, given the recent increasing market share of gas-fired
instantaneous water heaters.
11. Analytical Results
Rinnai stated that the Department has proposed new minimum
efficiency standards for twelve separate categories of consumer gas-
fired instantaneous water heaters but the Department provided only one
life-cycle-cost analysis for them. (Rinnai, No. 1186 at p. 34)
In response, DOE clarifies that for two types of gas-fired
instantaneous water heaters (and each of their four their associated
draw patterns), DOE is only updating the rating metric to the UEF
descriptor and the adopted standards do not constitute an increase in
stringency. This applies to 8 of the 12 categories the commenter
identified. For gas-fired instantaneous water heaters with less than 2
gallons of effective storage volume and rated inputs greater than
50,000 Btu/h, DOE conducted an analysis, as presented in this final
rule, to determine whether amended UEF standards would be appropriate
and justified. Two of the four draw patterns have no products and no
market share in today's market and thus there is no analysis to
conduct. For the remaining two draw patterns (medium and high draw),
they are fully analyzed as part of DOE's rulemaking analysis and
incorporated into the LCC consumer sample. DOE assigned a draw pattern
to the sampled household or building based on the market split of two
draw patterns. The analytical results are a weighted average
representing the economic impact to the market as a whole combing the
two draw patterns. Additionally, the published analytical results
spreadsheet contains the breakdown of the results by draw patterns.
Commenting on the July 2023 NOPR, Rinnai argued that the density
distribution of its LCC analysis for gas-fired instantaneous water
heaters shows heavily skewed distributions which can be attributed to
high impact outliers. Rinnai argued that because the mean is being used
to determine feasibility, it moves the LCC results away from its
central tendencies and typical savings/costs for consumers. Rinnai
argued that DOE should do a sensitivity analysis on gas-fired
instantaneous water heater to defend the impact of the proposal.
(Rinnai, No. 1186 at p. 21) Rinnai argued that small changes in
estimates of installation costs or maintenance costs for condensing
gas-fired instantaneous water heaters could result in negative average
LCC savings. Rinnai argued this sensitivity warrants not enacting the
standard for gas-fired instantaneous water heaters. (Rinnai, No. 1186
at p. 22)
Rinnai noted that the LCC probability distribution contains a long
tail with many consumers experiencing higher LCC values than the
average value. Rinnai suggested that DOE should produce results using
``different averaging'' to better understand the impact of different
data populations. Rinnai stated that DOE should consider the
distribution in consumer trade-offs between upfront costs and long-term
savings, as well as the overall costs that many consumers will face
across different scenarios, to provide more accurate insights on
consumer behavior, purchasing decisions, and impacts on cost savings
and energy savings. (Rinnai, No. 1443 at pp. 20-21) In response, DOE
clarifies that it 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 and are
representative of the real world. 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 (e.g., high/low economic growth and energy price
scenarios, alternative price trend scenarios, alternative mean lifetime
scenarios). 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. Furthermore, DOE provides a range of
statistics in the LCC spreadsheet, including median values and values
at various percentiles for many intermediate variables, as well as the
full data output table for all 10,000 samples. For example, the 25th
and 75th
[[Page 105244]]
percentiles of average LCC savings for all ELs are available in the LCC
spreadsheet. DOE also provides a distribution of impacts, including
consumers with a net benefit, net cost, and not impacted by the rule in
the LCC spreadsheet and in chapter 8 of the final rule TSD.
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.
The installation and maintenance cost estimates are the result of a
significant research and cite multiple sources, as discussed at length
in section IV.F.2 and appendix 8D of the final rule TSD. DOE has
incorporated feedback from various stakeholders and revised those costs
for this final rule. There is no basis to expect installation costs are
under- or overestimated and therefore creating sensitivity scenarios
based on hypothetical adjustments to those costs is unwarranted.
As discussed in section IV.F.8, DOE also conducted a sensitivity
analysis for gas-fired instantaneous water heaters in which certain
positive outlier outcomes were replaced. While the average (and median)
LCC savings are reduced in this sensitivity analysis, they are still
positive.\131\
---------------------------------------------------------------------------
\131\ This sensitivity result can be found in the LCC Results
spreadsheet, available at XXXX.
---------------------------------------------------------------------------
DOE provides stakeholders with the opportunity to provide accurate
data to represent a breadth of operating conditions, prices, and use
cases. In the absence of stakeholder provided information, DOE makes a
good-faith effort to collect reliable data from various sources and
summarize assumptions on the missing parameters. The Monte Carlo
simulation and its large number of samples (10,000 for each product
class) ensures that the results converge to a representative average.
For some inputs whose uncertainty is not well characterized, such as
future equipment prices or economic growth conditions, DOE performed a
series of sensitivity analyses to ensure that the results of the
analysis are not strongly dependent on those inputs and that the
conclusions of the analysis remain the same. As a result, DOE's
conclusion of economic justification is robust to a broad range of
sensitivity scenarios which capture the uncertainty inherent in
economic projections.
Rinnai claimed that the LCC savings at the EL 2 in the July 2024
NODA are minimal (approximately $5 a year), while imposing substantial
costs on a large percentage of consumers. Rinnai claimed that the July
2024 NODA results are based on flawed and inaccurate data and
assumptions and Rinnai's analysis shows the LCC savings would be
negative at the proposed EL if DOE adjusted venting installation costs.
(Rinnai, No. 1443 at pp.10, 18-19 and 25) In response, DOE has
individually responded to Rinnai's specific comments to the venting
installation cost methodology in section IV.F.2. DOE reviewed the
analytical method for this final rule and based on the results the LCC
savings are still in support of the proposed efficiency level.
G. Shipments Analysis
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.\132\
The shipments model takes an accounting approach, tracking market
shares of products 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.
---------------------------------------------------------------------------
\132\ 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 consumer
gas-fired instantaneous water heater shipments by projecting shipments
in three market segments: (1) replacement of existing consumer gas-
fired instantaneous water heaters; (2) new housing; and (3) new owners
in buildings that did not previously have a consumer gas-fired
instantaneous water heater or existing gas-fired instantaneous water
heater owners that are adding an additional consumer gas-fired
instantaneous water heater.\133\
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\133\ The new owners primarily consist of households that add or
switch to a different water heater option 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 historically switch away from water heater
product class to another.
---------------------------------------------------------------------------
To project gas-fired instantaneous water heater replacement
shipments, DOE developed retirement functions from gas-fired
instantaneous water heater 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
lifetime estimates. Annual historical shipments sources are: (1) AHRI
data submittals; \134\ (2) the BRG Building Solutions 2023 report;
\135\ (3) ENERGY STAR unit shipments data; \136\ and (4) the 2010
Heating Products Final Rule. In addition, DOE adjusted replacement
shipments by taking into account demolitions, using the estimated
changes to the housing stock from AEO2023.
---------------------------------------------------------------------------
\134\ AHRI. Confidential Instantaneous Gas-fired Water Heater
Shipments Data from 2004-2007 to LBNL. March 3, 2008.
\135\ BRG Building Solutions. The North American Heating &
Cooling Product Markets (2023 Edition). 2023.
\136\ ENERGY STAR. Unit Shipments data 2010-2021. multiple
reports. Available at www.energystar.gov/partner_resources/products_partner_resources/brand_owner_resources/unit_shipment_data
(last accessed August 29, 2024).
---------------------------------------------------------------------------
To project shipments to the new housing market, DOE used the
AEO2023 housing starts and commercial building floor space projections
to estimate future numbers of new homes and commercial building floor
space. DOE then used data from U.S. Census Characteristics of New
Housing,137 138 Home Innovation Research Labs Annual Builder
Practices Survey,\139\ RECS 2020, AHS 2021, and CBECS 2018 to estimate
new construction water heater saturations for consumer gas-fired
instantaneous water heaters.\140\
---------------------------------------------------------------------------
\137\ U.S. Census. Characteristics of New Housing from 1999-
2022. Available at www.census.gov/construction/chars/ (last accessed
August 29, 2024).
\138\ 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 29, 2024).
\139\ 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 29,
2024).
\140\ Note that DOE does not project housing regionally. New
housing is therefore assumed to grow in the same regional
distribution as the current data would suggest.
---------------------------------------------------------------------------
DOE estimated shipments to the new owners' market based on residual
shipments from the calculated replacement and new construction
shipments compared to historical shipments in the last 5 years (2018-
[[Page 105245]]
2023 for this final rule). DOE compared this with data from the
Decision Analysts' 2002 to 2022 American Home Comfort Study \141\ and
2023 BRG data, which showed similar historical fractions of new owners.
DOE used the last 10 years (2013-2022) of modeled new owner data to
project trend into future years from 2023-2059. 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).
---------------------------------------------------------------------------
\141\ 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 29, 2024).
---------------------------------------------------------------------------
For the preliminary analysis and July 2023 NOPR, assumptions
regarding future policies encouraging electrification of households and
electric water heating were speculative at that time, so such policies
were not incorporated into the shipments projection.
DOE acknowledges, however, that ongoing electrification policies at
the Federal, State, and local levels are likely to encourage
installation of electric water heaters in new homes and adoption of
electric water heaters in homes that currently use gas-fired water
heaters. For example, the Inflation Reduction Act includes incentives
for heat pump water heaters and electrical panel upgrades. However,
there are many uncertainties about the timing and impact of these
policies that make it difficult to fully account for their likely
impact on gas and electric water heater market shares in the time frame
for this analysis (i.e., 2030 through 2059). Nonetheless, DOE's
shipments projections 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 in
gas-fired instantaneous water heater shipments in the no-new-standards
case in 2030 compared to the preliminary analysis. DOE acknowledges
that electrification policies may result in a larger decrease in
shipments of gas-fired instantaneous water heaters 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 adopted
rule. For example, if incentives and rebates shifted 5 percent of
shipments in the no-new amended standards case from gas-fired
instantaneous water heaters to heat pump electric storage water
heaters, then the energy savings estimated for gas-fired instantaneous
water heaters in this adopted rule would decline by approximately 5
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. DOE notes that the economic
justification for the adopted rule would not change if DOE included the
impact of incentives and rebates in the no-new-standards case, even if
the absolute magnitude of the savings were to decline.
DOE does not estimate that a significant market shift away from
instantaneous water heaters would occur, given that the relative
comparison of prices between gas-fired instantaneous and storage water
heaters will remain similar. See section IV.F.10 for a detailed
discussion.
1. Impact of Repair vs. Replace
DOE estimated a fraction of consumer gas-fired instantaneous water
heater replacement installations that choose to repair their equipment,
rather than replace their equipment in the new standards case. The
approach captures not only a decrease in consumer gas-fired
instantaneous water heater replacement shipments, but also the energy
use from continuing to use the existing consumer gas-fired
instantaneous water heater and the cost of the repair. DOE assumes that
the demand for water heating is inelastic and, therefore, that no
household or commercial building will forgo either repairing or
replacing their equipment (either with a new consumer gas-fired
instantaneous water heater or a suitable water heating alternative).
For details on DOE's shipments analysis 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 standards at specific
efficiency levels.\142\ (``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. For
the present analysis, DOE projected the energy savings, operating cost
savings, product costs, and NPV of consumer benefits over the lifetime
of consumer gas-fired instantaneous water heaters sold from 2030
through 2059.
---------------------------------------------------------------------------
\142\ The NIA accounts for impacts in the United States and U.S.
territories.
---------------------------------------------------------------------------
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 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.
DOE uses a spreadsheet model to calculate the energy savings and
the national consumer costs and savings from each TSL. 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.12 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.12--Summary of Inputs and Methods for the National Impact Analysis
----------------------------------------------------------------------------------------------------------------
Inputs Method
----------------------------------------------------------------------------------------------------------------
Shipments............................................... Annual shipments from shipments model.
Compliance Date of Standard............................. 2030.
[[Page 105246]]
Efficiency Trends....................................... No-new-standards case: Based on historical data.
Standard cases: Roll-up in the compliance year and
then DOE estimated growth in shipment-weighted
efficiency in all the standards cases.
Annual Energy Consumption per Unit...................... Annual weighted-average values are a function of
energy use at each TSL.
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.
Annual Energy Cost per Unit............................. Annual weighted-average values as a function of the
annual energy consumption per unit and energy prices.
Repair and Maintenance Cost per Unit.................... Annual values do not change with efficiency level.
Energy Price Trends..................................... AEO2023 projections (to 2050) and extrapolation
thereafter.
Energy Site-to-Primary and FFC Conversion............... A time-series conversion factor based on AEO2023.
Discount Rate........................................... Three and seven percent.
Present Year............................................ 2024.
----------------------------------------------------------------------------------------------------------------
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 the year of
anticipated compliance with an amended standard. To project the trend
in efficiency absent amended standards for consumer gas-fired
instantaneous water heaters over the entire shipments projection
period, DOE used available historical shipments data and manufacturer
input. The approach is further described in 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 (2030). 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.
To develop standards case efficiency trends after 2030, DOE used
historical shipment data and current consumer gas-fired instantaneous
water heater model availability by efficiency level (see chapter 8).
DOE estimated growth in shipment-weighted efficiency by assuming that
the implementation of ENERGY STAR's performance criteria and other
incentives would gradually increase the market shares of higher
efficiency water heaters. Using historical BRG shipments data and
ENERGY STAR criteria, DOE estimated the annual increase in market share
for condensing units between 2015--2022 and assumed the increasing
trend would continue would continue over the shipments projection
period. DOE notes that at present, most gas-fired instantaneous water
heater models already achieve EL 2 or higher.
2. National Energy Savings
The national energy savings analysis involves a comparison of
national energy consumption of the considered products between each
potential standards case (``TSL'') 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 standard case. DOE estimated energy consumption and savings
based on site energy and converted the electricity consumption 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, primary energy is the same as site energy.
Cumulative energy savings are the sum of the NES for each year over the
timeframe of the analysis.
Use of higher-efficiency products is sometimes associated with a
direct rebound effect, which refers to an increase in utilization of
the product due to the increase in efficiency. 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 water heating of around 10 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 water 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 that could not afford to adequately heat their homes prior
to weatherization. DOE applied a rebound effect of 10 percent for
consumer gas-fired instantaneous water heaters used in residential
applications based on studies of other residential products and the
value used for consumer water heaters in the 2010 Final Rule for
Heating Products, and 0 percent for consumer water heaters in
commercial applications, which also matches EIA's National Energy
[[Page 105247]]
Modeling System (``NEMS'') for residential and commercial water heating
and is consistent with other recent energy conservation standards
rulemakings.147 148 149 150 The calculated NES at each
efficiency level is therefore reduced by 10 percent in residential
applications. DOE also included the rebound effect in the NPV analysis
by accounting for the additional net benefit from increased consumer
gas-fired instantaneous water heaters usage, as described in section
IV.H.3 of this document.
---------------------------------------------------------------------------
\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 29, 2024).
\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
29, 2024).
\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 29, 2024).
\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 29, 2024).
\147\ See www.eia.gov/outlooks/aeo/nems/documentation/ (last
accessed August 29, 2024).
\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 29, 2024).
\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 29, 2024).
\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 29, 2024).
---------------------------------------------------------------------------
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 (Aug. 18, 2011). After evaluating the
approaches discussed in the August 18, 2011 notice, 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 (Aug. 17, 2012). NEMS is a public domain,
multi-sector, partial equilibrium model of the U.S. energy sector \151\
that EIA uses to prepare its Annual Energy Outlook. The FFC factors in
corporate 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 10B of the final rule TSD.
---------------------------------------------------------------------------
\151\ For more information on NEMS, refer to The National Energy
Modeling System: An Overview 2018, DOE/EIA-0581(2019), April 2019.
Available at www.eia.gov/outlooks/aeo/nems/documentation/ (last
accessed August 29, 2024).
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Rinnai claimed that DOE has not adequately explained how national
energy savings at the proposed level increased to 0.52 quads in the
July 2024 NODA from 0.4 quads in the NOPR. (Rinnai, No. 1443 at p. 8)
For the July 2023 NOPR, DOE incorporated RECS 2015 as the basis of
the building sample development and energy use determination, while for
July 2024 NODA, DOE incorporated RECS 2020 as the basis of the building
sample development and energy use determination and updated the
analyses accordingly (see section IV.E of this document). The updated
RECS includes a much larger sample size and higher water usage and
energy consumption estimates on average for consumer gas-fired
instantaneous water heaters. Using RECS 2020 for the sample development
and energy use determination therefore results in larger differences in
annual energy consumption between higher efficiency levels and lower
efficiency levels. Because the estimates of national energy savings are
based on the differences in annual energy consumption between higher
efficiency levels and lower efficiency levels, the estimated national
primary energy savings increased from approximately 0.45 quads to
approximately 0.52 quads. Rinnai claims the national energy savings and
associated emission reductions are overstated because DOE did not
properly account for consumers switching to gas-fired storage water
heaters as a response to the standard which would increase overall
energy consumption of water heaters. Rinnai projects that an additional
savings of 0.61 quads and reductions of 39 million metric tons in
CO2 emissions are possible if non-condensing gas-fired
instantaneous water heaters are allowed to stay on the market. Rinnai
requested DOE analyze product substitution and the impact of various
scenarios on energy savings and emission reductions (Rinnai, No. 1443
at pp. 8-9, 26) Rinnai believes that would-be purchasers of non-
condensing gas-fired instantaneous water heaters would likely purchase
gas-fired storage water heaters rather than condensing gas-fired
instantaneous water heaters. Rinnai states that if 30 percent of would-
be purchasers opted for gas-fired storage water heaters instead, there
would be no energy savings by the standard. Rinnai believes that fewer
people are purchasing gas-fired instantaneous water heater in 2023 due
to inflation, implying that gas-fired instantaneous water heater
purchasers are price-sensitive. (also Rinnai, No. 1435, at p. 2, 4, 10-
11, 14-15)
DOE estimates that it is highly unlikely that consumers would
switch from gas-fired instantaneous water heaters to gas-fired storage
water heaters specifically as a result of the incremental costs of an
energy conservation standard because the differential costs between the
two products will remain similar (see section IV.F.10 for an expanded
discussion). Therefore, product switching as a result of the proposed
standards is likely to be negligible. DOE's estimates of national
energy savings and associated emission reductions appropriately reflect
current data and market trends. Any potential energy savings that might
occur from consumers switching from gas-fired storage water heaters to
gas-fired instantaneous water heaters, in the absence of new standards,
is already incorporated into the no-new-standards case. And because DOE
estimates that switching is unlikely to be impacted as a result of
amended standards, these potential energy savings are present in both
the standards and no-new-standards cases. The commenter's projection of
additional energy savings and emissions reduction if non-condensing
gas-fired instantaneous water heaters are allowed to stay on the market
is a misunderstanding of DOE's estimates of national energy savings and
associated emission reductions.
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 used constant
prices as the default price assumption to project future consumer gas-
fired instantaneous water heater prices. However, DOE also developed
consumer gas-fired instantaneous water heater price trends based on
historical PPI data. 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 consumer gas-
[[Page 105248]]
fired instantaneous water heaters. In addition to the default constant
price trend, DOE considered two product price sensitivity cases: (1) a
price decline case and (2) price increase case based on PPI data. The
derivation of these price trends and the results of these sensitivity
cases are described in appendix 10C of the final rule TSD.
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, the 2046-2050 average was
used for all years. As part of the NIA, DOE also analyzed scenarios
that used inputs from variants of the AEO2023 Reference 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 10C 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 water 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 10E 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.\152\ 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.
---------------------------------------------------------------------------
\152\ U.S. Office of Management and Budget. Circular A-4:
Regulatory Analysis. Available at www.whitehouse.gov/omb/information-for-agencies/circulars (last accessed Mar. 5, 2024). DOE
used the prior version of Circular A-4 (September 17, 2003) in
accordance with the effective date of the November 9, 2023 version.
Available at www.whitehouse.gov/wp-content/uploads/legacy_drupal_files/omb/circulars/A4/a-4.pdf (last accessed August
29, 2024).
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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 and CBECS 2018 sample composed of commercial
buildings that meet the criteria for the three subgroups. DOE used the
LCC and PBP spreadsheet model to estimate the impacts of the considered
efficiency levels on these subgroups. Chapter 11 of the final rule TSD
describes the consumer subgroup analysis.
1. Low-Income Households
Low-income households, as defined by the poverty thresholds from
the U.S. Bureau of the Census, are significantly more likely to be
renters or live in subsidized housing units and less likely to be
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.\153\ 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.
By contrast, for the main LCC results for the whole consumer sample,
all costs and benefits are accrued by the user of the product.
---------------------------------------------------------------------------
\153\ 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.
---------------------------------------------------------------------------
DOE finds no evidence that significant rental cost increases would
occur due to an amended standard. Rental prices are largely dictated by
supply and demand of housing in individual locations, not the sum of
equipment costs in those rentals, such that two similar rentals could
have widely differing prices. Furthermore, a landlord would be
responsible for replacing an end-of-life gas-fired instantaneous water
heater in the no-new-standards case as well yet the rent is unlikely to
increase simply because of this regular maintenance. The installation
costs estimated in the LCC already include any potential replacement of
venting for gas-fired instantaneous water heaters. Finally, even if a
landlord were to fully pass on the incremental costs due to amended
standards, those costs would presumably be spread out over a monthly
rent spanning many years, possibly the lifetime of the water heater,
resulting in relatively small monthly rent increases. It is for these
reasons that the low-income subgroup analyzes impacts assuming renters
do not bear installation and equipment costs. However, as described in
section IV.F, for the overall LCC analysis, DOE makes the simplifying
assumption that all installation and equipment costs are paid for by
the consumer of the equipment, including renters. Therefore, the main
LCC results do assume that landlords pass on all costs and yet the
analysis still finds that the rule is economically justified. The main
LCC and the consumer subgroup analysis are therefore two boundary
conditions with respect to costs and benefits accrued by renters.
The majority of low-income households that experience a net cost at
higher efficiency levels are homeowner households, as opposed to
renters. These households typically have lower hot water use. Unlike
renters, homeowners would bear the full cost of installing a new water
heater. For these households, a potential rebate program to reduce the
total installed costs would be effective in lowering the percentage of
low-income consumers with a net cost. DOE understands that the
landscape of low-income consumers with a gas-fired instantaneous water
heater may change before the
[[Page 105249]]
compliance date of amended energy conservation standards, if finalized.
For example, point-of-sale rebate programs are being considered that
may moderate the impact on low-income consumers to help offset the
total installed cost of a higher efficiency gas-instantaneous water
heater. Currently, DOE is aware that the Inflation Reduction Act will
likely include incentives for certain water heaters, although the
specific implementation details have yet to be finalized. Point-of-sale
rebates or weatherization programs could also reduce the total number
of low-income consumers that would be impacted because the household no
longer has a water heater to upgrade.
Responding to the July 2023 NOPR, Atmos Energy argued the
elimination of non-condensing instantaneous water heaters will cause
consumers to switch to less efficient options. Atmos Energy and ECSC
argued that non-condensing instantaneous water heaters require less
space and changing to a condensing alternative (or electric
alternatives) will cost significantly more. Atmos Energy and ECSC
argued that this elimination will impact low-income/multi-family/small
home consumers disproportionately. (Atmos Energy, No. 1183 at pp. 2-3;
ECSC, No. 1185 at pp. 1-2) As DOE has discussed in section IV.F.10 of
this document, it is very unlikely that consumers would switch from
existing non-condensing instantaneous water heaters to storage water
heaters in response to amended standards. The costs to do so would
exceed the costs of simply installing a standards-compliant condensing
instantaneous water heater. Furthermore, both a standards-compliant
instantaneous water heater and a non-condensing instantaneous water
heater require less space compared to a storage water heater.
Additionally, DOE does not expect the existing market trends of
consumers switching from storage to instantaneous water heaters (in the
no-new-standards case) would be impacted by an amended standard, as any
incremental cost for a condensing instantaneous water heater would be
small compared to the overall costs to switch from a storage to an
instantaneous water heater.
Commenters from the U.S. House of Representatives stated that the
proposed rulemaking imposes an unattainable standard for non-
condensing, gas-fired tankless water heaters, and expressed concern
that it would discourage budget-conscious consumers from investing in
tankless models, negatively impacting Georgia manufacturing companies.
(U.S. House of Representatives, No. 1205 at p. 1) Commenters from the
U.S. House of Representatives reiterated these comments in response to
the July 2024 NODA. (U.S. House of Representatives, No. 1445 at p. 1)
In response to the affordability concerns, DOE acknowledges that
the average installed cost of gas-fired instantaneous water heaters at
EL 2 is estimated to increase by $231 compared to current baseline
efficiency levels. However, as discussed in chapter 11 of the TSD, low-
income households make up only 3.2 percent of the market for gas-fired
instantaneous water heaters, and of these approximately 38 percent are
renters who would likely benefit from the increased efficiency through
energy savings without bearing the full burden of installation costs.
DOE estimates that at EL 2 low-income consumers of gas-fired
instantaneous water heaters will experience on average lifecycle cost
savings of $248, with only 6.5 percent of low-income consumers
experiencing a net cost. DOE acknowledges that a small proportion of
low-income homeowners may experience higher installation costs for
condensing gas-fired instantaneous water heaters. However, DOE
estimates that the energy savings benefits across the low-income
subgroup outweigh these costs. See section V.B.1.b for detailed
results.
2. Senior-Only Households
Senior-only households are households with occupants who are all at
least 65 years of age. RECS 2020 includes information on the age range
of household occupants, allowing for the identification of senior-only
households from the sample Senior-only households comprised 23.5
percent of the country's households. In estimating the LCC impacts to
senior-only households, it is assumed that any residual value of a
long-lived product is capitalized in the value of the home.
3. Small Business Subgroup
DOE identified small businesses in CBECS 2018 using threshold
levels for maximum number of employees within each building principal
building activity.
GRA commented that the proposed standards will discourage
restaurants from investing in tankless models and instead choose less
efficient water heating solutions and add constraints for restaurant
operating with limited space availability. GRA stated that many
restaurants rely on gas-fired tankless water heaters due to their space
saving attributes and the proposed standards would disproportionately
limit the options of small businesses, resulting in higher costs and
reduced efficiency. (GRA, No. 449 at p. 1)
As DOE has discussed in section IV.F.10, it is very unlikely that
businesses would switch from existing non-condensing instantaneous
water heaters to storage water heaters in response to amended
standards. The costs to do so would exceed the costs of simply
installing a standards-compliant condensing instantaneous water heater.
Additionally, DOE does not expect the existing market trends of
businesses investing in or switching from storage to instantaneous
water heaters (in the no-new-standards case) would be impacted by an
amended standard, as any incremental cost for a condensing
instantaneous water heater would be small compared to the overall costs
to switch from a storage to an instantaneous water heater. If a
business is considering investing in a tankless model, they are doing
so for space-saving or energy saving reasons that remain valid with a
condensing tankless water heater.
J. Manufacturer Impact Analysis
1. Overview
DOE performed an MIA to estimate the financial impacts of amended
energy conservation standards on manufacturers of gas-fired
instantaneous water heaters and to estimate the potential impacts of
such standards on direct employment and manufacturing capacity. The MIA
has both quantitative and qualitative aspects and includes analyses of
projected industry cash flows, the INPV, investments in research and
development (``R&D'') and manufacturing capital, and domestic
manufacturing employment. Additionally, the MIA seeks to determine how
amended energy conservation standards might affect manufacturing
employment, capacity, and competition, as well as how standards
contribute to 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 GRIM, 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
[[Page 105250]]
cost of capital, and the impact to domestic manufacturing employment.
The model uses standard accounting principles to estimate the impacts
of more-stringent energy conservation standards on a given industry by
comparing changes in INPV between a 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 manufacturer markup scenarios.
The qualitative part of the MIA addresses manufacturer
characteristics and market trends. Specifically, the MIA considers such
factors as a potential standard's impact on manufacturing capacity,
competition within the industry, the cumulative 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 gas-fired instantaneous
water heater manufacturing industry based on the market and technology
assessment, preliminary manufacturer interviews, and publicly-available
information. This included a top-down analysis of gas-fired
instantaneous water heater 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''); and R&D expenses). DOE also used
public sources of information to further calibrate its initial
characterization of the gas-fired instantaneous water heater
manufacturing industry, including company filings of form 10-K from the
SEC,\154\ corporate annual reports, the U.S. Census Bureau's Quarterly
Survey of Plant Capacity Utilization,\155\ U.S. Census Bureau's Annual
Survey of Manufactures (``ASM''),\156\ and reports from D&B
Hoovers.\157\
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\154\ U.S. Securities and Exchange Commission. Company Filings.
Available at www.sec.gov/search-filings (last accessed August 29,
2024).
\155\ The U.S. Census Bureau. Quarterly Survey of Plant Capacity
Utilization. (2007-2019). Available at www.census.gov/programs-surveys/qpc/data/tables.html (last accessed August 29, 2024).
\156\ U.S. Census Bureau's Annual Survey of Manufactures.
(2021). Available at: www.census.gov/programs-surveys/asm/data/tables.html (last accessed January 18, 2024).
\157\ The D&B Hoovers login is available at app.dnbhoovers.com
(last accessed August 29, 2024).
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In Phase 2 of the MIA, DOE prepared a framework industry cash-flow
analysis to quantify the potential impacts of 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 gas-fired instantaneous water heaters in
order to develop other key GRIM inputs, including product and capital
conversion costs, and to gather additional information on the
anticipated effects of energy conservation standards on revenues,
direct employment, capital assets, industry competitiveness, and
subgroup impacts.
In Phase 3 of the MIA, DOE conducted structured, detailed
interviews with representative manufacturers. During these interviews,
DOE discussed engineering, manufacturing, procurement, and financial
topics to validate assumptions used in the GRIM and to identify key
issues or concerns. 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. DOE
identified one subgroup for a separate impact analysis: small business
manufacturers. The small business subgroup is discussed in section VI.B
of this document, ``Review under the Regulatory Flexibility Act'' 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 flow due to new
or amended standards that result in a higher or lower industry value.
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 2024 (the base year of the analysis) and continuing
to 2059. DOE calculated INPVs by summing the stream of annual
discounted cash flows during this period. For manufacturers of gas-
fired instantaneous water heaters, DOE used a real discount rate of 9.6
percent, which was derived from industry financials and then modified
according to feedback received during manufacturer interviews.
The GRIM calculates cash flows using standard accounting principles
and compares changes in INPV between the no-new-standards case and each
standards case. The difference in INPV between the no-new-standards
case and a standards case represents the financial impact of the new or
amended energy conservation standard on manufacturers. As discussed
previously, DOE developed critical GRIM inputs using a number of
sources, including publicly available data, results of the engineering
analysis, results of the shipments analysis, and information gathered
from industry stakeholders during the course of manufacturer
interviews. 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 revenues,
gross margins, and cash flow of the industry.
As discussed in section IV.C.1 of this document, DOE conducted a
market analysis of currently available models listed in DOE's CCD to
determine which efficiency levels were most representative of the
current distribution of gas-fired instantaneous water heaters available
on the market. DOE also completed physical teardowns of commercially
available units to determine which design options manufacturers may use
to achieve certain efficiency levels. In this final rule, DOE developed
efficiency levels
[[Page 105251]]
with a combination of the efficiency-level and design-option
approaches. DOE requested comments from stakeholders and conducted
interviews with manufacturers in advance of the July 2023 NOPR
concerning these initial efficiency levels, which have been updated
based on the feedback DOE received. For a complete description of the
MPCs, see section IV.C.1 of this document and chapter 5 of the final
rule TSD.
b. Shipments Projections
The GRIM estimates manufacturer revenues based on total unit
shipment projections and the distribution of those shipments by
efficiency level. 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 2024 (the base year) to 2059 (the end year of
the analysis period). See section IV.G of this document and chapter 9
of the final rule TSD for additional details.
c. Capital and Product Conversion Costs
New or amended energy conservation standards could cause
manufacturers to incur 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 for gas-fired instantaneous water
heaters. 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 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 investments in research,
development, testing, marketing, and other non-capitalized costs
necessary to make product designs comply with new or amended energy
conservation standards.
In the July 2023 NOPR and the July 2024 NODA, DOE relied on
manufacturer feedback to evaluate the level of capital and product
conversion costs that gas-fired instantaneous water heater
manufacturers would likely incur to meet each analyzed efficiency
level. 88 FR 49058, 49127-49128; 89 FR 59692, 59699-59700. During
confidential interviews, DOE asked manufacturers to estimate the
capital conversion costs (e.g., changes in production processes,
equipment, and tooling), needed to meet the various efficiency levels.
DOE also asked manufacturers to estimate the redesign effort and
engineering resources required at various efficiency levels to quantify
the product conversion costs. DOE then estimated industry-level
conversion costs by scaling feedback from OEMs by the estimated number
of manufacturers that would need to make these investments at each TSL.
At lower TSLs, manufacturer feedback and a review of the market
indicate that most manufacturers already have sufficient condensing
production capacity and offer range of models that meet the required
efficiency levels. Thus, DOE modeled low-levels of capital and product
conversion costs for most manufacturers at TSL 1 and TSL 2. As TSLs
increase in stringency, DOE expects most manufacturers would need to
add production capacity as fewer shipments currently meet the required
levels and product designs increase in complexity. DOE also expects
product conversion costs would increase at higher TSLs since fewer
manufacturers currently offer fewer models that meet the efficiency
levels required. For the July 2024 NODA, DOE refined its conversion
cost estimates to reflect feedback submitted by Rinnai in response to
the July 2023 NOPR. (Rinnai, No. 1186 at p. 23) DOE incorporated
Rinnai's estimate of $15 million \158\ required to retrofit its
Griffin, GA factory to produce condensing gas-fired instantaneous water
heaters into its conversion cost estimates at TSL 1 and modeled
additional incremental investments to reach higher TSLs, consistent
with manufacturer feedback from confidential interviews. DOE
incorporated Rinnai's estimate to convert its U.S. production facility
in its analysis to avoid underestimating the potential investments
required to meet potential amended standards. Alternatively, Rinnai
could choose to maintain condensing capabilities in its existing
facilities in Japan, in which case industry conversion costs would be
lower.
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\158\ Rinnai's public comment in response to the July 2023 NOPR
(Rinnai No. 1186 at p. 23 and p. 51, which corresponds to p. 13 of
Attachment A) cited two different estimates: $15 million (p. 23) and
a range of $3 and $9 million (p. 51). To avoid underestimating
potential investments, DOE incorporated the higher estimate of $15
million provided by Rinnai.
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For this final rule, DOE updated its conversion cost estimates from
2022$ to 2023$ but otherwise maintained its conversion cost methodology
used in the July 2024 NODA.
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 amended 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 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 manufacturer markup 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 preservation of operating profit scenario. These
scenarios lead to different manufacturer markup values that, when
applied to the MPCs, result in varying revenue and cash flow impacts.
Under the preservation of gross margin percentage scenario, DOE
applied a single uniform ``gross margin percentage'' across all
efficiency levels, which assumes that 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 MPCs increase with
efficiency, this scenario implies that the per-unit dollar profit will
increase. DOE estimated a gross margin percentage of 31 percent for
gas-fired instantaneous water heaters.\159\ Manufacturers tend to
believe it is optimistic to assume that they would be able to maintain
the same gross margin percentage as their production costs increase,
particularly for minimally efficient products. Therefore, this scenario
represents a high bound to industry profitability under an amended
energy conservation standard.
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\159\ The gross margin percentage of 31 percent is based on a
manufacturer markup of 1.45.
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Under the preservation of operating profit scenario, DOE modeled a
situation in which manufacturers are not able to increase per-unit
operating profit in proportion to increases in MPCs. In the
preservation of operating
[[Page 105252]]
profit scenario, as the cost of production goes up under a standards
case, manufacturers are generally required to reduce their manufacturer
markups to a level that maintains base-case operating profit. DOE
implemented this scenario in the GRIM by lowering the manufacturer
markups at each TSL to yield approximately the same earnings before
interest and taxes in the standards case as in the no-new-standards
case in the year after the compliance date of the amended standards.
The implicit assumption behind this scenario is that the industry can
only maintain its operating profit in absolute dollars after the
standard.
A comparison of industry financial impacts under the two
manufacturer markup scenarios is presented in section V.B.2.a of this
document.
3. Discussion of MIA Comments
In response to the July 2023 NOPR, Rinnai stated that DOE's review
of manufacturer impacts did not account for the direct impact of the
rulemaking on Rinnai's manufacturing facility located in Griffin,
Georgia, which is tooled and optimized for production of non-condensing
gas-fired instantaneous water heaters. Rinnai commented that the
Griffin facility cost $70 million to build. Rinnai estimates that
should the Griffin plant close, it would lead to a loss of gross profit
between $30 million to $36 million, annually, and a write-off of $2
million in capital expenditures that could not be repurposed. Rinnai
asserted that it would require more than $15 million \160\ to repurpose
its Griffin facility to produce condensing gas-fired instantaneous
water heaters, which may be cost prohibitive given current product
capacity in Japan. Additionally, Rinnai asserted that it was not
contacted by DOE as part of this rulemaking. Rinnai commented that the
levels proposed in the July 2023 NOPR would make its new Griffin
production facility largely obsolete and lead to eliminating 122 jobs.
(Rinnai No. 1186 at pp. 22-23) Rinnai noted that of its roughly 72 gas-
fired instantaneous models on the market, 32 meet the proposed 0.91 UEF
standard for gas-fired instantaneous water heaters, meaning that more
than half of its models would be eliminated from the market. (Rinnai,
No. 1186 at pp. 4-5)
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\160\ Rinnai's submission (Rinnai No. 1186 at p. 23 and p. 51,
which corresponds to p. 13 of Attachment A) cited two different
estimates: $15 million (p. 23) and a range of $3 and $9 million (p.
51). To avoid underestimating potential investments, DOE references
the higher estimate provided by Rinnai.
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In response to the July 2024 NODA, Rinnai questioned DOE's
assumption that it would convert its Griffin, Georgia manufacturing
facility to produce condensing gas-fired instantaneous water heaters.
Rinnai restated that it has overseas manufacturing capacity for
condensing gas-fired instantaneous water heaters, and the need to
expand that capacity would depend on an assessment of market demand.
Rinnai commented that under a condensing-level standard, it is not
realistic to assume Rinnai would maintain current sales levels (i.e.,
prospective purchasers may choose condensing products from competitors
rather than Rinnai). Rinnai requested that DOE publish a GRIM to
support and substantiate its MIA. (Rinnai No. 1443 at pp. 21-22)
The Governor of Georgia stated that the standards proposed in the
July 2023 NOPR could negatively impact the non-condensing gas-fired
instantaneous water heater industry in the State of Georgia and could
harm domestic manufacturing jobs. (Governor of Georgia, No. 1157 at pp.
1-3) The Attorney General of GA stated that the standards proposed in
the July 2023 NOPR, if adopted, would have a negative economic impact
on the State of Georgia, which is host to a large new facility
optimized for manufacturing non-condensing units. The Attorney General
of GA added that the proposed rulemaking could eliminate manufacturing
jobs in Georgia, particularly jobs held by female and minority workers.
(Attorney General of GA, No. 1026 at pp. 1-2) Commenters from the U.S.
House of Representatives added that the proposed rulemaking would have
a negative economic impact on the State of Georgia, which is home to
the largest domestic assembly facility for non-condensing gas-fired
instantaneous water heaters. (U.S. House of Representatives, No. 1205
at p. 1) Commenters from the U.S. House of Representatives reiterated
this comment in response to the July 2024 NODA. (U.S. House of
Representatives, No. 1445 at p. 1)
CNGC noted that investments made by Rinnai, a member of its
coalition, would be put at risk if the standards were adopted as
proposed in the July 2023 NOPR. (CNGC No. 648 at p. 1) Gas Association
Commenters further highlighted Rinnai's concerns, citing Rinnai's
recently opened facility in Griffin, Georgia, which exclusively makes
non-condensing gas-fired instantaneous water heaters, as potentially
being off-shored.
Regarding the potential impact to domestic production employment
due to amended standards, DOE understands that Rinnai recently invested
approximately $70 million to develop its new Georgia manufacturing
facility dedicated to non-condensing gas-fired instantaneous water
heaters.\161\ DOE acknowledges that converting the manufacturing
facility to produce condensing gas-fired instantaneous water heaters is
feasible but would require additional investment. Currently, Rinnai
imports their condensing gas-fired instantaneous water heaters from
Japan, while producing only the non-condensing models domestically.
Rinnai's decision of whether to repurpose its Georgia facility likely
depends on a range of factors, such as its parent company's (Rinnai
Corporation) willingness to make further capital investments, the role
of the U.S. water heater market in Rinnai Corporation's overall
business strategy, and U.S. demand for gas-fired instantaneous water
heaters. A review of Rinnai Corporation's public financial statements
indicates that it has invested approximately $823 million in capital
expenditures globally in fiscal year 2021 through fiscal year 2024,
projecting a further outlay of approximately $148 million in capital
expenditures globally in fiscal year 2025.\162\ Based on information
detailed in Rinnai's corporate annual report, Rinnai identifies the
United States as a key foreign market for growth.\163\ In fiscal year
2024, U.S. water heater sales accounted for nearly 20 percent of Rinnai
Corporation's worldwide water heater sales.\164\ Consistent with
historical trends and market data cited by stakeholders,\165\ DOE
projects that the domestic gas-fired instantaneous water heater market
will continue to
[[Page 105253]]
grow in the no-new-standards and standards cases. Furthermore, DOE
expects that the portion of condensing gas-fired instantaneous water
heater will increase. In 2024 (the reference year), DOE estimates that
domestic gas-fired instantaneous water heater shipments totaled 1.26
million (representing approximately 12 percent of the overall domestic
consumer water heater market), with condensing gas-fired instantaneous
water heaters accounting for 67 percent of shipments. In 2030 (the
compliance year), in the absence of the amended standards, DOE expects
that shipments of gas-fired instantaneous water heaters would total
1.43 million (representing approximately 14 percent of the overall
domestic consumer water heater market), with condensing gas-fired
instantaneous water heaters accounting for 70 percent of shipments. In
2030, with the amended standards in place (i.e., TSL 2), DOE expects
that shipments of gas-fired instantaneous water heaters would still
total approximately 1.43 million, with the share of condensing gas-
fired instantaneous water heaters rising to 100 percent. As discussed
in section IV.F.10 of this document, DOE did not include any product
switching with respect to gas-fired instantaneous water heaters in its
analysis as DOE determined that any product switching as a result of
the adopted standards is likely to be minimal. As discussed in section
IV.G.1 of this document, DOE's shipments analysis accounts for the
fraction of consumers that would choose to repair their gas-fired
instantaneous water heater rather than replace their gas-fired
instantaneous water heater in the standards cases.
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\161\ Rinnai cites a total investment of $70 million in the
Georgia facility in its public comment in response to the July 2023
NOPR (Rinnai, No. 1186 at p. 23), stating the facility opened in
2022 (Id. at p. 1). Construction of the Georgia facility began in
2020. Press Release available at: www.rinnai.us/announcements/
rinnai-america-breaks-ground-on-new-factory (last accessed August 6,
2024).
\162\ Rinnai Corporation's public financial statements are
available at: www.rinnai.co.jp/en/ir/ (last accessed September 27,
2024). DOE converted these values from Japanese Yen to U.S. Dollars
using the U.S. Department of the Treasury's exchange rate as of June
30, 2024, available at: https://fiscaldata.treasury.gov/datasets/treasury-reporting-rates-exchange/treasury-reporting-rates-of-exchange (last accessed September 27, 2024).
\163\ Rinnai's Medium-Term Business Plan 2021-2025 is available
at: www.rinnai.co.jp/en/ir/document/pdf/202103outlook.pdf. (p. 15)
(last accessed August 6, 2024).
\164\ Rinnai Corporation's ``Financial Results of Fiscal 2024,
ended March 31, 2024 Reference Data'' is available at:
www.rinnai.co.jp/en/ir/document/pdf/202403reference.pdf. (p. 4) (May
9, 2024) (Last accessed September 27, 2024).
\165\ Rinnai commented in response to the July 2024 NODA ``Since
their introduction in 2004, gas tankless water heaters have grown to
10 percent of the water heater market in the U.S. and are projected
to grow to 12 percent by 2027.'' (See Rinnai, No. 1443 at p. 1)
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DOE previously analyzed the potential changes in direct employment
in the July 2023 NOPR. 88 FR 49058, 49145-49147. For the July 2024
NODA, DOE revised its direct employment analysis to account for
Rinnai's new domestic production facility dedicated to manufacturing
gas-fired instantaneous water heaters. 89 FR 59692, 59697. (See Rinnai,
No. 1186 at p. 1) DOE is not currently aware of other domestic
production facilities of gas-fired instantaneous water heaters.
Therefore, in the July 2024 NODA, DOE estimated that approximately 20
percent of gas-fired instantaneous water heaters are currently produced
in the United States. DOE derived this value by using its shipments
analysis and market share feedback from Rinnai's comments to the July
2023 NOPR.\166\ (Id.) DOE maintained the 20 percent estimate for this
final rule analysis. For the July 2024 NODA, DOE relied on the
employment figures provided in Rinnai's comments in response to the
July 2023 NOPR to estimate the potential range of direct employment
impacts in 2030 (the analyzed compliance year) at higher efficiency
levels. In the July 2024 NODA, DOE modeled the domestic employment
impacts ranging from a reduction of 128 production workers to an
increase of 75 production workers at TSL 1 through TSL 4 in 2030. Based
on revised employment estimates provided by Rinnai in response to the
July 2024 NODA, DOE updated its estimate of domestic production workers
from 128 to 190 \167\ in 2030 but otherwise maintained its direct
employment methodology. (Rinnai No. 1443 at p. 1) Therefore, for this
final rule, DOE models a lower-bound decrease of 190 domestic
production workers and an upper-bound increase in domestic direct
employment of 62 percent (an increase of approximately 117 production
workers, for a total of 307 domestic production workers) at TSL 1
through TSL 4 in 2030. DOE notes that the direct employment analysis is
intended to establish a realistic range of potential impacts to
domestic employment under amended standards, given the best public
information available at this time. As Rinnai noted in their comment,
if Rinnai does not maintain current sales levels under a condensing-
level standard, the change in employment may be lower than the maximum
increase estimated. See section V.B.2.b of this document for additional
details on the direct employment analysis.
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\166\ In 2023, DOE estimates that approximately 0.41 million out
of the 1.22 million gas-fired instantaneous water heater unit
shipments are non-condensing. In response to the July 2023 NOPR,
Rinnai commented that its domestic market share of non-condensing
gas-fired instantaneous water heaters is 60 percent: (60% x 0.41
million) / 1.22 million = 20%.
\167\ Rinnai commented that it currently employes 183 full-time
employees and 49 temporary employees at its Griffin, Georgia plant.
DOE's shipments analysis indicates shipments of non-condensing gas-
fired instantaneous water heaters in the no-new-standards case will
increase by approximately 4 percent from 2024 to 2030 (the
compliance year). (183 employees x 1.04) = 190 employees.
---------------------------------------------------------------------------
Regarding the potential investment required to convert Rinnai's
newly built domestic production facility, DOE incorporated Rinnai's
feedback provided in response to the July 2023 NOPR into its conversion
cost model for the July 2024 NODA and this final rule. Although DOE
cannot be certain whether or not Rinnai would invest in repurposing its
U.S. manufacturing facility, DOE incorporated Rinnai's feedback into
its industry conversion cost estimates to avoid underestimating the
potential investments industry would incur as a result of amended
standards. Should Rinnai choose to maintain condensing capabilities in
its existing facilities in Japan, the industry conversion costs would
be lower. DOE updated its conversion cost estimates from 2022$ to 2023$
for this final rule but otherwise maintained its methodology from the
July 2024 NODA. See section IV.J.2.c and section V.B.2.a of this
document and chapter 12 of the final rule TSD for additional
information on conversion costs.
Regarding Rinnai's assertion that it was not contacted to provide
feedback in advance of the July 2023 NOPR, DOE notes that manufacturer
outreach and interviews are conducted by DOE's contractors under
nondisclosure agreements. As such, information surrounding manufacturer
outreach and participation is kept as confidential by DOE's contractors
and cannot be disclosed.
Regarding Rinnai's request to review the GRIM, DOE notes that a
copy of the GRIM developed for this final rule analysis is available
for download at: www.regulations.gov/docket/EERE-2017-BT-STD-0019/document.
In response to the July 2023 NOPR, AHRI stated that it supported
the inclusion of amortization of product conversion costs under
standards into the projected MSP in a recent rulemaking for microwave
ovens, and urges DOE to use this methodology in all rulemakings.\168\
AHRI further asked DOE to explain the justification for amortizing
conversion costs in one instance but not in all. (AHRI, No. 1167 at pp.
20-21)
---------------------------------------------------------------------------
\168\ Technical Support Document: Energy Efficiency Program For
Commercial And Industrial Equipment: Microwave Ovens. Available at
www.regulations.gov/document/EERE-2017-BT-STD-0023-0022.
---------------------------------------------------------------------------
DOE models different manufacturer markup scenarios to assess the
potential impacts on prices and profitability for manufacturers
following the implementation of amended energy conservation standards.
The analyzed scenarios lead to different manufacturer markup values
that, when applied to the manufacturer production costs, result in
varying revenue and cash flow impacts. These scenarios are meant to
reflect the potential range of financial impacts for manufacturers of
the specific covered product or equipment. The analyzed manufacturer
markup scenarios vary by rulemaking because they are informed by
manufacturer feedback and reflect the market for the specific product
type.
For the July 2023 NOPR and the July 2024 NODA, DOE applied a
preservation of gross margin percentage
[[Page 105254]]
scenario to reflect an upper bound to industry profitability under
amended standards and a preservation of operating profit scenario to
reflect a lower bound of industry profitability under amended
standards. 88 FR 49058, 49128; 89 FR 59692, 59700. For gas-fired
instantaneous water heaters, manufacturing more efficient products is
generally more expensive than manufacturing baseline or minimally
efficient products, as reflected by the MPCs estimated in the
engineering analysis (see section IV.C.1 of this document). Under the
preservation of gross margin scenario for gas-fired instantaneous water
heaters, incremental increases in MPCs at higher efficiency levels
result in an increase in per-unit dollar profit per unit sold. As shown
in table V.6, under the preservation of gross margin scenario, the
standards case INPV increases relative to the no-new-standards case
INPV at all analyzed TSLs, resulting in a positive change in INPV at
TSL 1-TSL 4. This implies that the increase in cashflow from the higher
MSP outweighs the estimated conversion costs at each of the considered
TSLs. In other words, under the preservation of gross margin scenario,
the gas-fired instantaneous water heater industry more than recovers
conversion costs incurred as a result of amended standards. The
approach used in the microwave ovens rulemaking (i.e., a conversion
cost recovery scenario) modeled a scenario in which manufacturers
recover investments such that INPV in the standards cases are equal to
the INPV in the no-new-standards case, resulting in no change in INPV
at the considered TSLs. 88 FR 39912, 39935. Thus, if DOE applied a
conversion cost recovery scenario in this rulemaking, the potential
change in INPV at each considered TSL would be within the range of
estimated impacts resulting from the preservation of gross margin
scenario and preservation of operating profit scenario. As such, DOE
maintained the two standards-case manufacturer markup scenarios used in
the July 2023 NOPR for this final rule as they most appropriately
reflect the upper (least severe) and lower (more severe) impacts to
manufacturer profitability under amended standards.
In response to the July 2023 NOPR, AHRI submitted written comments
regarding cumulative regulatory burden. AHRI urged DOE to consider the
high volume of regulatory activity that directly affects manufacturers
of consumer water heaters, including gas-fired instantaneous water
heaters, and expressed concern that DOE was rushing to publish recent
rulemakings, risking significant revision that will prolong
uncertainty, confuse consumers, and potentially undermine broader
policy goals. AHRI cited standards and test procedure rulemakings for
other covered products and equipment, as well as low and zero NOx
actions by California Air Resources Board (``CARB'') and individual air
quality management districts. (AHRI, No. 1167 at pp. 7-9)
In response to the July 2023 NOPR, BWC commented that the impact of
cumulative regulatory burden experienced by manufacturers is not
limited to conversion costs, but also to the preparations manufacturers
must undergo in order to respond to proposed rules. BWC further stated
that DOE has promulgated several major rulemakings that will directly
impact the products that BWC manufactures, in addition to actions
undertaken by other governments and programs, and that the ability of
manufacturers to draw on outside resources for assistance will be
severely limited by the concurrent needs of many manufacturers across
rulemakings, particularly in the case of third-party laboratories. BWC
stated that due to the burden this rulemaking will place on third-party
laboratories, as well as the general burden of multiple concurrent
ongoing regulatory actions, BWC strongly disagreed with DOE's decision
not to consider test rulemakings as part of its analysis. (BWC, No.
1164 at pp. 24-26) BWC also stated that, due to concurrent regulatory
actions regarding energy efficiency at both the State and Federal
levels, it disagreed with DOE's conclusion in section VI.B.5 of the
July 2023 NOPR that there are no rules or regulations that duplicate,
overlap, or conflict with this proposed rule and encouraged DOE to
account for all of these issues, ideally allowing manufacturers more
time to review and respond to DOE rulemakings when requested. (BWC, No.
1164 at p. 24)
With respect to comments regarding the regulatory burden, DOE
recognizes that the gas-fired instantaneous water heater industry is
subject to regulations from Federal, State, and local entities. DOE
analyzes and considers the impact on manufacturers of multiple product/
equipment-specific Federal regulatory actions. Specifically, DOE
analyzes cumulative regulatory burden pursuant to section 13(g) of
appendix A. 10 CFR part 430, subpart C, appendix A, section 13(g); 10
CFR 431.4. DOE notes that regulations that are not yet finalized are
not considered as 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. The
results of this analysis can be found in section V.B.2.e of this
document.
Regarding AHRI's comment about ultra-low NOx and zero NOx
regulations, DOE notes that in its analysis of cumulative regulatory
burden, DOE considers Federal, product specific regulations that have
compliance dates within 3 years of one another. DOE is not aware of any
Federal or State ultra-low NOx or zero NOx regulations specific to gas-
fired instantaneous water heaters with compliance dates within the 7-
year cumulative regulatory burden timeframe (2027-2033).\169\ DOE notes
that certain localities (i.e., California Air Districts) have adopted
regulations requiring ultra-low NOx consumer water heaters. DOE
accounts for the portion of ultra-low NOx shipments in its analysis.
DOE notes that two California Air Districts--the Bay Area \170\ and
South Coast \171\ Air Quality Management Districts have adopted
amendments to eliminate NOx emissions from certain gas-fired
instantaneous water heaters beginning in 2031 and 2026, respectively.
There are currently no natural gas-fired instantaneous water heaters on
the market that would meet the zero NOx standards, though manufacturers
may choose to develop them.
---------------------------------------------------------------------------
\169\ CARB has stated that it is committed to explore developing
and proposing zero-emission GHG standards for new space and water
heaters sold in California as part of the 2022 State Strategy for
the State Implementation Plan adopted in September 2022. However, at
the time of issuance, CARB has not adopted such standards for gas-
fired instantaneous water heaters. Additional information is
available at: https://ww2.arb.ca.gov/our-work/programs/building-decarbonization/zero-emission-space-and-water-heater-standards/meetings-workshops. (Last accessed Aug. 7, 2024).
\170\ Available at: www.baaqmd.gov/~/media/dotgov/files/rules/
reg-9-rule-4-nitrogen-oxides-from-fan-type-residential-central-
furnaces/2021-amendments/documents/20230315_rg0906-
pdf.pdf?rev=436fcdb037324b0b8f0c981d869e684d&sc_lang=en. (Last
accessed Aug. 7, 2024).
\171\ Available at: www.aqmd.gov/docs/default-source/rule-book/recent-rules/r1146_2-060724.pdf?sfvrsn=8 (Last accessed Aug. 29,
2024).
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Regarding BWC's request that DOE not discount the costs for
stakeholders to review rulemakings, although DOE appreciates that
monitoring and responding to rulemakings does impose costs for
stakeholders, DOE believes that this is outside the scope of analysis
for individual product rulemakings. Because EPCA requires DOE to
establish and maintain the energy conservation program for consumer
products and to
[[Page 105255]]
periodically propose new and amended standards (or propose that
standards for products do not need to be amended) and test procedures,
DOE considers this rulemaking activity to be part of the analytical
baseline (i.e., in the no-new-standards case and the standards case).
That is, these activities (e.g., reviewing proposed rules or proposed
determinations) would exist regardless of the regulatory option that
DOE adopts through a rulemaking and would be independent from the
conversion costs required to adapt product designs and manufacturing
facilitates to meet an amended standard.
In response to the July 2024 NODA, Rheem stated that they agreed
with a 70 percent market share estimate for condensing gas-fired
instantaneous water heaters and gradual shift towards condensing
models. Rheem indicated that most manufacturers already possess the
design and manufacturing capabilities necessary to produce products
across the full range of efficiencies. Rheem stated that while a
condensing-level standard at EL 2 or EL 3 would require manufactures to
repurpose and retool assembly lines, a standard consistent with EL 2
(i.e., TSL 2) would be less disruptive compared to higher efficiency
levels, which would require a fully modulating burner design and higher
investment. Rheem generally agreed with the conclusions of the
manufacturer impact analysis but stated that they did not believe the
additional energy savings at EL 3 compared to EL 2 were great enough to
justify the greater cost to manufacturers. (Rheem No. 1436 at p. 3)
Regarding the need for manufacturers to repurpose and retool
assembly lines, DOE accounted for the capital and product conversion
costs associated with increasing production of condensing gas-fired
instantaneous water heaters in its analysis. Consistent with Rheem's
comment, DOE's analysis estimates that conversion costs would be higher
at EL 3 and EL 4 compared to EL 2. See section IV.J.2.c and section
V.B.2.a of this document and chapter 12 of the final rule TSD for
additional information on conversion costs. In this final rule, DOE is
adopting TSL 2. See section V.C of this document for a discussion of
the benefits and burdens of the TSLs considered.
The Joint Advocates commented that DOE's analysis for the July 2024
NODA shows that the potential impacts on gas-fired instantaneous water
heater manufacturers at EL 2 and higher would be modest and that,
specifically, the potential impact on INPV at EL 2 ranges from a loss
of 2.7 percent to a gain of 3.2 percent. (Joint Advocates, No. 1444 at
pp. 1-2) The Joint Advocates commented that the proposed standards for
gas-fired instantaneous water heaters could increase U.S. manufacturing
jobs because the labor content required to produce a condensing gas-
fired instantaneous water heater is approximately 59 percent more than
that required to produce a non-condensing gas-fired instantaneous water
heater. (Joint Advocates, No. 1444 at p. 2)
Regarding the potential impacts on gas-fired instantaneous water
heater manufacturers, for this final rule, the estimated change in INPV
at TSL 2 ranges from a loss of 2.8 percent to a gain of 3.4 percent.
See section V.B.2.a of this document for additional information on the
MIA results. Regarding the potential impacts to direct employment, for
this final rule, DOE models a lower-bound decrease of 190 production
workers and an upper-bound increase in domestic direct employment of 62
percent (an increase of approximately 117 production workers, for a
total of 307 domestic production workers) at TSL 1 through TSL 4 in
2030. See section V.B.2.b of this document for additional information
on DOE's direct employment analysis.
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 final rule 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 EPA.\172\
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\172\ Available at www.epa.gov/sites/production/files/2021-04/documents/emission-factors_apr2021.pdf (last accessed August 29,
2024).
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The on-site operation of consumer gas-fired instantaneous water
heaters involves 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.\173\
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\173\ 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 29, 2024).
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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.
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 reflects, to the extent
possible, laws and regulations adopted through mid-November 2022,
including the emissions control programs discussed in the following
paragraphs the emissions control programs discussed in the following
paragraphs, and the Inflation Reduction Act.\174\
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\174\ 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 29, 2024).
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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
[[Page 105256]]
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 (Aug. 8, 2011). CSAPR requires
these States to reduce certain emissions, including annual
SO2 emissions, and went into effect as of January 1,
2015.\175\ The AEO 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.
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\175\ 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-Sept.) 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 (Aug. 8, 2011). EPA subsequently issued a
supplemental rule that included an additional five States in the
CSAPR ozone season program; 76 FR 80760 (Dec. 27, 2011)
(Supplemental Rule), and EPA issued the CSAPR Update for the 2008
ozone NAAQS. 81 FR 74504 (Oct. 26, 2016).
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However, beginning in 2016, SO2 emissions began to fall
as a result of the Mercury and Air Toxics Standards (``MATS'') for
power plants.\176\ 77 FR 9304 (Feb. 16, 2012). The final rule
establishes power plant emission standards for mercury, acid gases, and
non-mercury metallic toxic pollutants. 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.
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\176\ In order to continue operating, coal power 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.
---------------------------------------------------------------------------
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. Standards
would be expected to reduce NOX emissions in the States not
covered by CSAPR. 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 Order 12866, DOE
considered the estimated monetary benefits from the reduced 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
during 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, the July 2023
NOPR used the interim social cost of greenhouse gases (``SC-GHG'')
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 Interagency Working Group
on the SC-GHG (``IWG'') (``2021 Interim SC-GHG estimates''). As a
member of the IWG involved in the development of the February 2021 SC-
GHG TSD, DOE agreed that the 2021 interim SC-GHG estimates represented
the most appropriate estimate of the SC-GHG until revised estimates
were developed reflecting the latest, peer-reviewed science. See 87 FR
78382, 78406-78408 for discussion of the development and details of the
2021 interim SC-GHG estimates. The IWG has continued working on
updating the interim estimates, but has not published final estimates.
Accordingly, in the regulatory analysis of its December 2023 Final
Rule, ``Standards of Performance for New, Reconstructed, and Modified
Sources and Emissions Guidelines for Existing Sources: Oil and Natural
Gas Sector Climate Review,'' the EPA estimated climate benefits using a
new, updated set of SC-GHG estimates (``2023 SC-GHG estimates''). EPA
documented the methodology underlying the new estimates in the RIA for
the December 2023 Final Rule and in greater detail in a technical
report entitled ``Report on the Social Cost of Greenhouse Gases:
Estimates Incorporating Recent Scientific Advances'' that was presented
as Supplementary Material to the RIA.\177\ The 2023 SC-GHG estimates
incorporate recent research addressing recommendations of the Natural
Academies of Science, Engineering, and Medicine (National Academies),
responses to public comments on an earlier sensitivity analysis using
draft SC-GHG estimates included in EPA's December 2022 proposal in the
oil and natural gas sector standards of performance rulemaking, and
comments from a 2023 external peer review of the accompanying technical
report.\178\
---------------------------------------------------------------------------
\177\ https://www.epa.gov/system/files/documents/2023-12/eo12866_oil-and-gas-nsps-eg-climate-review-2060-av16-final-rule-20231130.pdf; https://www.epa.gov/system/files/documents/2023-12/epa_scghg_2023_report_final.pdf (last accessed July 3, 2024).
\178\ https://www.epa.gov/system/files/documents/2023-12/epa_scghg_2023_report_final.pdf (last accessed July 3, 2024).
---------------------------------------------------------------------------
On December 22, 2023, the IWG issued a memorandum directing that
when agencies ``consider applying the SC-GHG in various contexts . . .
agencies should use their professional judgment to determine which
estimates of the SC-GHG reflect the best available evidence, are most
appropriate for particular analytical contexts, and best facilitate
sound decision-making''
[[Page 105257]]
consistent with OMB Circular A-4 and applicable law.\179\
---------------------------------------------------------------------------
\179\ https://www.whitehouse.gov/wp-content/uploads/2023/12/IWG-Memo-12.22.23.pdf (last accessed July 3, 2024).
---------------------------------------------------------------------------
DOE has been extensively involved in the IWG process and related
work on the SC-GHGs for over a decade. This involvement includes DOE's
role as the federal technical monitor for the seminal 2017 report on
the SC-GHG issued by the National Academies, which provided extensive
recommendations on how to strengthen and update the SC-GHG
estimates.\180\ DOE has also participated in the IWG's work since 2021.
DOE technical experts involved in this work reviewed the 2023 SC-GHG
methodology and report in light of the National Academies'
recommendations and DOE's understanding of the state of the science.
---------------------------------------------------------------------------
\180\ Valuing Climate Damages: Updating Estimation of the Social
Cost of Carbon Dioxide [verbar] The National Academies Press.
(available at: nap.nationalacademies.org/catalog/24651/valuing-climate-damages-updating-estimation-of-the-social-cost-of) (last
accessed July 3, 2024).
---------------------------------------------------------------------------
Based on this review, in the July 2024 NODA, DOE proposed for
public comment its preliminary determination that the updated 2023 SC-
GHG estimates, including the approach to discounting, represent a
significant improvement in estimating the SC-GHG through incorporating
the most recent advancements in the scientific literature and by
addressing recommendations on prior methodologies. That NODA presented
climate benefits using both the 2023 SC-GHG values and the 2021 interim
SC-GHG estimates. 89 FR 59693, 59700. In this final rule, DOE has not
made a final decision regarding that preliminary assessment or adoption
of the updated 2023 SC-GHG estimates, as such a decision is not
necessary for purposes of this rule. DOE will continue to decide, for
each particular analytical context, whether to rely on, present for
presentation purposes, or use in some other way, the updated 2023 SC-
GHG values, the 2021 interim SC-GHG estimates, or both. In this final
rule, DOE is presenting estimates using both the updated 2023 SC-GHG
values and the 2021 interim SC-GHG estimates, as DOE believes itis
appropriate to give the public more complete information regarding the
benefits of this rule. DOE notes, however, that the adopted standards
would be economically justified using either set of SC-GHG values, and
even without inclusion of the estimated monetized benefits of reduced
GHG emissions. In future rulemakings, DOE will continue to evaluate the
applicability in context and use our professional judgment to apply the
SC-GHG estimates that are most appropriate to use at that time.
The 2023 EPA technical report presents SC-GHG values for emissions
years through 2080; therefore, DOE did not monetize the climate
benefits of GHG emissions reductions occurring after 2080 when using
the 2023 estimates for the SC-GHG. DOE expects additional climate
impacts to accrue from GHG emissions changes post 2080, but due to a
lack of readily available SC-GHG estimates for emissions years beyond
2080 and the relatively small emission effects expected from those
years, DOE has not monetized these additional impacts in this analysis.
Similarly, the interim 2021 interim SC-GHG estimates include values
through 2070. DOE expects additional climate benefits to accrue for
products still operating after 2070, but a lack of available SC-GHG
estimates published by the IWG for emissions years beyond 2070 prevents
DOE from monetizing these potential benefits in this analysis.
The overall climate benefits are generally greater when using the
higher, updated 2023 SC-GHG estimates, compared to the climate benefits
using the older 2021 interim SC-GHG estimates, which were used in the
July 2023 NOPR. The net benefits of the rule are positive, however,
under either SC-GHG calculation methodology; in fact, the net benefits
of the rule are positive without including any monetized climate
benefits at all. The adopted standards would be economically justified
even without inclusion of the estimated monetized benefits of reduced
GHG emissions using either methodology, therefore the conclusions of
the analysis (as presented in section V.C of this document) are not
dependent on which set of estimates of the SC-GHG are used in the
analysis or on the use of the SC-GHG at all. The adopted standard level
would remain the same under either SC-GHG calculation methodology (or
without using the SC-GHG at all).
DOE received several comments regarding its preliminary
determination on the use of the 2023 SC-GHG methodologies in the July
2024 NODA. As noted above, DOE is not making a final determination
regarding which of the two sets of SC-GHG is most appropriate to apply
here or across all DOE analyses. Accordingly, DOE is not addressing in
this rule comments regarding such a final determination. Because DOE is
presenting results using both sets of estimates, however, to the extent
that commenters raised concerns about any reference to the 2023 SC-GHG
methodologies, DOE is responding to that limited set of comments here.
AHRI disagreed with DOE's use of 2023 SC-GHG estimates in its
analysis to justify proposed energy conservation standards. AHRI stated
that adoption of 2023 SC-GHG methodologies introduces complexity,
uncertainty, and traceability issues. AHRI recommended that DOE provide
guidance on how 2023 SC-GHG methodologies were applied and offer
comparison to the analysis performed in the July 2023 NOPR (AHRI, No.
1437 p. 3).
Rinnai disagreed with DOE's preliminary decision to adopt 2023 SC-
GHG methodologies, which they claim introduce challenges regarding the
traceability of the data, the complexity and uncertainty of the new
estimates, validation of the long-term costs and benefits of GHG
emissions and the ability to compare the July 2024 NODA and July 2023
NOPR results. Rinnai further states that if the DOE updates the SC-GHG
methodology, the update should be performed for all water heater
product classes to reflect a fair comparison. (Rinnai, No. 1443 at p.
10)
In response, DOE reiterates that it would promulgate the same
standards in this final rule even in the absence of the benefits of the
GHG reductions achieved by the rule because the adopted standards for
gas-fired instantaneous water heaters are economically justified even
without including such benefits. DOE would also promulgate the same
standards in this final rule using either the 2021 interim SC-GHG
estimates or the 2023 SC-GHG estimates. In this rule, DOE is presenting
SC-GHG results using both the interim 2021 SC-GHG estimates and the
updated 2023 SC-GHG estimates.
In the July 2024 NODA, DOE preliminarily agreed with EPA's
assessment that the updates implemented in the 2023 SC-GHG estimates
reflect the best available science and address recommendations from the
National Academies. DOE acknowledges commenters' concerns regarding
uncertainty of the new estimates, but notes that the 2021 interim SC-
GHG estimates are also uncertain and that uncertainty is inherent in
all complex cost estimates that quantify physical impacts and translate
them into dollar values.
DOE further notes that EPA accounted for uncertainty in various
aspects of the 2023 SC-GHG estimates in each of the modules and
comprehensively discussed these sources of uncertainty in the Final SC-
GHG Report and supporting literature. (See, e.g., EPA Report at p. 77;
EPA RTC A-1-7). According to EPA, the updated
[[Page 105258]]
approaches taken in the methodology behind the 2023 SC-GHG estimates
were specifically chosen because they allow for a more explicit
representation of uncertainty. Moreover, the treatment of uncertainty
was a key focus of the peer review process. Several peer reviewers
commended EPA on its comprehensive approach to incorporating
uncertainty (EPA Peer Review Summary Report, pgs. 26, 31, 33, etc.).
and EPA responded to peer review comments on remaining questions about
uncertainty by expanding and clarifying the discussion around
uncertainty in each module (throughout section 2) and added appendix
A.8 and table A.8.1 to further account for uncertainty.
Because, in this rule, DOE is presenting both the interim 2021 SC-
GHG estimates and the 2023 SC-GHG estimates, the comment contending
that the updated 2023 SC-GHG estimates are less traceable or less
transparent than the 2021 interim SC-GHG estimates are no longer
relevant. Insofar as this comment objects to DOE even referring to the
2023 SC-GHG methodologies and using them for presentation purposes,
however, we note that EPA developed these estimates through a process
that included an initial draft with sensitivity analyses, independent
peer review, responses to peer review and comments, available
documentation associated with the underlying inputs and a public docket
that includes all the studies and reports cited in the analysis. (See
e.g., EPA's ``Report on the Social Cost of Greenhouse Gases: Estimates
Incorporating Recent Scientific Advances'' [verbar] US EPA; EPA RTC A-
7-4).
Because, in this rule, DOE is presenting both the interim 2021 SC-
GHG estimates and the 2023 SC-GHG estimates, the comments that adding
an additional, updated estimate of the SC-GHG benefits impairs the
public or the industry's ability to compare the July 2024 NODA and July
2023 NOPR results with the final rule are not relevant.
Finally, the commenter asserted that DOE should update the SC-GHG
values for all water heater product classes to reflect a fair
comparison. As stated above, because DOE is presenting both the interim
2021 SC-GHG estimates and the 2023 SC-GHG estimates for this rule, this
comment is not relevant.
BWC stated that the 2023 SC-GHG estimates are a significant step
forward in quantifying the social cost of greenhouse gases. BWC further
commented that given the permanence of any minimum energy conservation
standards that are established by DOE under EPCA, it is essential that
the Department first finalize a robust, consistent, and objective
approach towards accurately calculating SC-GHG before allowing this
metric to economically justify more stringent standards that would
otherwise not yield a positive net present value. BWC also questioned
the consistency of the methodologies going forward and the extent that
peer experts were able to review and participate in the process. (BWC,
No. 1441 at p. 3-4)
DOE appreciates commenter's statement that the 2023 SC-GHG
estimates are an important step forward in the monetization of
greenhouse gas emissions.
With respect to the commenter's concerns about peer review, DOE
notes again that the 2023 SC-GHG estimates were subjected to
independent peer review in line with EPA's Peer Review Handbook 4th
Edition, 2015. This process was conducted by an independent contractor
and involved two separate comment periods for outside experts. EPA
reported that the peer reviewers commended the agency on its
development of this update and labeled it a much-needed improvement in
estimating the SC-GHG. (EPA Report at p. 3; EPA RTC A-7-11).
Regarding the commenter's concerns about the consistency of the
methodologies going forward (BWC, No. 1441 at p. 3-4), DOE reiterates
that it is presenting climate benefits using both sets of SC-GHG
estimates and that, in future rulemakings, DOE will continue to
evaluate the applicability in context and use its professional judgment
to apply the SC-GHG estimates that are most appropriate to use at that
time.
Finally, DOE reiterates that it would promulgate the same standards
in this final rule even in the absence of the benefits of the GHG
reductions achieved by the rule. DOE would also promulgate the same
standards in this final rule, using either the 2021 interim SC-GHG
estimates, rather than the 2023 SC-GHG estimates. Thus, DOE did not, in
fact, rely on either the 2023 SC-GHG estimates or the 2021 interim SC-
GHG estimates ``to economically justify more stringent standards that
would otherwise not yield a positive net present value,'' as the
commenter suggests because the adopted standards for gas-fired
instantaneous water heaters are economically justified even without
including such benefits.
DOE's derivations of the 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.6 of this document.
a. Social Cost of Carbon
The SC-CO2 values used for this final rule are presented
using two sets of SC-GHG estimates. One set is the 2023 SC-GHG
estimates published by the EPA, which are shown in table IV.13 in 5-
year increments from 2020 to 2050. The set of annual values that DOE
used is presented in appendix 14A of the final rule TSD. These
estimates include values out to 2080. DOE expects additional climate
benefits to accrue for products still operating after 2080, but a lack
of available SC-CO2 estimates for emissions years beyond
2080 prevents DOE from monetizing these potential benefits in this
analysis.
Table IV.13--Annual SC-CO2 Values Based on 2023 SC-GHG Estimates, 2020-
2050
[2020$ per Metric Ton CO2]
------------------------------------------------------------------------
Near-term Ramsey
discount rate
Emissions year -----------------------
2.5% 2.0% 1.5%
------------------------------------------------------------------------
2020............................................ 117 193 337
2025............................................ 130 212 360
2030............................................ 144 230 384
2035............................................ 158 248 408
2040............................................ 173 267 431
2045............................................ 189 287 456
2050............................................ 205 308 482
------------------------------------------------------------------------
DOE also presents results using interim SC-CO2 values
based on the values developed for the February 2021 SC-GHG TSD, which
are shown in table IV.14 in 5-year increments from 2020 to 2050. The
set of annual values that DOE used, which was adapted from estimates
published by EPA in 2021,\181\ 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.
---------------------------------------------------------------------------
\181\ 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 Dec. 03, 2024).
[[Page 105259]]
Table IV.14--Annual SC-CO2 Values Based on 2021 Interim SC-GHG Estimates, 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 all of the
cases. DOE adjusted the values to 2023$ 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 all of the cases using
the specific discount rate that had been used to obtain the SC-
CO2 values in each case.
b. Social Cost of Methane and Nitrous Oxide
The SC-CH4 and SC-N2O values used for this
final rule are presented using two sets of SC-GHG estimates. One set is
the 2023SC-GHG estimates published by the EPA. table IV.15 shows the
updated sets of SC-CH4 and SC-N2O estimates in 5-
year increments from 2020 to 2050. The full set of annual values used
is presented in appendix 14A of the final rule TSD. These estimates
include values out to 2080.
Table IV.15--Annual SC-CH4 and SC-N2O Values Based on 2023 SC-GHG Estimates, 2020-2050
[2020$ per Metric Ton]
--------------------------------------------------------------------------------------------------------------------------------------------------------
SC-CH4 SC-N2O
-----------------------------------------------------------------------------------------------
Emissions year Near-term Ramsey discount rate Near-term Ramsey discount rate
-----------------------------------------------------------------------------------------------
2.5% 2.0% 1.5% 2.5% 2.0% 1.5%
--------------------------------------------------------------------------------------------------------------------------------------------------------
2020.................................................... 1,257 1,648 2,305 35,232 54,139 87,284
2025.................................................... 1,590 2,025 2,737 39,972 60,267 95,210
2030.................................................... 1,924 2,403 3,169 44,712 66,395 103,137
2035.................................................... 2,313 2,842 3,673 49,617 72,644 111,085
2040.................................................... 2,702 3,280 4,177 54,521 78,894 119,032
2045.................................................... 3,124 3,756 4,718 60,078 85,945 127,916
2050.................................................... 3,547 4,231 5,260 65,635 92,996 136,799
--------------------------------------------------------------------------------------------------------------------------------------------------------
DOE also presents results using interim SC-CH4 and SC-
N2O values based on the values developed for the February
2021 SC-GHG TSD. Table IV.16 shows the updated sets of SC-
CH4 and SC-N2O estimates from the latest
interagency update in 5-year increments from 2020 to 2050. The full set
of annual unrounded values used in the calculations is presented in
appendix 14A of the final rule TSD. These estimates include values out
to 2070.
Table IV.16--Annual SC-CH4 and SC-N2O Values Based on 2021 Interim SC-GHG Estimates, 2020-2050
[2020$ per Metric Ton]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
SC-CH4 SC-N2O
-------------------------------------------------------------------------------------------------------------------------------
Discount rate and statistic Discount rate and statistic
Year -------------------------------------------------------------------------------------------------------------------------------
3% 95th 3% 95th
5% average 3% average 2.5% average percentile 5% average 3% average 2.5% 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 2023$ using the implicit price deflator for 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
[[Page 105260]]
that had been used to obtain the SC-CH4 and SC-
N2O estimates in each case.
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.\182\ Table 5 of the EPA
TSD provides a summary of the health impact endpoints quantified in the
analysis. 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, 2035, 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 period; for years beyond 2040, the values are held
constant (rather than extrapolated) to be conservative. 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).
---------------------------------------------------------------------------
\182\ U.S. Environmental Protection Agency. Estimating the
Benefit per Ton of Reducing Directly-Emitted PM2.5,
PM2.5 Precursors and Ozone Precursors from 21 Sectors.
Available at www.epa.gov/benmap/estimating-benefit-ton-reducing-directly-emitted-pm25-pm25-precursors-and-ozone-precursors (last
accessed August 29, 2024.
---------------------------------------------------------------------------
DOE also estimated the monetized value of NOX and
SO2 emissions reductions from site use of natural gas in
consumer gas-fired instantaneous water heaters 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.\183\ The EPA document provides high and low estimates for
2025 and 2030 at 3- and 7-percent discount rates.\184\ DOE used the
same linear interpolation and extrapolation as it did with the values
for electricity generation.
---------------------------------------------------------------------------
\183\ ``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.
\184\ ``Area sources'' are a category in the 2018 document from
EPA but are not used in the 2021 document cited above. See:
www.epa.gov/sites/default/files/2018-02/documents/sourceapportionmentbpttsd_2018.pdf.
---------------------------------------------------------------------------
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.
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 chapter 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.
BWC expressed concerns that DOE overestimated the impact of this
metric in the analysis presented in the July 2024 NODA pointing to
table III.9, which demonstrates electric utility impact results
indicating a substantial decrease in electric load for both installed
capacity, as well as electric generation. BWC contended that since gas-
fired instantaneous water heaters utilize very little electric energy,
they question how adopting more stringent energy conservation standards
for these products could impact electric load demand to such a
significant extent. (BWC, No. 1441 at p. 4)
In response, DOE notes that the changes listed in table III.9 of
the July 2024 NODA in installed capacity and generation are
significantly smaller than total US electric capacity which is over a
million Megawatts. Additionally, DOE notes that results for EL 1
through 3 results in an increase in installed capacity as denoted by
parentheses.
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.\185\ Bureau of Economic Analysis input-output multipliers
also show a lower labor intensity per million dollars of activity for
utilities as compared to other industries.\186\ 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
[[Page 105261]]
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, these data suggest that net national
employment may increase due to shifts in economic activity resulting
from energy conservation standards.
---------------------------------------------------------------------------
\185\ See U.S. Bureau of Labor Statistics. Industry Output and
Employment. Available at: www.bls.gov/emp/data/industry-out-and-emp.htm (last accessed August 19, 2024).
\186\ See U.S. Department of Commerce-Bureau of Economic
Analysis. Regional Input-Output Modeling System (RIMS II) User's
Guide. Available at: www.bea.gov/resources/methodologies/RIMSII-user-guide (last accessed Jan. 18, 2024).
---------------------------------------------------------------------------
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'').\187\ 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.
---------------------------------------------------------------------------
\187\ 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 (2030-2034), 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
consumer gas-fired instantaneous water heaters. It addresses the TSLs
examined by DOE, the projected impacts of each of these levels if
adopted as energy conservation standards for consumer gas-fired
instantaneous water heaters, and the standards levels that DOE is
adopting in this final rule. Additional details regarding DOE's
analyses are contained in the final rule TSD supporting this document.
A. Trial Standard Levels
In general, DOE typically evaluates potential new or amended
standards for products and equipment by grouping individual efficiency
levels for each class into TSLs. 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 price elasticity of
consumer purchasing decisions that may change when different standard
levels are set.
In the analysis conducted for this final rule, DOE analyzed the
benefits and burdens of four TSLs for consumer gas-fired instantaneous
water heaters. These TSLs are equivalent to each of the ELs analyzed by
DOE with results presented in this document. TSL 1 represents a
transition from non-condensing to condensing technology (i.e., through
the addition of a secondary condensing heat exchanger). TSL 2
represents an intermediate condensing efficiency which can be achieved
using larger heat exchangers. TSL 3 represents a further improvement by
the use of a heat exchanger with even more surface area, such as a
flat-plate heat exchanger design, and is the efficiency level required
to meet the EPA's ENERGY STAR specification criteria. Finally, TSL 4
represents the max-tech efficiency, which may be achieved by use of
fully modulating burners and further improvements to the heat
exchanger. 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. Table V.1 presents the TSLs and the corresponding
efficiency levels that DOE has identified for potential amended energy
conservation standards for consumer gas-fired instantaneous water
heaters.
Table V.1--Trial Standard Levels for Consumer Gas-Fired Instantaneous Water Heaters
----------------------------------------------------------------------------------------------------------------
Trial standard level
Product class -------------------------------------------------------------------
1 2 3 4
----------------------------------------------------------------------------------------------------------------
Efficiency level
----------------------------------------------------------------------------------------------------------------
Gas-fired Instantaneous Water Heaters (Veff 1 2 3 4
<2 gal, Rated Input >50,000 Btu/h).........
----------------------------------------------------------------------------------------------------------------
B. Economic Justification and Energy Savings
1. Economic Impacts on Individual Consumers
DOE analyzed the economic impacts on consumer gas-fired
instantaneous water heaters consumers by looking at the effects that
potential 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. Inputs used for calculating the LCC and PBP include total
installed 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. Chapter 8 of the final rule
TSD provides detailed information on the LCC and PBP analyses.
Table V.2 and table V.3 show the LCC and PBP results for the TSLs
considered. In the first table, 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 no-new-standards case in
the compliance year (see section IV.F.8 of this document). 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
[[Page 105262]]
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.2--Average LCC and PBP Results for Gas-Fired Instantaneous Water Heaters
[Veff <2 gal, rated input >50,000 Btu/h]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Average costs 2023$
---------------------------------------------------------------- Simple payback Average
Efficiency level First year's Lifetime (years) lifetime
Installed cost operating cost operating cost LCC (years)
--------------------------------------------------------------------------------------------------------------------------------------------------------
0....................................................... 2,087 303 4,571 6,659 .............. 20.0
1....................................................... 2,304 285 4,339 6,644 12.6 20.0
2....................................................... 2,318 277 4,210 6,528 8.9 20.0
3....................................................... 2,334 273 4,154 6,487 8.3 20.0
4....................................................... 2,424 270 4,107 6,531 10.3 20.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
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.3--Average LCC Savings Relative to the No-New-Standards Case for Gas-Fired Instantaneous Water Heaters
[Veff <2 gal, rated input >50,000 Btu/h]
----------------------------------------------------------------------------------------------------------------
Life-cycle cost savings
-------------------------------
Percent of
Trial standard level Efficiency level Average LCC consumers that
savings * experience net
(2023) cost
----------------------------------------------------------------------------------------------------------------
1............................................. 1............................... (1) 17.5
2............................................. 2............................... 112 15.2
3............................................. 3............................... 90 25.0
4............................................. 4............................... 39 56.2
----------------------------------------------------------------------------------------------------------------
* The savings represent the average LCC for affected consumers.
Parentheses indicate negative (-) values.
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. Table V.4 compares the average LCC savings and PBP at
each efficiency level for the consumer subgroups with similar metrics
for the entire consumer sample for consumer gas-fired instantaneous
water heaters. In most cases, the average LCC savings and PBP for low-
income households and senior-only households at the considered
efficiency levels are not substantially different from the average for
all households. Chapter 11 of the final rule TSD presents the complete
LCC and PBP results for the subgroups.
Table V.4--Comparison of LCC Savings and PBP for Consumer Subgroups and All Households; Gas-Fired Instantaneous
Water Heaters
[Veff <2 gal, rated input >50,000 Btu/h]
----------------------------------------------------------------------------------------------------------------
Low-income Senior-only Small
TSL households households businesses All households
----------------------------------------------------------------------------------------------------------------
Average LCC Savings (2023$)
----------------------------------------------------------------------------------------------------------------
1............................................... 141 (38) (158) (1)
2............................................... 248 80 (51) 112
3............................................... 152 75 10 90
4............................................... 123 18 (44) 39
----------------------------------------------------------------------------------------------------------------
Simple Payback Period (years)
----------------------------------------------------------------------------------------------------------------
1............................................... 9.9 13.5 10.2 12.6
2............................................... 7.1 9.6 7.2 8.9
3............................................... 6.6 8.9 6.6 8.3
4............................................... 7.9 10.9 7.8 10.3
----------------------------------------------------------------------------------------------------------------
Consumers with Net Cost (%)
----------------------------------------------------------------------------------------------------------------
1............................................... 8.2 20.0 24.5 17.5
2............................................... 6.5 16.6 25.7 15.2
[[Page 105263]]
3............................................... 11.0 26.4 43.1 25.0
4............................................... 31.8 57.5 67.0 56.2
----------------------------------------------------------------------------------------------------------------
Consumers with Net Benefit (%)
----------------------------------------------------------------------------------------------------------------
1............................................... 17.1 8.9 7.1 12.5
2............................................... 26.2 21.4 17.1 22.5
3............................................... 67.0 57.5 44.9 59.9
4............................................... 55.0 33.7 27.6 35.6
----------------------------------------------------------------------------------------------------------------
Note: Numbers in parentheses indicate a negative number.
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 consumer gas-fired
instantaneous water heaters. In contrast, the PBPs presented in section
V.B.1.a of this document use averages that were calculated using
distributions that reflect the range of energy use in the field.
Table V.5 presents the rebuttable-presumption payback periods for
the considered TSLs for consumer gas-fired instantaneous water heaters.
While DOE examined the rebuttable-presumption criterion, it considered
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.5--Rebuttable-Presumption Payback Periods
----------------------------------------------------------------------------------------------------------------
TSL 1 2 3 4
----------------------------------------------------------------------------------------------------------------
(years)
-------------------------------------------------------------------
Gas-fired Instantaneous Water Heaters....... 11.0 7.9 7.4 9.2
----------------------------------------------------------------------------------------------------------------
2. Economic Impacts on Manufacturers
DOE performed an MIA to estimate the impact of amended energy
conservation standards on manufacturers of gas-fired instantaneous
water heaters. 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 would result from a standard. The
following tables summarize the estimated financial impacts (represented
by changes in INPV) of potential amended energy conservation standards
on manufacturers of gas-fired instantaneous water heaters, as well as
the conversion costs that DOE estimates manufacturers of gas-fired
instantaneous water heaters would incur at each TSL.
As discussed in section IV.J.2.d of this document, DOE modeled two
scenarios to evaluate a range of cash flow impacts on the gas-fired
instantaneous water heater industry: (1) the preservation of gross
margin percentage scenario and (2) the preservation of operating profit
scenario. Under the preservation of gross margin percentage scenario,
DOE applied a single uniform ``gross margin percentage'' across all
efficiency levels. As MPCs increase with efficiency, this scenario
implies that the per-unit dollar profit would also increase. DOE
assumed a ``gross margin percentage'' of 31 percent for gas-fired
instantaneous water heaters.\188\ This gross margin percentage (and the
corresponding manufacturer markup) is the same as the one that DOE used
in the engineering analysis and the no-new-standards case of the GRIM.
Because this scenario assumes that a manufacturer's absolute dollar
markup would increase as MPCs increase in the standards cases, it
represents the upper bound to industry profitability under potential
amended energy conservation standards.
---------------------------------------------------------------------------
\188\ The gross margin percentage of 31 percent is based on a
manufacturer markup of 1.45.
---------------------------------------------------------------------------
The preservation of operating profit scenario reflects
manufacturers' concerns about their inability to maintain margins as
MPCs increase to reach more-stringent efficiency levels. In this
scenario, while manufacturers make the necessary investments required
to convert their facilities to produce compliant products, operating
profit does not change in absolute dollars and decreases as a
percentage of revenue.
Each of the modeled manufacturer markup scenarios 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 industry value between the no-new-standards case and each standards
case resulting from the sum of discounted cash flows from 2024 through
2059. To provide perspective on the short-run cash flow impact, DOE
[[Page 105264]]
includes in the discussion of results a comparison of free cash flow
between the no-new-standards case and the standards case at each TSL in
the year before amended standards are required.
Table V.6--Manufacturer Impact Analysis for Gas-Fired Instantaneous Water Heaters Under the Preservation of Gross Margin Scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level *
Units No-new- ---------------------------------------------------------------
standards case 1 2 3 4
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV...................................... 2023$ millions.............. 1,193.9 1,234.0 1,234.4 1,217.6 1,275.2
Change in INPV............................ 2023$ millions.............. .............. 40.1 40.5 23.7 81.2
%........................... .............. 3.4 3.4 2.0 6.8
Free Cash Flow (2029)..................... 2023$ millions.............. 91.7 84.6 82.9 65.2 65.2
Change in Free Cash Flow (2029)........... 2023$ millions.............. .............. (7.1) (8.8) (26.5) (26.5)
%........................... .............. (7.8) (9.6) (28.9) (28.9)
Product Conversion Costs.................. 2023$ millions.............. .............. 2.5 3.7 4.8 4.8
Capital Conversion Costs.................. 2023$ millions.............. .............. 13.9 16.7 55.3 55.3
-------------------------------------------------------------------------------
Total Investment Required **.......... 2023$ millions.............. .............. 16.5 20.4 60.1 60.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Numbers in parentheses indicate a negative number.
** Numbers may not sum exactly due to rounding.
Table V.7--Manufacturer Impact Analysis for Gas-Fired Instantaneous Water Heaters Under the Preservation of Operating Profit Scenario
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level *
Units No-new- ---------------------------------------------------------------
standards case 1 2 2 4
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV...................................... 2023$ millions.............. 1,193.9 1,171.1 1,160.2 1,132.1 1,119.5
Change in INPV............................ 2023$ millions.............. .............. (22.9) (33.7) (61.8) (74.5)
%........................... .............. (1.9) (2.8) (5.2) (6.2)
Free Cash Flow (2029)..................... 2023$ millions.............. 91.7 84.6 82.9 65.2 65.2
Change in Free Cash Flow (2029)........... 2023$ millions.............. .............. (7.1) (8.8) (26.5) (26.5)
%......................................... ............................ (7.8) (9.6) (28.9) (28.9)
Product Conversion Costs.................. 2023$ millions.............. .............. 2.5 3.7 4.8 4.8
Capital Conversion Costs.................. 2023$ millions.............. .............. 13.9 16.7 55.3 55.3
Total Investment Required **.............. 2023$ millions.............. .............. 16.5 20.4 60.1 60.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Numbers in parentheses indicate a negative number.
** Numbers may not sum exactly due to rounding.
At TSL 1, DOE estimates that impacts on INPV would range from -
$22.9 million to $40.1 million, or a change in INPV of -1.9 percent to
3.4 percent. At TSL 1, industry free cash flow is $84.6 million, which
is a decrease of $7.1 million, or a drop of 7.8 percent, compared to
the no-new-standards case value of $91.7 million in 2029, the year
leading up to the standards year. Approximately 70 percent of gas-fired
instantaneous water heater shipments are expected to meet TSL 1 by the
analyzed 2030 compliance date in the no-new-standards case.
TSL 1 would set the energy conservation standard for gas-fired
instantaneous water heaters at EL 1. Compared to the non-condensing
design considered at baseline, the design options analyzed at TSL 1
includes a tube design condensing heat exchanger. Out of the 12 gas-
fired instantaneous water heater OEMs identified, 11 offer models that
meet TSL 1. These 11 manufacturers currently offer 84 unique basic
models, accounting for 61 percent of model listings, that meet this
TSL. Based on feedback from manufacturer interviews and a review of the
market, DOE does not expect that most manufacturers would need to add
production capacity or incur significant capital conversion costs to
meet this level. However, in response to the July 2023 NOPR, one
manufacturer commented that its U.S. production facility is currently
optimized to produce non-condensing models. Converting this U.S.
production facility to produce condensing gas-fired instantaneous water
heaters would require significant investment. To avoid underestimating
the potential investments required to meet levels that may necessitate
condensing technology (i.e., TSL 1 through TSL 4), DOE incorporated the
expected investments required to convert its U.S. production facility
to accommodate production of condensing gas-fired instantaneous water
heaters. DOE does not expect that there would be notable product
conversion costs at this TSL since most manufacturers offer a range of
models that already meet this level. DOE estimates that industry would
incur approximately $13.9 million in capital conversion costs and $2.5
million in product conversions at TSL 1. Industry conversion costs
total $16.5 million.
At TSL 1, the shipment-weighted average MPC for gas-fired
instantaneous water heaters increases by 9.4 percent relative to the
no-new-standards case shipment-weighted average MPC for gas-fired
instantaneous water heaters in 2030. In the preservation of gross
margin percentage scenario, the increase
[[Page 105265]]
in cashflow from the higher MSP outweighs the $16.5 million in
conversion costs, causing a positive change in INPV at TSL 1 under this
scenario.
Under the preservation of operating profit scenario, manufacturers
earn the same per-unit operating profit as would be earned in the no-
new-standards case, but manufacturers do not earn additional profit
from their investments. In this scenario, the manufacturer markup
decreases in 2030. This reduction in the manufacturer markup and the
$16.5 million in conversion costs incurred by manufacturers cause a
slightly negative change in INPV at TSL 1 under the preservation of
operating profit scenario. See section IV.J.2.d of this document for a
discussion of the manufacturer markup scenarios.
At TSL 2, DOE estimates that impacts on INPV would range from -
$33.7 million to $40.5 million, or a change in INPV of -2.8 percent to
3.4 percent. At TSL 2, industry free cash flow is $82.9 million, which
is a decrease of $8.8 million, or a drop of 9.6 percent compared to the
no-new-standards case value of $91.7 million in 2029, the year leading
up to the standards year. Approximately 62 percent of gas-fired
instantaneous water heater shipments are expected to meet TSL 2 by the
analyzed 2030 compliance date in the no-new-standards case.
TSL 2 would set the energy conservation standard for gas-fired
instantaneous water heaters at EL 2. The design options analyzed at TSL
2 include increasing the tube design condensing heat exchanger area
relative to TSL 1. Of the 12 gas-fired instantaneous water heater OEMs,
10 manufacturers offer models that meet TSL 2. These 10 OEMs currently
offer 71 unique basic models, accounting for 51 percent of model
listings, that meet this TSL. As with TSL 1, DOE does not expect that
most manufacturers would need to add production capacity (or incur
notable capital conversion costs) to meet this level. However, the
larger condensing heat exchanger that manufacturers may implement to
meet TSL 2 could necessitate some capital investments to optimize
production lines. Similar to TSL 1, DOE does not expect that there
would be significant product conversion costs at this level since most
manufacturers already offer a range of models that meet TSL 2. DOE
estimates that industry would incur approximately $16.7 million in
capital conversion costs and $3.7 million in product conversions at TSL
2. Industry conversion costs total $20.4 million.
At TSL 2, the shipment-weighted average MPC for gas-fired
instantaneous water heaters increases by 9.8 percent relative to the
no-new-standards case shipment-weighted average MPC for gas-fired
instantaneous water heaters in 2030. In the preservation of gross
margin percentage scenario, the increase in cashflow from the higher
MSP outweighs the $20.4 million in conversion costs, causing a positive
change in INPV at TSL 2 under this scenario.
Under the preservation of operating profit scenario, manufacturers
earn the same per-unit operating profit as would be earned in the no-
new-standards, but manufacturers do not earn additional profit from
their investments. In this scenario, the manufacturer markup decreases
in 2030. This reduction in the manufacturer markup and the $20.4
million in conversion costs incurred by manufacturers cause a slightly
negative change in INPV at TSL 2 under the preservation of operating
profit scenario.
At TSL 3, DOE estimates that impacts on INPV would range from -
$61.8 million to $23.7 million, or a change in INPV of -5.2 percent to
2.0 percent. At TSL 3, industry free cash flow is $65.2 million, which
is a decrease of $26.5 million, or a drop of 28.9 percent, compared to
the no-new-standards case value of $91.7 million in 2029, the year
leading up to the standards year. Approximately 16 percent of gas-fired
instantaneous water heater shipments are expected to meet TSL 3 by the
analyzed 2030 compliance date in the no-new-standards case.
TSL 3 would set the energy conservation standard for gas-fired
instantaneous water heaters at EL 3. The design options analyzed at TSL
3 include a more efficient heat exchanger design (i.e., replacing a
tube condensing heat exchanger with a flat plate condensing heat
exchanger) and increasing the condensing heat exchanger area relative
to TSL 2. Of the 12 gas-fired instantaneous water heater OEMs, 10
manufacturers offer models that meet TSL 3. These 10 manufacturers
currently offer 48 unique basic models, accounting for 34 percent of
model listings, that meet this TSL. Based on feedback from manufacturer
interviews and public comments, DOE understands that implementing the
larger, improved condensing heat exchanger technology would increase
the complexity of the manufacturing process compared to the tube design
condensing heat exchanger technology analyzed at TSL 1 and TSL 2.
At this level, most manufacturers would need to add additional
assembly lines to meet demand, which would require a large capital
investment. The investment required to add production capacity would
vary by manufacturer as it depends on floor space availability in and
around existing manufacturing plants. Compared to TSL 1 and TSL 2,
manufacturers offer fewer models that meet the required efficiency
levels. Manufacturers without any models that meet TSL 3 would need to
develop new gas-fired instantaneous water heater products with more
complex, efficient condensing heat exchanger designs. Manufacturers
with gas-fired instantaneous water heaters that meet TSL 3 may need to
allocate technical resources to provide a full range of product
offerings since most manufacturers currently only offer a handful of
models that meet TSL 3. DOE estimates that manufacturers would incur
approximately $55.3 million in capital conversion costs and $4.8
million in product conversions at TSL 3. Industry conversion costs
total $60.1 million.
At TSL 3, the shipment-weighted average MPC for gas-fired
instantaneous water heaters increases by 11.2 percent relative to the
no-new-standards case shipment-weighted average MPC for gas-fired
instantaneous water heaters in 2030. In the preservation of gross
margin percentage scenario, the increase in cashflow from the higher
MSP outweighs the $60.1 million in conversion costs, causing a slightly
positive change in INPV at TSL 3 under this scenario.
Under the preservation of operating profit scenario, manufacturers
earn the same per-unit operating profit as would be earned in the no-
new-standards case, but manufacturers do not earn additional profit
from their investments. In this scenario, the manufacturer markup
decreases in 2030. This reduction in the manufacturer markup and the
$60.1 million in conversion costs incurred by manufacturers cause a
negative change in INPV at TSL 3 under the preservation of operating
profit scenario.
At TSL 4, DOE estimates that impacts on INPV would range from -
$74.5 million to -$81.2 million, or a change in INPV of -6.2 percent to
6.8 percent. At TSL 4, industry free cash flow is $65.2 million, which
is a decrease of $26.5 million, or a drop of 28.9 percent, compared to
the no-new-standards case value of $91.7 million in 2029, the year
leading up to the standards year. Approximately 8 percent of gas-fired
instantaneous water heater shipments are expected to meet TSL 4 by the
analyzed 2030 compliance date in the no-new-standards case.
TSL 4 would set the energy conservation standard for gas-fired
[[Page 105266]]
instantaneous water heaters at EL 4 (i.e., max-tech). The design
options analyzed at TSL 4 include replacing the step-modulating burner
with a fully modulating burner and increasing the condensing heat
exchanger area relative to TSL 3. Of the 12 gas-fired instantaneous
water heaters, five manufacturers offer models that meet this TSL.
These five manufacturers currently offer 19 unique basic models,
accounting for 14 percent of model listings, that meet this TSL. As
with TSL 3, DOE understands that implementing the larger, improved
condensing heat exchanger design would add a significant amount of
complexity to the manufacturing process compared to the tube design
condensing heat exchanger technology at TSL 1 and TSL 2. As such, DOE
expects similar capital conversion costs at TSL 3 and TSL 4. At max-
tech, fewer manufacturers offer fewer models that meet the required
efficiencies compared to TSL 3. DOE estimates that manufacturers would
incur approximately $55.3 million in capital conversion costs and $4.8
million in product conversions at TSL 4. Industry conversion costs
total $60.1 million.
At TSL 4, the shipment-weighted average MPC for gas-fired
instantaneous water heaters increases by 20.1 percent relative to the
no-new-standards case shipment-weighted average MPC for gas-fired
instantaneous water heaters in 2030. The increase in cashflow from the
higher MSP outweighs the $60.1 million in conversion costs, causing a
positive change in INPV at TSL 4 under this scenario.
Under the preservation of operating profit scenario, manufacturers
earn the same per-unit operating profit as would be earned in the no-
new-standards, but manufacturers do not earn additional profit from
their investments. In this scenario, the manufacturer markup decreases
in 2030. This reduction in the manufacturer markup and the $60.1
million in conversion costs incurred by manufacturers cause a negative
change in INPV at TSL 4 under the preservation of operating profit
scenario.
b. Direct Impacts on Employment
To quantitatively assess the potential impacts of amended energy
conservation standards on direct employment in the gas-fired
instantaneous water heater industry, DOE used feedback from stakeholder
comments, the engineering analysis, and shipments analysis 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.
In the July 2023 NOPR, DOE estimated that approximately 70 percent
of consumer water heaters subject to the proposed amended standards
were produced domestically. Of that 70 percent, DOE estimated that all
gas-fired instantaneous water heaters, which currently account for 12
percent of the overall consumer water heater market, were produced
outside of the United States. For the July 2024 NODA, DOE revised its
direct employment analysis to account for Rinnai's new domestic
production facility dedicated to manufacturing non-condensing gas-fired
instantaneous water heaters. In the July 2024 NODA, DOE estimated that
approximately 20 percent of gas-fired instantaneous water heaters were
produced domestically. DOE derived this value by using its shipments
analysis and public market share feedback.\189\ (Rinnai No. 1186 at p.
1) DOE maintained the 20 percent estimate from the July 2024 NODA for
this final rule.
---------------------------------------------------------------------------
\189\ In 2023, DOE estimates that approximately 0.41 million out
of the 1.22 million gas-fired instantaneous water heater unit
shipments are non-condensing. In response to the July 2023 NOPR,
Rinnai commented that its domestic market share of non-condensing
gas-fired instantaneous water heaters is 60 percent: (60% x 0.41
million) / 1.22 million = 20%.
---------------------------------------------------------------------------
In addition to Rinnai's market share feedback, DOE relied on the
employment figures provided in Rinnai's comments in response to the
July 2023 NOPR to estimate the potential range of direct employment
impacts in 2030 (the analyzed compliance year) in the July 2024 NODA.
Rinnai's comments indicated that there were 122 domestic production
workers dedicated to manufacturing non-condensing gas-fired
instantaneous water heaters in 2023. (Rinnai No. 1186 at p. 1) Using
results of the shipments analysis, DOE projected that there would be
approximately 128 domestic production workers in 2030 (the analyzed
compliance year) in the no-new-standards case.
To establish a conservative lower bound, DOE assumed domestic
manufacturers would shift production to foreign countries at efficiency
levels that would likely necessitate condensing technology. The upper
bound domestic direct employment estimate corresponds to a potential
increase in the number of domestic workers that would result from
amended energy conservation standards if manufacturers continue to
produce the same scope of covered products within the United States
after compliance takes effect (i.e., 20 percent of gas-fired
instantaneous water heater shipments continue to be manufactured
domestically). Results of DOE's engineering and product teardown
analyses indicate that additional labor is required (on a per-unit
basis) to produce a condensing gas-fired instantaneous water heater
compared to a non-condensing gas-fired instantaneous water heater. As
such, DOE modeled an increase in domestic direct employment in the
upper bound scenario.
For this final rule, DOE updated its estimate of domestic
production workers of gas-fired instantaneous water heaters from 128 to
190 \190\ in 2030 based on stakeholder comments in response to the July
2024 NODA but otherwise maintained its direct employment methodology.
(Rinnai No. 1443 at p. 1) DOE estimates that in the absence of new or
amended energy conservation standards for consumer water heaters there
would be 3,859 domestic production employees for the overall consumer
water heater market in 2030.\191\
---------------------------------------------------------------------------
\190\ Rinnai commented that it currently employes 183 full-time
employees and 49 temporary employees at its Griffin, Georgia plant.
DOE's shipments analysis indicates shipments of non-condensing gas-
fired instantaneous water heaters in the no-new-standards case will
increase by approximately 4 percent from 2024 to 2030 (the
compliance year).
\191\ In support of the May 2024 Final Rule, DOE estimated that
the total domestic direct employment for gas-fired storage, oil-
fired storage, and electric storage water heaters would be 4,110 in
2030 in the no-new-standards case, representing 3,669 production
workers and 441 non-production workers. 89 FR 37778, 37900-37901.
See the May 2024 Final Rule GRIM available for download at:
www.regulations.gov/document/EERE-2017-BT-STD-0019-1422. (3,669 +
190 = 3,859 domestic production workers in 2030, absent standards).
---------------------------------------------------------------------------
For the conservative lower bound of direct employment impacts for
this final rule, DOE models a decrease of domestic direct employment of
190 production workers at TSL 1 through TSL 4 in 2030. This lower bound
reflects the scenario where Rinnai chooses to continue to source
condensing gas-fired instantaneous water heaters from Japan. In
response to the July 2023 NOPR and July 2024 NODA, Rinnai commented
that due to the large upfront investment required to repurpose its
Georgia facility to accommodate production of condensing gas-fired
instantaneous water heaters and its current production capacity of
condensing gas-fired instantaneous water heaters in Japan, it is
possible that manufacturing could shift overseas. (Rinnai No. 1186 at
p. 23; Rinnai No. 1443 at pp. 21-22)
For the upper bound of direct employment impacts, using a shipment-
weighted average, DOE estimates that the labor content required to
produce a
[[Page 105267]]
condensing gas-fired instantaneous water heater is approximately 62
percent more than the labor content required to produce a non-
condensing gas-fired instantaneous water heater. See chapter 12 of the
final rule TSD for the estimated labor content by efficiency level.
Therefore, DOE models an upper-bound increase in domestic direct
employment of 62 percent (an increase of approximately 117 production
workers, for a total of 307 domestic production workers) at TSL 1
through TSL 4 in 2030.
Additional details on the analysis of direct employment, as well as
the estimated labor content for each efficiency level, 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 16 of
the final rule TSD.
c. Impacts on Manufacturing Capacity
Nearly all gas-fired instantaneous water heater OEMs currently
offer condensing gas-fired instantaneous water heater models. Of the 12
manufacturers identified, 11 manufacturers already offer a range of
condensing gas-fired instantaneous water heater models that meet TSL 1.
DOE estimates that condensing gas-fired instantaneous water heaters
account for 67 percent of current shipments. For a condensing-level
standard, most manufacturers would have to repurpose and retool
assembly lines to produce only condensing models since the
manufacturing processes (e.g., production of secondary heat exchangers)
differ between condensing and non-condensing gas-fired instantaneous
water heater models. Manufacturer feedback indicates that most
manufacturers could meet TSL 1 and TSL 2 without adding new production
lines. However, at TSL 3 and TSL 4, DOE expects most manufacturers
would have to add production lines due to increased complexity and
incorporation of a larger, more efficient heat exchanger design.
Additionally, while most shipments already meet TSL 2, fewer shipments
meet TSL 3 or TSL 4. Currently, 60 percent of shipments meet TSL 2
whereas 15 percent and 8 percent of shipments meet TSL 3 and TSL 4,
respectively. However, at TSL 2 (the adopted level), DOE expects that
manufacturers would be able to add capacity and adjust product designs
in the five-year period between the announcement year of the amended
standard and the compliance year of the amended standard.
d. Impacts on Subgroups of Manufacturers
As discussed in section IV.J of this document, using average cost
assumptions to develop an industry cash flow estimate may not be
adequate for assessing differential impacts among manufacturer
subgroups. Small manufacturers, niche manufacturers, and manufacturers
exhibiting a cost structure substantially different from the industry
average could be affected disproportionately. DOE used the results of
the industry characterization to group manufacturers exhibiting similar
characteristics. Consequently, DOE identified small business
manufacturers as a subgroup for a separate impact analysis.
For the small business subgroup analysis, DOE applied the small
business size standards published by the U.S. Small Business
Administration (``SBA'') to determine whether a company is considered a
small business. The size standards are codified at 13 CFR part 121. To
be categorized as a small business under North American Industry
Classification System (``NAICS'') code 335220, ``Major Household
Appliance Manufacturing,'' a gas-fired instantaneous water heater
manufacturer and its affiliates may employ a maximum of 1,500
employees. The 1,500-employee threshold includes all employees in a
business's parent company and any other subsidiaries. Based on this
classification, DOE did not identify any manufacturers that qualify as
a domestic small business.
The small business subgroup analysis is discussed in more detail in
chapter 12 of the final rule TSD. DOE examines the potential impacts of
this final rule on small business manufacturers in section VI.B of this
document.
e. Cumulative Regulatory Burden
One aspect of assessing manufacturer burden involves looking at the
cumulative impact of multiple DOE standards and the regulatory actions
of other Federal agencies and States 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
existing or impending regulations may have serious consequences for
some manufacturers, groups of manufacturers, or an entire industry.
Multiple regulations affecting the same manufacturer can strain profits
and lead companies to abandon product lines or markets with lower
expected future returns than competing products. 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 examined
Federal, product-specific regulations that could affect gas-fired
instantaneous water heater manufacturers and that take effect
approximately 3 years before or after the estimated compliance date
(2027 to 2033). This information is presented in table V.8.
Table V.8--Compliance Dates and Expected Conversion Expenses of Federal Energy Conservation Standards Affecting Gas-Fired Instantaneous Water Heater
Original Equipment Manufacturers
--------------------------------------------------------------------------------------------------------------------------------------------------------
Industry
Number of OEMs Approx. standards Industry conversion costs/
Federal Energy Conservation Standard Number of OEMs * affected by compliance year conversion costs equipment revenue
today's rule ** ($ millions) ***
--------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer Pool Heaters 88 FR 34624 (May 30, 2023)......... 20 3 2028 48.4 (2021$) 1.5
Consumer Boilers [dagger] 88 FR 55128 (August 14, 2023).. 24 8 2030 98.0 (2022$) 3.6
Commercial Refrigerators, Refrigerator-Freezers, and 83 1 2028 226.4 (2022$) 1.6
Freezers [dagger] 88 FR 70196 (October 10, 2023)........
Dehumidifiers [dagger] 88 FR 76510 (November 6, 2023).... 20 1 2028 6.9 (2022$) 0.4
Consumer Furnaces 88 FR 87502 (December 18, 2023)........ 14 3 2029 162.0 (2022$) 1.8
[[Page 105268]]
Refrigerators, Refrigerator-Freezers, and Freezers 89 FR 63 2 [Dagger] 2029 and 830.3 (2022$) 1.3
3026 (January 17, 2024)................................. 2030
Consumer Conventional Cooking Products 89 FR 11434 35 1 2028 66.7 (2022$) 0.3
(February 14, 2024).....................................
Consumer Clothes Dryers 89 FR 18164 (March 12, 2024)..... 19 2 2028 180.7 (2022$) 1.4
Residential Clothes Washers 89 FR 19026 (March 15, 2024). 22 2 2028 320.0 (2022$) 1.8
Dishwashers 89 FR 31398 (April 24, 2024)................. 21 2 2027 126.9 (2022$) 2.1
Consumer Water Heaters 89 FR 37778 (May 6, 2024)......... 16 4 2029 239.8 (2022$) 1.9
Miscellaneous Refrigeration Products 89 FR 38762 (May 7, 49 1 2029 130.7 (2022$) 2.9
2024)...................................................
Air-Cooled Unitary Air Conditioners and Heat Pumps 89 FR 9 1 2029 288.0 (2022$) 2.1
44052 (May 20, 2024)....................................
Walk-in Coolers and Freezers [dagger][dagger]............ 87 1 2028 91.5 (2023$) 0.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
* 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 gas-fired instantaneous water heaters 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 timeframe 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 3 to 5
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] For the refrigerators, refrigerator-freezers, and freezers energy conservation standards direct final rule, the compliance year (2029 or 2030)
varies by product class.
[dagger][dagger] At the time of issuance of the final rule, the WICFs final rule has been issued and is pending publication in the Federal Register.
Once published, the final rule pertaining to WICFs will be available at: www.regulations.gov/docket/EERE-2017-BT-STD-0009.
3. National Impact Analysis
This section presents DOE's estimates of the NES and the NPV of
consumer benefits that would result from each of the TSLs considered as
potential amended standards.
a. National Energy Savings
To estimate the energy savings attributable to potential amended
standards for consumer gas-fired instantaneous water heaters, 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 during the 30-
year period that begins in the year of anticipated compliance with
amended standards (2030-2059). Table V.9 presents DOE's projections of
the NES for each TSL considered for consumer gas-fired instantaneous
water heaters. The savings were calculated using the approach described
in section IV.H.2 of this document.
Table V.9--Cumulative National Energy Savings for Consumer Gas-Fired Instantaneous Water Heaters; 30 Years of
Shipments
[2030-2059]
----------------------------------------------------------------------------------------------------------------
Trial standard level
---------------------------------------------------------------
1 2 3 4
----------------------------------------------------------------------------------------------------------------
quads
----------------------------------------------------------------------------------------------------------------
Primary Energy
----------------------------------------------------------------------------------------------------------------
Gas-fired Instantaneous Water Heaters........... 0.32 0.52 0.76 0.97
----------------------------------------------------------------------------------------------------------------
FFC Energy
----------------------------------------------------------------------------------------------------------------
Gas-fired Instantaneous Water Heaters........... 0.35 0.58 0.85 1.07
----------------------------------------------------------------------------------------------------------------
[[Page 105269]]
OMB Circular A-4 \192\ 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.\193\ The review timeframe established in EPCA is generally
not synchronized with the product lifetime, product manufacturing
cycles, or other factors specific to consumer gas-fired instantaneous
water heaters. 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 table V.10. The impacts are counted
over the lifetime of consumer gas-fired instantaneous water heaters
purchased during the period 2030-2038.
---------------------------------------------------------------------------
\192\ U.S. Office of Management and Budget. Circular A-4:
Regulatory Analysis. Available at: www.whitehouse.gov/omb/information-for-agencies/circulars (last accessed August 29, 2024).
DOE used the prior version of Circular A-4 (September 17, 2003) in
accordance with the effective date of the November 9, 2023 version.
Available at: www.whitehouse.gov/wp-content/uploads/legacy_drupal_files/omb/circulars/A4/a-4.pdf (last accessed August
29, 2024).
\193\ 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. (42 U.S.C.
6295(m)) 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.10--Cumulative National Energy Savings for Consumer Gas-Fired Instantaneous Water Heaters; 9 Years of
Shipments
[2030-2038]
----------------------------------------------------------------------------------------------------------------
Trial standard level
---------------------------------------------------------------
1 2 3 4
----------------------------------------------------------------------------------------------------------------
quads
----------------------------------------------------------------------------------------------------------------
Primary Energy
----------------------------------------------------------------------------------------------------------------
Gas-fired Instantaneous Water Heaters........... 0.10 0.16 0.21 0.27
----------------------------------------------------------------------------------------------------------------
FFC Energy
----------------------------------------------------------------------------------------------------------------
Gas-fired Instantaneous Water Heaters........... 0.11 0.17 0.24 0.30
----------------------------------------------------------------------------------------------------------------
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 consumer gas-
fired instantaneous water heaters. In accordance with OMB Circular A-4,
DOE calculated NPV using both a 7-percent and a 3-percent real discount
rate. Table V.11 shows the consumer NPV results with impacts counted
over the lifetime of products purchased during the period 2030-2059.
Table V.11--Cumulative Net Present Value of Consumer Benefits for Consumer Gas-Fired Instantaneous Water
Heaters; 30 Years of Shipments
[2030-2059]
----------------------------------------------------------------------------------------------------------------
Trial standard level
Discount rate ---------------------------------------------------------------
1 2 3 4
----------------------------------------------------------------------------------------------------------------
billion 2023$
----------------------------------------------------------------------------------------------------------------
3 percent discount rate
----------------------------------------------------------------------------------------------------------------
Gas-fired Instantaneous Water Heaters........... 1.26 3.06 4.89 4.50
----------------------------------------------------------------------------------------------------------------
7 percent discount rate
----------------------------------------------------------------------------------------------------------------
Gas-fired Instantaneous Water Heaters........... 0.24 0.87 1.45 0.98
----------------------------------------------------------------------------------------------------------------
The NPV results based on the aforementioned 9-year analytical
period are presented in table V.12. The impacts are counted over the
lifetime of products purchased during the period 2030-2038. 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.
[[Page 105270]]
Table V.12--Cumulative Net Present Value of Consumer Benefits for Consumer Gas-Fired Instantaneous Water
Heaters; 9 Years of Shipments
[2030-2038]
----------------------------------------------------------------------------------------------------------------
Trial standard level
Discount rate ---------------------------------------------------------------
1 2 3 4
----------------------------------------------------------------------------------------------------------------
billion 2023$
----------------------------------------------------------------------------------------------------------------
3 percent discount rate
----------------------------------------------------------------------------------------------------------------
Gas-fired Instantaneous Water Heaters........... 0.44 1.09 1.66 1.50
----------------------------------------------------------------------------------------------------------------
7 percent discount rate
----------------------------------------------------------------------------------------------------------------
Gas-fired Instantaneous Water Heaters........... 0.10 0.41 0.66 0.43
----------------------------------------------------------------------------------------------------------------
The previous results reflect the use of a default trend to estimate
the change in price for consumer gas-fired instantaneous water heaters
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
DOE estimates that amended energy conservation standards for
consumer gas-fired instantaneous water heaters 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 (2030-2034), 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 will not lessen
the utility or performance of the gas-fired instantaneous water heaters
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. To assist the Attorney General
in making this determination, DOE provided the Department of Justice
(``DOJ'') with copies of the NOPR and the TSD for review. In its
assessment letter responding to DOE, DOJ concluded that the proposed
energy conservation standards for gas-fired instantaneous water heaters
are unlikely to substantially lessen competition. DOE is publishing the
Attorney General's assessment at the end of this final rule.
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 gas-fired instantaneous water heaters is expected to
yield environmental benefits in the form of reduced emissions of
certain air pollutants and GHG. Table V.13 provides DOE's estimate of
cumulative emissions reductions expected to result from the TSLs
considered in this rulemaking. In the case of mercury, negative values
(denoted in parenthesis) indicate a slight increase in emissions due to
slightly higher electricity use at those TSLs. 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 105271]]
Table V.13--Cumulative Emissions Reduction for Gas-Ffired Instantaneous Water Heaters Shipped During the Period
2030-2059
----------------------------------------------------------------------------------------------------------------
Trial standard level
---------------------------------------------------------------
1 2 3 4
----------------------------------------------------------------------------------------------------------------
Electric Power Sector and Site Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)....................... 17 28 40 47
CH4 (thousand tons)............................. 0.3 0.6 0.8 1.1
N2O (thousand tons)............................. 0.03 0.06 0.08 0.11
SO2 (thousand tons)............................. 0.04 0.10 0.17 0.75
NOX (thousand tons)............................. 15 25 35 41
Hg (tons)....................................... (0.0004) (0.0004) (0.0003) 0.0035
----------------------------------------------------------------------------------------------------------------
Upstream Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)....................... 2 4 6 7
CH4 (thousand tons)............................. 244 397 575 669
N2O (thousand tons)............................. 0.00 0.01 0.01 0.01
SO2 (thousand tons)............................. 0.01 0.02 0.03 0.04
NOX (thousand tons)............................. 38 62 89 104
Hg (tons)....................................... (0.0000) (0.0000) (0.0000) 0.0000
----------------------------------------------------------------------------------------------------------------
Total FFC Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)....................... 19 32 46 54
CH4 (thousand tons)............................. 244 398 576 671
N2O (thousand tons)............................. 0.04 0.06 0.09 0.12
SO2 (thousand tons)............................. 0.05 0.12 0.20 0.79
NOX (thousand tons)............................. 53 86 125 145
Hg (tons)....................................... (0.0004) (0.0004) (0.0003) 0.0035
----------------------------------------------------------------------------------------------------------------
Note: Totals may not equal sums due to rounding. Negative values refer to an increase in emissions.
As part of the analysis for this rule, DOE estimated monetary
benefits likely to result from the reduced emissions of CO2
that DOE estimated for each of the considered TSLs for gas-fired
instantaneous water heaters. Section IV.L of this document discusses
the estimated SC-CO2 values that DOE used. Table V.14 and
table V.15 present the value of CO2 emissions reduction at
each TSL for each of the SC-CO2 cases. The time-series of
annual values is presented for the selected TSL in chapter 14 of the
final rule TSD.
Table V.14--Present Value of CO2 Emissions Reduction for Gas-Fired Instantaneous Water Heaters Shipped During
the Period 2030-2059
[2023 estimates of SC-GHG]
----------------------------------------------------------------------------------------------------------------
Near-term Ramsey discount rate
TSL -----------------------------------------------
2.5% 2.0% 1.5%
----------------------------------------------------------------------------------------------------------------
(billion 2023$)
----------------------------------------------------------------------------------------------------------------
1............................................................... 2.2 3.8 6.8
2............................................................... 3.5 6.1 11.0
3............................................................... 5.1 8.8 15.9
4............................................................... 6.0 10.3 18.7
----------------------------------------------------------------------------------------------------------------
Table V.15--Present Value of CO2 Emissions Reduction for Gas-Fired Instantaneous Water Heaters Shipped During
the Period 2030-2059
[2021 interim SC-GHG estimates]
----------------------------------------------------------------------------------------------------------------
SC-CO2 Case
---------------------------------------------------------------
Discount rate and statistics
TSL ---------------------------------------------------------------
3% 95th
5% Average 3% Average 2.5% Average percentile
----------------------------------------------------------------------------------------------------------------
(billion 2023$)
----------------------------------------------------------------------------------------------------------------
1............................................... 0.2 0.7 1.1 2.2
2............................................... 0.3 1.2 1.8 3.5
3............................................... 0.4 1.7 2.6 5.1
[[Page 105272]]
4............................................... 0.4 2.0 3.1 5.9
----------------------------------------------------------------------------------------------------------------
As discussed in section IV.L.2, DOE estimated the climate benefits
likely to result from the reduced emissions of methane and
N2O that DOE estimated for each of the considered TSLs for
gas-fired instantaneous water heaters. Table V.16 and table V.17
present the value of the CH4 emissions reduction at each
TSL, and table V.18 and table V.19 present the value of the
N2O emissions reduction at each TSL. The time-series of
annual values is presented for the selected TSL in chapter 14 of the
final rule TSD.
Table V.16--Present Value of Methane Emissions Reduction for Gas-Fired Instantaneous Water Heaters Shipped
During the Period 2030-2059
[2023 estimates of SC-GHG]
----------------------------------------------------------------------------------------------------------------
Near-term Ramsey discount rate
TSL -----------------------------------------------
2.5% 2.0% 1.5%
----------------------------------------------------------------------------------------------------------------
(billion 2023$)
----------------------------------------------------------------------------------------------------------------
1............................................................... 0.4 0.6 0.9
2............................................................... 0.7 1.0 1.4
3............................................................... 1.0 1.4 2.0
4............................................................... 1.2 1.6 2.4
----------------------------------------------------------------------------------------------------------------
Table V.17--Present Value of Methane Emissions Reduction for Gas-Fired Instantaneous Water Heaters Shipped
During the Period 2030-2059
[2021 Interim SC-GHG estimates]
----------------------------------------------------------------------------------------------------------------
SC-CH4 Case
---------------------------------------------------------------
Discount rate and statistics
TSL ---------------------------------------------------------------
3% 95th
5% Average 3% Average 2.5% Average percentile
----------------------------------------------------------------------------------------------------------------
(billion 2023$)
----------------------------------------------------------------------------------------------------------------
1............................................... 0.1 0.3 0.4 0.8
2............................................... 0.2 0.5 0.7 1.3
3............................................... 0.2 0.7 1.0 1.8
4............................................... 0.3 0.8 1.1 2.1
----------------------------------------------------------------------------------------------------------------
Table V.18--Present Value of Nitrous Oxide Emissions Reduction for Gas-Fired Instantaneous Water Heaters Shipped
During the Period 2030-2059
[2023 estimates of SC-GHG]
----------------------------------------------------------------------------------------------------------------
Near-term Ramsey discount rate
TSL -----------------------------------------------
2.5% 2.0% 1.5%
----------------------------------------------------------------------------------------------------------------
(billion 2023$)
----------------------------------------------------------------------------------------------------------------
1............................................................... 0.001 0.002 0.003
2............................................................... 0.002 0.003 0.006
3............................................................... 0.003 0.005 0.008
4............................................................... 0.004 0.006 0.011
----------------------------------------------------------------------------------------------------------------
[[Page 105273]]
Table V.19--Present Value of Nitrous Oxide Emissions Reduction for Gas-Fired Instantaneous Water Heaters Shipped
During the Period 2030-2059
[2021 Interim SC-GHG estimates]
----------------------------------------------------------------------------------------------------------------
SC-N2O Case
---------------------------------------------------------------
Discount rate and statistics
TSL ---------------------------------------------------------------
3% 95th
5% Average 3% Average 2.5% Average percentile
----------------------------------------------------------------------------------------------------------------
(billion 2023$)
----------------------------------------------------------------------------------------------------------------
1............................................... 0.0001 0.0005 0.0008 0.0014
2............................................... 0.0002 0.0008 0.0013 0.0022
3............................................... 0.0003 0.0012 0.0019 0.0032
4............................................... 0.0004 0.0016 0.0025 0.0043
----------------------------------------------------------------------------------------------------------------
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
global and U.S. economy continues to evolve rapidly. DOE, together with
other Federal agencies, will continue to review 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, however, that the adopted standards would be 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 and SO2 emissions reductions
anticipated to result from the considered TSLs for gas-fired
instantaneous water heaters. The dollar-per-ton values that DOE used
are discussed in section IV.L of this document. Table V.20 presents the
present value for NOX emissions reduction for each TSL
calculated using 7-percent and 3-percent discount rates, and table V.21
presents similar results for SO2 emissions reductions. The
results in these tables reflect application of EPA's low dollar-per-ton
values, which DOE used to be conservative. The time-series of annual
values is presented for the selected TSL in chapter 14 of the final
rule TSD.
Table V.20--Present Value of NOX Emissions Reduction for Gas-Fired Instantaneous Water Heaters Shipped During
the Period 2030-2059
----------------------------------------------------------------------------------------------------------------
7% Discount 3% Discount
TSL rate rate
----------------------------------------------------------------------------------------------------------------
(million 2023$)
----------------------------------------------------------------------------------------------------------------
1............................................................................... 554 1,650
2............................................................................... 892 2,675
3............................................................................... 1,260 3,830
4............................................................................... 1,468 4,481
----------------------------------------------------------------------------------------------------------------
Table V.21--Present Value of SO2 Emissions Reduction for Gas-Fired Instantaneous Water Heaters Shipped During
the Period 2030-2059
----------------------------------------------------------------------------------------------------------------
7% Discount 3% Discount
EL rate rate
----------------------------------------------------------------------------------------------------------------
(million 2023$)
----------------------------------------------------------------------------------------------------------------
1............................................................................... 0.04 0.22
2............................................................................... 0.9 2.9
3............................................................................... 1.9 5.9
4............................................................................... 12.9 39.1
----------------------------------------------------------------------------------------------------------------
Not all the public health and environmental benefits from the
reduction of GHG, NOx, and SO2 are captured in the values
above, and additional unquantified benefits from the reductions of
those pollutants as well as from the reduction of direct PM and other
co-pollutants may be significant. DOE has not included monetary impact
of the change in Hg emissions because the change is very small.
7. Other Factors
The Secretary, 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 Economic Impacts
Table V.22 and table V.23 present the NPV values that result from
adding the estimates of the economic benefits resulting from reduced
GHG and NOX and SO2 emissions to the NPV of
consumer benefits calculated for each TSL considered in this
rulemaking. The consumer benefits are domestic U.S.
[[Page 105274]]
monetary savings that occur as a result of purchasing the covered
products and are measured for the lifetime of products shipped during
the period 2030-2059. 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 gas-fired instantaneous
water heaters shipped during the period 2030-2059.
Table V.22--Consumer NPV Combined with Present Value of Climate Benefits and Health Benefits
[2023 SC-GHG estimates]
----------------------------------------------------------------------------------------------------------------
Category of climate benefits TSL 1 TSL 2 TSL 3 TSL 4
----------------------------------------------------------------------------------------------------------------
Using 3% Discount Rate for Consumer NPV and Health Benefits (billion 2023$)
----------------------------------------------------------------------------------------------------------------
2.5% Near-term Ramsey DR........................ 5.5 10.0 14.8 16.2
2.0% Near-term Ramsey DR........................ 7.3 12.8 18.9 21.0
1.5% Near-term Ramsey DR........................ 10.6 18.2 26.7 30.1
----------------------------------------------------------------------------------------------------------------
Using 7% Discount Rate for Consumer NPV and Health Benefits (billion 2023$)
----------------------------------------------------------------------------------------------------------------
2.5% Near-term Ramsey DR........................ 3.4 6.0 8.8 9.6
2.0% Near-term Ramsey DR........................ 5.1 8.9 12.9 14.4
1.5% Near-term Ramsey DR........................ 8.4 14.2 20.7 23.5
----------------------------------------------------------------------------------------------------------------
Table V.23--Consumer NPV Combined with Present Value of Climate Benefits and Health Benefits
[2021 Interim SC-GHG estimates]
----------------------------------------------------------------------------------------------------------------
Category of climate benefits TSL 1 TSL 2 TSL 3 TSL 4
----------------------------------------------------------------------------------------------------------------
Using 3% Discount Rate for Consumer NPV and Health Benefits (billion 2023$)
----------------------------------------------------------------------------------------------------------------
5% Average SC-GHG case.......................... 3.2 6.2 9.3 9.7
3% Average SC-GHG case.......................... 3.9 7.4 11.1 11.8
2.5% Average SC-GHG case........................ 4.5 8.3 12.3 13.3
3% 95th percentile SC-GHG case.................. 5.9 10.6 15.6 17.1
----------------------------------------------------------------------------------------------------------------
Using 7% Discount Rate for Consumer NPV and Health Benefits (billion 2023$)
----------------------------------------------------------------------------------------------------------------
5% Average SC-GHG case.......................... 1.1 2.2 3.3 3.2
3% Average SC-GHG case.......................... 1.8 3.4 5.1 5.2
2.5% Average SC-GHG case........................ 2.4 4.3 6.3 6.7
3% 95th percentile SC-GHG case.................. 3.8 6.6 9.6 10.5
----------------------------------------------------------------------------------------------------------------
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)).
For this final rule, DOE considered the impacts of amended
standards for gas-fired instantaneous water heaters 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
[[Page 105275]]
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, 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.\194\
---------------------------------------------------------------------------
\194\ P.C. Reiss and M.W. White. Household Electricity Demand,
Revisited. Review of Economic Studies. 2005. 72(3): pp. 853-883.
doi: 10.1111/0034-6527.00354.
---------------------------------------------------------------------------
While DOE is not prepared at present to provide a fuller
quantifiable framework for estimating the benefits and costs of changes
in consumer purchase decisions due to an energy conservation standard,
DOE is committed to developing a framework that can support empirical
quantitative tools for improved assessment of the consumer welfare
impacts of appliance standards. DOE has posted a paper that discusses
the issue of consumer welfare impacts of appliance energy conservation
standards, and potential enhancements to the methodology by which these
impacts are defined and estimated in the regulatory process.\195\ DOE
welcomes comments on how to more fully assess the potential impact of
energy conservation standards on consumer choice and how to quantify
this impact in its regulatory analysis in future rulemakings. General
considerations for consumer welfare and preferences as well as the
special cases of complementary goods are areas DOE plans to explore in
a forthcoming RFI related to the agency's updates to its overall
analytic framework.
---------------------------------------------------------------------------
\195\ Sanstad, A. H. Notes on the Economics of Household Energy
Consumption and Technology Choice. 2010. Lawrence Berkeley National
Laboratory. Available at: www1.eere.energy.gov/buildings/appliance_standards/pdfs/consumer_ee_theory.pdf (last accessed
September 12, 2024).
---------------------------------------------------------------------------
1. Benefits and Burdens of TSLs Considered for Gas-fired Instantaneous
Water Heater Standards
Table V.24 and table V.25 summarize the quantitative impacts
estimated for each TSL for gas-fired instantaneous water heaters with
effective storage volumes less than 2 gallons and with rated inputs
greater than or equal to 50,000 Btu/h. The national impacts are
measured over the lifetime of gas-fired instantaneous water heaters
purchased during the 30-year period that begins in the anticipated year
of compliance with amended standards (2030-2059). The energy savings,
emissions reductions, and value of emissions reductions refer to full-
fuel-cycle results. DOE is presenting monetized benefits of GHG
emissions reductions in accordance with the applicable Executive
Orders, and DOE would reach the same conclusion presented in this final
rule in the absence of the estimated benefits from reductions in GHG
emissions, including the estimates published by EPA in December 2023 or
the Interim Estimates presented by the Interagency Working Group in
2021. The efficiency levels contained in each TSL are described in
section V.A of this document.
Table V.24--Summary of Analytical Results for Gas-Fired Instantaneous Water Heaters TSLs: National Impacts
----------------------------------------------------------------------------------------------------------------
Category TSL 1 TSL 2 TSL 3 TSL 4
----------------------------------------------------------------------------------------------------------------
Cumulative FFC National Energy Savings
----------------------------------------------------------------------------------------------------------------
Quads........................................... 0.35 0.58 0.85 1.07
----------------------------------------------------------------------------------------------------------------
Cumulative FFC Emissions Reductions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)....................... 19 32 46 54
CH4 (thousand tons)............................. 244 398 576 671
N2O (thousand tons)............................. 0.04 0.06 0.09 0.12
SO2 (thousand tons)............................. 0.05 0.12 0.20 0.79
NOX (thousand tons)............................. 53 86 125 145
Hg (tons)....................................... (0.0004) (0.0004) (0.0003) 0.0035
----------------------------------------------------------------------------------------------------------------
Present Value of Benefits and Costs (3% discount rate, billion 2023$)
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings................. 2.6 4.5 6.7 8.6
Climate Benefits * (2023 SC-GHG estimates)...... 4.4 7.1 10.2 12.0
Climate Benefits * (2021 interim SC-GHG 1.0 1.7 2.4 2.8
estimates).....................................
Health Benefits **.............................. 1.6 2.7 3.8 4.5
Total Benefits [dagger] (2023 SC-GHG 8.6 14.3 20.8 25.1
estimates).................................
Total Benefits [dagger] (2021 interim SC-GHG 5.3 8.9 12.9 15.9
estimates).................................
---------------------------------------------------------------
Consumer Incremental Product Costs [Dagger]..... 1.4 1.5 1.8 4.1
Consumer Net Benefits........................... 1.3 3.1 4.9 4.5
Total Net Benefits [dagger] (2023 SC-GHG 7.3 12.8 18.9 21.0
estimates).................................
Total Net Benefits [dagger] (2021 interim SC- 3.9 7.4 11.1 11.8
GHG estimates).............................
----------------------------------------------------------------------------------------------------------------
Present Value of Benefits and Costs (7% discount rate, billion 2023$)
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings................. 1.0 1.7 2.4 3.1
Climate Benefits * (2023 SC-GHG estimates)...... 4.4 7.1 10.2 12.0
Climate Benefits * (2021 interim SC-GHG 1.0 1.7 2.4 2.8
estimates).....................................
Health Benefits **.............................. 0.6 0.9 1.3 1.5
[[Page 105276]]
Total Benefits [dagger] (2023 SC-GHG 5.9 9.6 13.9 16.5
estimates).................................
Total Benefits [dagger] (2021 interim SC-GHG 2.5 4.2 6.0 7.3
estimates).................................
---------------------------------------------------------------
Consumer Incremental Product Costs [Dagger]..... 0.7 0.8 1.0 2.1
---------------------------------------------------------------
Consumer Net Benefits........................... 0.2 0.9 1.5 1.0
Total Net Benefits [dagger] (2023 SC-GHG 5.1 8.9 12.9 14.4
estimates).................................
Total Net Benefits [dagger] (2021 interim SC- 1.8 3.4 5.1 5.2
GHG estimates).............................
----------------------------------------------------------------------------------------------------------------
Note: This table presents the costs and benefits associated with gas-fired instantaneous water heaters shipped
during the period 2030-2059. These results include benefits to consumers which accrue after 2059 from the
products shipped during the period 2030-2059. Parentheses indicate negative (-) values.
* Climate benefits are calculated using different estimates of the SC-CO2, SC-CH4 and SC-N2O. Climate benefits
are estimated using two separate sets of estimates of the social cost for each greenhouse gas, an updated set
published in 2023 by the Environmental Protection Agency (EPA) (``2023 SC-GHG'') and the interim set of
estimates used in the NOPR which were published in 2021 by the Interagency Working Group on the SC-GHG (IWG)
(``2021 Interim SC-GHG'') (see section IV.L of this document). For presentational purposes of this table, the
climate benefits associated with the average SC-GHG at a 2-percent near-term Ramsey discount rate are shown
for the 2023 SC-GHG estimates, and the climate benefits associated with the average SC-GHG at a 3 percent
discount rate are shown for the 2021 interim SC-GHG estimates.
** Health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only monetizing
(for NOX and SO2) 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 5 of the EPA's Estimating the Benefit per Ton of Reducing PM2.5 Precursors from 21
Sectors TSD provides a summary of the health impact endpoints quantified in the analysis. See section IV.L of
this document for more details.
[dagger] Total and net benefits include consumer, climate, and health benefits. For presentation purposes, total
and net benefits for both the 3-percent and 7-percent cases are presented using the average SC-GHG with 2-
percent near-term Ramsey discount rate for the 2023 estimate and the average SC-GHG with 3-percent discount
rate for the 2021 interim SC-GHG estimate.
[Dagger] Costs include incremental equipment costs as well as installation costs.
Table V.25--Summary of Analytical Results for Gas-Fired Instantaneous Water Heater TSLs: Manufacturer and Consumer Impacts
--------------------------------------------------------------------------------------------------------------------------------------------------------
Category TSL 1 TSL 2 TSL 3 TSL 4
--------------------------------------------------------------------------------------------------------------------------------------------------------
Manufacturer Impacts
--------------------------------------------------------------------------------------------------------------------------------------------------------
Industry NPV (million 2023$) (No-new-standards case INPV = 1,171.1 to 1,234.0 1,160.2 to 1,234.4 1,132.1 to 1,217.6 1,119.5 to 1,275.2
1,193.9).......................................................
Industry NPV (% change)......................................... (1.9) to 3.4 (2.8) to 3.4 (5.2) to 2.0 (6.2) to 6.8
--------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer Average LCC Savings (2023$)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Gas-fired Instantaneous Water Heater............................ (1) 112 90 39
--------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer Simple PBP (years)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Gas-fired Instantaneous Water Heater............................ 12.6 8.9 8.3 10.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
Percent of Consumers that Experience a Net Cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
Gas-fired Instantaneous Water Heater............................ 17.5 15.2 25.0 56.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
Parentheses indicate negative (-) values.
DOE first considered TSL 4, which represents the max-tech
efficiency level analyzed for gas-fired instantaneous water heaters
with current UEF-based standards. At TSL 4, the design option pathway
includes the use of high-efficiency flat-plate condensing heat
exchangers and fully modulating burners. TSL 4 would require extensive
changes to the way manufacturers currently produce gas-fired
instantaneous water heaters. At TSL 4, approximately 8 percent of
shipments are expected to meet the required efficiency levels by 2030
in the no-new-standards case; therefore, a significant ramp-up in
manufacturing capacity would be needed to support the market
transition.
TSL 4 would save an estimated 1.07 quads of energy, an amount DOE
considers significant. Under TSL 4, the NPV of consumer benefit would
be $0.98 billion using a discount rate of 7 percent, and $4.50 billion
using a discount rate of 3 percent.
The cumulative emissions reductions at TSL 4 are 54 Mt of
CO2, 671 thousand tons of CH4, 0.12 thousand tons
of N2O, 145 thousand tons of NOX, 0.79 thousand
tons of SO2, and 0.0035 tons of Hg. The estimated monetary
value of the climate benefits from reduced GHG emissions at TSL 4 is
$12.0 billion (associated with the average SC-GHG at a 2-percent near
Ramsey discount rate using the 2023 SC-GHG estimates) or $2.8 billion
(associated with the average SC-GHG at a 3-percent discount rate using
the 2021 interim SC-GHG estimates). The estimated monetary value of the
health benefits from reduced SO2 and NOX
emissions at TSL 4 is $1.5 billion using a 7-percent discount rate and
$4.5 billion using a 3-percent discount rate.
Using a 7-percent discount rate for consumer benefits and costs,
health benefits from reduced SO2 and NOX
emissions, and the 2-percent near-term Ramsey discount rate case or the
3-
[[Page 105277]]
percent discount rate case for climate benefits from reduced GHG
emissions, the estimated total NPV at TSL 4 is $14.4 billion (using the
2023 SC-GHG estimates) or $5.2 billion (using the 2021 interim SC-GHG
estimates). Using a 3-percent discount rate for consumer benefits and
costs and health benefits from reduced NOX and
SO2 emissions, and the 2-percent near-term Ramsey discount
rate case or the 3-percent discount rate case for climate benefits from
reduced GHG emissions, the estimated total NPV at TSL 4 is $21.0
billion (using the 2023 SC-GHG estimates) or $11.8 billion (using the
2021 interim SC-GHG estimates). The estimated total NPV is provided for
additional information, however DOE primarily relies upon the NPV of
consumer benefits when determining whether a proposed standard level is
economically justified.
At TSL 4, consumers will experience an average LCC savings of $39,
which includes the cost of purchasing and installing a more expensive
model with fully modulating burner technology. The fraction of
consumers experiencing a net LCC cost is 56.2 percent.
At TSL 4, the projected change in INPV ranges from a decrease of
$74.5 million to an increase of $81.2 million, which corresponds to a
decrease of 6.2 percent and an increase of 6.8 percent, respectively.
The range of impacts is driven primarily by the ability of
manufacturers to recover their investments. DOE estimates that industry
would need to invest $60.1 million to comply with standards set at TSL
4. At this level, given the greater complexity and assembly time of
max-tech models, most manufacturers would need to add production lines
to meet demand, which would require large capital investments and
updates to the factory floor. The investment required to add production
capacity would vary by manufacturer as it depends on floor space
availability in and around existing manufacturing plants. Manufacturers
would also need to upgrade their facilities to accommodate the
production of models with large, high-efficiency condensing heat
exchangers and fully modulating burners. DOE understands that
implementing larger, improved condensing heat exchanger designs would
add a significant amount of complexity to the manufacturing process.
Feedback from confidential interviews and public comments indicate that
it would require notable investment to incorporate fully modulating
burners into their gas-fired instantaneous water heater designs. Of the
12 gas-fired instantaneous water heater OEMs, five OEMs offer 19 models
that meet TSL 4 (which represents approximately 14 percent of gas-fired
instantaneous water heater basic model listings).
The Secretary concludes that at TSL 4 for gas-fired instantaneous
water heaters, the benefits of energy savings, positive NPV of consumer
benefits, emissions reductions, and estimated monetary value of the
emissions reductions would be outweighed by economic impacts to
manufacturers (driven by the ramp-up in scale and offerings needed to
support max-tech efficiencies), and a majority of consumers would
experience a net cost (56.2 percent). At TSL 4, most manufacturers
would need to add production lines to meet demand, which would require
large capital expenditures. DOE projects that only 8 percent of
shipments would meet TSL 4 efficiencies by 2030 in the no-new-standards
case. Consequently, the Secretary has concluded that TSL 4 is not
economically justified.
DOE then considered TSL 3, which represents the next highest
efficiency level analyzed for gas-fired instantaneous water heaters
with current UEF-based standards and represents efficiencies that can
meet the current ENERGY STAR specification. At TSL 3, the design option
pathway includes the use of high-efficiency flat-plate condensing heat
exchangers. TSL 3 may also require changes to the way manufacturers
currently produce gas-fired instantaneous water heaters since many
designs on the market today use tube heat exchangers. At TSL 3,
approximately 16 percent of shipments are expected to meet the required
efficiency levels by 2030 in the no-new-standards case.
TSL 3 would save an estimated 0.85 quads of energy, an amount DOE
considers significant. Under TSL 3, the NPV of consumer benefit would
be $1.45 billion using a discount rate of 7 percent, and $4.89 billion
using a discount rate of 3 percent.
The cumulative emissions reductions at TSL 3 are 46 Mt of
CO2, 576 thousand tons of CH4, 0.09 thousand tons
of N2O, 125 thousand tons of NOX, 0.20 thousand
tons of SO2, and an increase of 0.0003 tons of Hg. The
estimated monetary value of the climate benefits from reduced GHG
emissions at TSL 3 is $10.2 billion (associated with the average SC-GHG
at a 2-percent near-term Ramsey discount rate using the 2023 SC-GHG
estimates) or $2.4 billion (associated with the average SC-GHG at a 3-
percent discount rate using the 2021 interim SC-GHG estimates). The
estimated monetary value of the health benefits from reduced
SO2 and NOX emissions at TSL 3 is $1.3 billion
using a 7-percent discount rate and $3.8 billion using a 3-percent
discount rate.
Using a 7-percent discount rate for consumer benefits and costs,
health benefits from reduced SO2 and NOX
emissions, and the 2-percent near-term Ramsey discount rate case or the
3-percent discount rate case for climate benefits from reduced GHG
emissions, the estimated total NPV at TSL 3 is $12.9 billion (using the
2023 SC-GHG estimates) or $5.1 billion (using the 2021 interim SC-GHG
estimates). Using a 3-percent discount rate for consumer benefits and
costs and health benefits from reduced NOX and
SO2 emissions, and the 2-percent near-term Ramsey discount
rate case or the 3-percent discount rate case for climate benefits from
reduced GHG emissions, the estimated total NPV at TSL 3 is $18.9
billion (using the 2023 SC-GHG estimates) or $11.1 billion (using the
2021 interim SC-GHG estimates). The estimated total NPV is provided for
additional information, however DOE primarily relies upon the NPV of
consumer benefits when determining whether a proposed standard level is
economically justified.
At TSL 3, consumers will experience an average LCC savings of $90,
which includes the cost of purchasing and installing a more expensive
condensing model. The fraction of consumers experiencing a net LCC cost
is 25.0 percent.
At TSL 3, the projected change in INPV ranges from a decrease of
$61.8 million to an increase of $23.7 million, which corresponds to a
decrease of 5.2 percent and an increase of 2.0 percent, respectively.
As with TSL 4, the range of impacts is driven primarily by the ability
of manufacturers to recover their investments. DOE estimates that
industry must invest $60.1 million to comply with standards set at TSL
3. At this level, DOE expects manufacturers would implement the same
high-efficiency heat exchanger design as at max-tech and increase the
condensing heat exchanger area relative to lower efficiency levels but
not to the extent as required at max-tech. Given the greater complexity
and assembly time of high-efficiency models, most manufacturers would
need to add production lines to meet demand, which would require
capital investments and potential updates to the factory floor. The
investment required to add production capacity would vary by
manufacturer as it depends on floor space availability in and around
existing manufacturing plants. Manufacturers would also need to upgrade
their facilities to accommodate the production of models
[[Page 105278]]
with high-efficiency condensing heat exchangers. Additionally, while
TSL 3 is technologically feasible using traditional step-modulating
burner designs, DOE received information from several manufacturers
indicating that, at this efficiency level, some manufacturers may opt
to redesign their models to take advantage of alternative burner
configurations (e.g., down-firing) or even fully-modulating designs--
designs which may provide a benefit of better condensate management at
such a high efficiency.
The Secretary concludes that at TSL 3 for gas-fired instantaneous
water heaters, the benefits of energy savings, positive NPV of consumer
benefits, emissions reductions, and estimated monetary value of the
emissions reductions would be outweighed by economic impacts to
manufacturers (driven by the potential conversion costs for production
equipment and tooling, as well as the ramp-up in production necessary
for all model lines to meet this efficiency). At TSL 3, most
manufacturers would need to add production lines to meet demand.
Consequently, the Secretary has concluded that TSL 3 is not
economically justified.
DOE then considered TSL 2, which represents the next highest
efficiency level analyzed for gas-fired instantaneous water heaters
with current UEF-based standards. TSL 2 also aligns with the Joint
Stakeholder Recommendation efficiency level. At TSL 2, the design
option pathway includes the use of condensing heat exchangers. At TSL
2, approximately 62 percent of shipments are expected to meet the
required efficiency levels by 2030 in the no-new-standards case, which
is a significant increase from TSL 3 and TSL 4.
TSL 2 would save an estimated 0.58 quads of energy, an amount DOE
considers significant. Under TSL 2, the NPV of consumer benefit would
be $0.87 billion using a discount rate of 7 percent, and $3.06 billion
using a discount rate of 3 percent.
The cumulative emissions reductions at TSL 2 are 32 Mt of
CO2, 398 thousand tons of CH4, 0.06 thousand tons
of N2O, 86 thousand tons of NOX, 0.12 thousand
tons of SO2, and an increase of 0.0004 tons of Hg. The
estimated monetary value of the climate benefits from reduced GHG
emissions at TSL 2 is $7.1 billion (associated with the average SC-GHG
at a 2-percent near-term Ramsey discount rate using the 2023 SC-GHG
estimates) or $1.7 billion (associated with the average SC-GHG at a 3-
percent discount rate using the 2021 interim SC-GHG estimates). The
estimated monetary value of the health benefits from reduced
SO2 and NOX emissions at TSL 3 is $0.9 billion
using a 7-percent discount rate and $2.7 billion using a 3-percent
discount rate.
Using a 7-percent discount rate for consumer benefits and costs,
health benefits from reduced SO2 and NOX
emissions, and the 2-percent near-term Ramsey discount rate case or the
3-percent discount rate case for climate benefits from reduced GHG
emissions, the estimated total NPV at TSL 2 is $8.9 billion (using the
2023 SC-GHG estimates) or $3.4 billion (using the 2021 interim SC-GHG
estimates). Using a 3-percent discount rate for consumer benefits and
costs and health benefits from reduced NOX and
SO2 emissions, and the 2-percent near-term Ramsey discount
rate case or the 3-percent discount rate case for climate benefits from
reduced GHG emissions, the estimated total NPV at TSL 2 is $12.8
billion (using the 2023 SC-GHG estimates) or $7.4 billion (using the
2021 interim SC-GHG estimates). The estimated total NPV is provided for
additional information, however DOE primarily relies upon the NPV of
consumer benefits when determining whether a proposed standard level is
economically justified.
At TSL 2, consumers will experience an average LCC savings of $112
which includes the cost of purchasing and installing a more expensive
condensing model. The fraction of consumers experiencing a net LCC cost
is 15.2 percent.
At TSL 2, the projected change in INPV ranges from a decrease of
$33.7 million to an increase of $40.5 million, which corresponds to a
decrease of 2.8 percent and an increase of 3.4 percent, respectively.
DOE estimates that industry must invest $20.4 million to comply with
standards set at TSL 2.
At higher TSLs, the primary driver of high conversion costs is the
required capital investment to meet market demand for high-efficiency
condensing gas-fired instantaneous water heaters. However, at TSL 2,
industry has extensive experience producing gas-fired instantaneous
water heater models that meet this level, and, furthermore, this TSL
was strongly supported by a coalition of industry stakeholders,
including manufacturers. DOE believes that having major manufacturers
and the industry trade association sign on to the Joint Stakeholder
Recommendation is a testament to industry's ability to ramp up capacity
to produce volumes necessary to support a transition to condensing
efficiencies at TSL 2. Based on manufacturer feedback, DOE does not
expect that most manufacturers would need to add production lines at
this level. All 12 gas-fired instantaneous water heater OEMs currently
manufacture condensing gas-fired instantaneous water heater models. Of
these 12 OEMs, 10 OEMs currently manufacture condensing gas-fired
instantaneous water heater models that meet this level. Collectively,
these 10 OEMs offer 71 unique basic models that meet TSL 2 (which
represent approximately 51 percent of gas-fired instantaneous water
heater basic model listings). Furthermore, these 10 OEMs account for
the majority of gas-fired instantaneous water heater sales,
representing over 95 percent of industry shipments.
After considering the analysis and weighing the benefits and
burdens, the Secretary has concluded that standards set at TSL 2 for
gas-fired instantaneous water heaters would be economically justified.
At this TSL, the average LCC savings for consumers are expected to be
positive. The FFC national energy savings are significant and the NPV
of consumer benefits is positive using both a 3-percent and 7-percent
discount rate. These national benefits vastly outweigh the costs. The
standard levels at TSL 2 are economically justified even without
weighing the estimated monetary value of emissions reductions. When
those emissions reductions are included--representing $7.1 billion in
climate benefits (associated with the average SC-GHG at a 2-percent
near-term Ramsey discount rate using the 2023 SC-GHG estimates) or $1.7
billion in climate benefits (associated with the average SC-GHG at a 3-
percent discount rate using the 2021 interim SC-GHG estimate), and $0.9
billion (using a 7-percent discount rate) or $2.7 billion (using a 3-
percent discount rate) in health benefits--the rationale becomes
stronger still. In addition, DOE considered that TSL 2 is
representative of the Joint Stakeholder Recommendation. More
specifically, DOE believes the Joint Stakeholder agreement from a
cross-section group of stakeholders provides DOE with a good indication
of stakeholder views on this rulemaking and some assurance that
industry can transition to these levels. And, as indicated by DOE's
analysis, the market will see significant benefits at this efficiency
level.
Accordingly, the Secretary has concluded that TSL 2 would offer the
maximum improvement in efficiency that is technologically feasible and
economically justified, and would result in significant conservation of
energy. Lastly, TSL 2 represents the recommended standard levels
submitted by Joint Stakeholders to DOE, providing
[[Page 105279]]
further support for standard levels set at TSL 2, a factor the
Secretary considers significant.
As stated, DOE conducts the 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. The walk-down is not a comparative analysis, as a comparative
analysis would result in the maximization of net benefits instead of
energy savings that are technologically feasible and economically
justified, which would be contrary to the statute. 86 FR 70892, 70908.
Although DOE has not conducted a comparative analysis to select the
amended energy conservation standards, DOE notes that at higher TSLs,
larger fractions of consumers experience increased costs greater than
operating savings, and manufacturer investments to meet consumer demand
would be significantly higher.
Therefore, based on the above considerations, DOE adopts the
conservation standards for consumer water heaters at TSL 2 for those
product classes where there are existing applicable UEF standards. For
the remaining product classes, DOE adopts converted standards in the
UEF metric based on the amended appendix E test procedure. The amended
energy conservation standards for gas-fired instantaneous water
heaters, which are expressed as UEF, are shown in table V.26.
Table V.26--Amended Energy Conservation Standards for Gas-Fired Instantaneous Water Heaters
----------------------------------------------------------------------------------------------------------------
Effective storage
Product class volume (Veff) * and Draw pattern UEF *
input rating
----------------------------------------------------------------------------------------------------------------
Gas-fired Instantaneous Water Heater. <2 gal and <=50,000 Btu/ Very Small............. 0.64.
h. Low.................... 0.64.
Medium................. 0.64.
High................... 0.64.
<2 gal and >50,000 Btu/ Very Small............. 0.89.
h.
Low.................... 0.91.
Medium................. 0.91.
High................... 0.93.
>=2 gal and <=200,000 Very Small............. 0.2534-(0.0018 x Veff).
Btu/h.
Low.................... 0.5226-(0.0022 x Veff).
Medium................. 0.5919-(0.0020 x Veff).
High................... 0.6540-(0.0017 x Veff).
----------------------------------------------------------------------------------------------------------------
* Veff is the Effective Storage Volume (in gallons), as determined pursuant to 10 CFR 429.17.
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 2023$) 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 health benefits.
Table V.27 shows the annualized values for gas-fired instantaneous
water heaters analyzed under TSL 2, expressed in 2023$. The results
under the primary estimate are as follows.
Using a 7-percent discount rate for consumer benefits and costs and
health benefits from reduced NOX and SO2
emissions, and a 2-percent near-term Ramsey discount rate case or the
3-percent discount rate case for climate benefits from reduced GHG
emissions, the estimated cost of the adopted standards for gas-fired
instantaneous water heaters is $88 million per year in increased
equipment installed costs, while the estimated annual benefits are $187
million from reduced equipment operating costs, $349 million in climate
benefits (using the 2023 SC-GHG estimates) or $98 million in climate
benefits (using the 2021 interim SC-GHG estimates), and $101 million in
health benefits. In this case, the net benefit amounts to $549 million
per year (using the 2023 SC-GHG estimates) or $297 million per year
(using the 2021 interim SC-GHG estimates).
Using a 3-percent discount rate for consumer benefits and costs and
health benefits from reduced NOX and SO2
emissions, and the 2-percent near-term Ramsey discount rate case or the
3-percent discount rate case for climate benefits from reduced GHG
emissions, the estimated cost of the adopted standards for gas-fired
instantaneous water heaters is $87 million per year in increased
equipment costs, while the estimated annual benefits are $268 million
in reduced operating costs, $349 million in climate benefits (using the
2023 SC-GHG estimates) or $98 million in climate benefits (using the
2021 interim SC-GHG estimates), and $158 million in health benefits. In
this case, the net benefit amounts to $689 million per year (using the
2023 SC-GHG estimates) or $437 million per year (using the 2021 interim
SC-GHG estimates).
[[Page 105280]]
Table V.27--Annualized Benefits and Costs of the Adopted Energy Conservation Standards for Gas-Fired
Instantaneous Water Heaters at TSL 2 Shipped During the Period 2030-2059
[Veff <2 gal, rated input >50,000 Btu/h]
----------------------------------------------------------------------------------------------------------------
Million 2023$/year
-----------------------------------------------
Low-net- High-net-
Primary benefits benefits
estimate estimate estimate
----------------------------------------------------------------------------------------------------------------
3% discount rate
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings................................. 268 249 288
Climate Benefits * (2023 SC-GHG estimates)...................... 349 344 355
Climate Benefits * (2021 interim SC-GHG estimates).............. 98 96 100
Health Benefits **.............................................. 158 156 161
Total Benefits [dagger] (2023 SC-GHG estimates)................. 776 749 804
Total Benefits [dagger] (2021 interim SC-GHG estimates)......... 525 502 548
Consumer Incremental Product Costs [Dagger]..................... 87 86 89
Net Benefits [dagger] (2023 SC-GHG estimates)................... 689 663 715
Net Benefits [dagger] (2021 interim SC-GHG estimates)........... 437 416 459
Change in Producer Cashflow (INPV) [Dagger][Dagger]............. (3)-4 (3)-4 (3)-4
----------------------------------------------------------------------------------------------------------------
7% discount rate
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings................................. 187 174 200
Climate Benefits * (2023 SC-GHG estimates)...................... 349 344 355
Climate Benefits * (2021 interim SC-GHG estimates).............. 98 96 100
Health Benefits **.............................................. 101 99 102
Total Benefits [dagger] (2023 SC-GHG estimates)................. 637 616 658
Total Benefits [dagger] (2021 interim SC-GHG estimates)......... 386 369 402
Consumer Incremental Product Costs [Dagger]..................... 88 87 90
Net Benefits [dagger] (2023 SC-GHG estimates)................... 549 530 568
Net Benefits [dagger] (2021 interim SC-GHG estimates)........... 297 283 312
Change in Producer Cashflow (INPV) [Dagger][Dagger]............. (3)-4 (3)-4 (3)-4
----------------------------------------------------------------------------------------------------------------
Note: These results include consumer, climate, and health benefits that accrue after 2059 from the products
shipped during the period 2030-2059. The Primary, Low Net Benefits, and High Net Benefits Estimates utilize
projections of energy prices from the AEO2023 Reference case, Low Economic Growth case, and High Economic
Growth case, respectively. In addition, incremental equipment costs reflect a medium decline rate in the
Primary Estimate, a low decline rate in the Low Net Benefits Estimate, and a high decline rate in the High Net
Benefits Estimate. The methods used to derive projected price trends are explained in sections IV.F.1 and
IV.H.3 of this document. Note that the Benefits and Costs may not sum to the Net Benefits due to rounding.
* Climate benefits are calculated using different estimates of the global SC-GHG (see section IV.L of this
document). Climate benefits are estimated using two separate sets of estimates of the social cost for each
greenhouse gas, an updated set published in 2023 by the Environmental Protection Agency (EPA) (``2023 SC-
GHG'') and the interim set of estimates used in the NOPR which were published in 2021 by the Interagency
Working Group on the SC-GHG (IWG) (``2021 Interim SC-GHG'') (see section IV.L of this document). For
presentational purposes of this table, the climate benefits associated with the average SC-GHG at a 2 percent
near-term Ramsey discount rate are shown for the 2023 SC-GHG estimates, and the climate benefits associated
with the average SC-GHG at a 3 percent discount rate are shown for the 2021 interim SC-GHG estimates.
** Health benefits are calculated using benefit-per-ton values for 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. Table 5 of the EPA's Estimating the Benefit per Ton of Reducing PM2.5 Precursors from 21
Sectors TSD provides a summary of the health impact endpoints quantified in the analysis. See section IV.L of
this document for more details.
[dagger] Total benefits for both the 3-percent and 7-percent cases are presented using the average SC-GHG with 2-
percent near-term Ramsey discount rate for the 2023 estimate and the average SC-GHG with 3-percent discount
rate for the 2021 interim SC-GHG estimate.
[Dagger] Costs include incremental equipment costs as well as installation costs.
[Dagger][Dagger] Operating Cost Savings are calculated based on the life-cycle costs analysis and national
impact analysis as discussed in detail below. See sections IV.F and IV.H of this document. DOE's national
impacts analysis includes all impacts (both costs and benefits) along the distribution chain beginning with
the increased costs to the manufacturer to manufacture the product and ending with the increase in price
experienced by the consumer. DOE also separately conducts a detailed analysis on the impacts on manufacturers
(i.e., MIA). See section IV.J of this document. In the detailed MIA, DOE models manufacturers' pricing
decisions based on assumptions regarding investments, conversion costs, cashflow, and margins. The MIA
produces a range of impacts, which is the rule's expected impact on the INPV. The change in INPV is the
present value of all changes in industry cash flow, including changes in production costs, capital
expenditures, and manufacturer profit margins. The annualized change in INPV is calculated using the industry
weighted average cost of capital value of 9.6 percent that is estimated in the MIA (see chapter 12 of the
final rule TSD for a complete description of the industry weighted average cost of capital). For gas-fired
instantaneous water heaters, the annualized change in INPV ranges from -$3 million to $4 million. DOE accounts
for that range of likely impacts in analyzing whether a TSL is economically justified. See section V.C of this
document. DOE is presenting the range of impacts to the INPV under two manufacturer markup scenarios: the
Preservation of Gross Margin scenario, which is the manufacturer markup scenario used in the calculation of
Consumer Operating Cost Savings in this table; and the Preservation of Operating Profit scenario, where DOE
assumed manufacturers would not be able to increase per-unit operating profit in proportion to increases in
manufacturer production costs. DOE includes the range of estimated annualized change in INPV in the above
table, drawing on the MIA explained further in section IV.J of this document to provide additional context for
assessing the estimated impacts of this final rule to society, including potential changes in production and
consumption, which is consistent with OMB's Circular A-4 and E.O. 12866. If DOE were to include the INPV into
the annualized net benefit calculation (2023 SC-GHG estimates) for this final rule, the annualized net
benefits would range from $686 million to $693 million at 3-percent discount rate and would range from $546
million to $553 million at 7-percent discount rate. Parentheses indicate negative ( ) values.
[[Page 105281]]
3. Compliance Dates
As discussed in section II.A of this document, DOE is conducting
this rulemaking in satisfaction of the lookback review provisions and
the UEF metric provisions in EPCA. See 42 U.S.C. 6295(m) and
6295(e)(5), respectively. Per EPCA, an amendment of standards
prescribed under 42 U.S.C. 6295(m) is applicable to water heaters
manufactured after the date that is 5 years after the publication of a
final rule amending standards. (42 U.S.C. 6295(m)(4)(A)(ii)) Hence, the
compliance date for amended standards pertaining to gas-fired
instantaneous water heaters is 5 years from the publication of this
final rule.
VI. Procedural Issues and Regulatory Review
A. Review Under Executive Orders 12866, 13563, and 14094
Executive Order (``E.O.'') 12866, ``Regulatory Planning and
Review,'' as supplemented and reaffirmed by E.O. 13563, ``Improving
Regulation and Regulatory Review,'' 76 FR 3821 (Jan. 21, 2011) and
amended by 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 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 the 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'' within the scope of 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 (Aug. 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 reviewed this final rule under the provisions of the Regulatory
Flexibility Act and the procedures and policies published on February
19, 2003. DOE certifies that this final rule would not have a
significant economic impact on a substantial number of small entities.
As such, DOE has not prepared a FRFA for the products that are the
subject of this rulemaking. The factual basis of this certification is
set forth in the following paragraphs.
For manufacturers of gas-fired instantaneous water heaters, 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 gas-fired instantaneous water heaters is classified
under NAICS 335220, ``Major Household Appliance Manufacturing.'' The
SBA sets a threshold of 1,500 employees or fewer for an entity to be
considered as a small business for this category. For manufacturers of
gas-fired instantaneous water heaters, 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
gas-fired instantaneous water heaters is classified under NAICS 335220,
``Major Household Appliance Manufacturing.'' The SBA sets a threshold
of 1,500 employees or fewer for an entity to be considered as a small
business for this category.
To estimate the number of companies that could be small business
manufacturers of gas-fired instantaneous water heaters, DOE conducted a
market survey using public information and subscription-based company
reports to identify potential small business manufacturers. DOE
reviewed DOE's Compliance Certification Database,\196\ Air-
Conditioning, Heating, and Refrigeration Institute's Directory of
Certified Product Performance,\197\
[[Page 105282]]
California Energy Commission's Modernized Appliance Efficiency Database
System,\198\ the ENERGY STAR Product Finder dataset,\199\ and
individual company websites, to create a list of companies that
manufacture, produce, or import the products covered by this
rulemaking. DOE then consulted publicly available data, such as
manufacturer websites, manufacturer specifications and product
literature, import/export logs (e.g., bills of lading from ImportYeti
\200\), and basic model numbers, to identify original equipment
manufacturers (``OEMs'') of covered gas-fired instantaneous water
heaters. DOE relied on public information and market research tools
(e.g., reports from D&B Hoovers \201\) to determine company structure,
location, headcount, and annual revenue. DOE screened out companies
that do not manufacture the equipment covered by this rulemaking, do
not meet the SBA's definition of a ``small business,'' or are foreign-
owned and operated.
---------------------------------------------------------------------------
\196\ U.S. Department of Energy's Compliance Certification
Database is available at regulations.doe.gov/certification-data
(last accessed July 19, 2024).
\197\ Air-Conditioning, Heating and Refrigeration Institute's
Directory of Certified Product Performance is available at https://ahridirectory.org/search/searchhome?Returnurl=%2f (last accessed
July 23, 2024).
\198\ California Energy Commission's Modernized Appliance
Efficiency Database System is available at
cacertappliances.energy.ca.gov/Pages/Search/AdvancedSearch.aspx
(last accessed July 19, 2024).
\199\ ENERGY STAR Product Finder is available at
www.energystar.gov/productfinder (last accessed July 22, 2024).
\200\ ImportYeti, LLC. ImportYeti is available at:
www.importyeti.com/ (Last accessed July 30, 2024).
\201\ The Dun & Bradstreet subscription login is available at
app.dnbhoovers.com (last accessed July 30, 2024).
---------------------------------------------------------------------------
DOE identified 12 OEMs of gas-fired instantaneous water heaters
subject to more stringent standards. Of these 12 OEMs, DOE did not
identify any domestic OEMs that meet SBA's definition of a ``small
business.'' Given the lack of small, domestic OEMs with a direct
compliance burden, DOE concludes that this final rule would not have
``a significant impact on a substantial number of small entities.''
DOE has transmitted the certification and supporting statement of
factual basis to the Chief Counsel for Advocacy of the SBA for review
under 5 U.S.C. 605(b).
In response to the July 2023 NOPR, the Gas Association Commenters
and NPGA, APGA, AGA, and Rinnai submitted comments noting that DOE
identified only two small businesses, neither of which produce gas-
fired water heaters. As a result, these commenters stated that DOE has
no data on small businesses that produce gas-fired water heaters
relative to redesign costs, product availability, or whether the
proposed efficiency levels could cause small businesses to exit the
market. (Gas Association Commenters No. 1181, pp. 38-39; NPGA, APGA,
AGA, and Rinnai, No. 441 at p. 5) NPGA, APGA, AGA, and Rinnai asserted
that the July 2023 NOPR fails to comply with Executive Order 13272,
``Proper Consideration of Small Entities in Agency Rulemaking,'' and
must be addressed. (NPGA, APGA, AGA, and Rinnai, No. 441 at p. 5)
For the IRFA conducted in support of the July 2023 NOPR, which
proposed standards for covered consumer water heaters, DOE identified
one small domestic OEM of oil-fired storage water heaters and one small
domestic OEM of electric storage water heaters. For this certification,
DOE refreshed its product database to include up-to-date information on
gas-fired instantaneous water heaters marketed for the United States.
Based on its comprehensive review of the gas-fired instantaneous water
heater market, DOE maintains its finding from the IRFA that there are
no small, domestic OEMs that manufacture gas-fired instantaneous water
heaters. As such, DOE does not expect that the standards adopted in
this final rule would directly impact small businesses that manufacture
gas-fired instantaneous water heaters.
DOE did not receive written comments in response to the July 2024
NODA that specifically addressed the potential impacts on small
businesses.
C. Review Under the Paperwork Reduction Act
Manufacturers of gas-fired instantaneous water heaters must certify
to DOE that their products comply with any applicable energy
conservation standards. In certifying compliance, manufacturers must
test their products according to the DOE test procedures for gas-fired
instantaneous water heaters, 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 gas-fired instantaneous water heaters.
(See generally 10 CFR part 429). 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.
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 rule 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 B5.1 because it is a rulemaking that
establishes energy conservation standards for consumer products or
industrial equipment, none of the exceptions identified in B5.1(b)
apply, no extraordinary circumstances exist that require further
environmental analysis, and it 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 (Aug. 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 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
[[Page 105283]]
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)
Therefore, no further action is required by Executive Order 13132.
F. Review Under Executive Order 12988
With respect to the review of existing regulations and the
promulgation of new regulations, section 3(a) of E.O. 12988, ``Civil
Justice Reform,'' 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. 61 FR
4729 (February 7, 1996). 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 section 3(a) and section 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)) 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 gas-fired instantaneous water heater
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 gas-fired instantaneous
water heaters, 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 preamble
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 42 U.S.C. 6295(m),
this final rule establishes amended energy conservation standards for
gas-fired instantaneous water heaters 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 sections 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 proposed rule or policy that may affect
family well-being. When developing a Family Policymaking Assessment,
agencies must assess whether: (1) the action strengthens or erodes the
stability or safety of the family and, particularly, the marital
commitment; (2) the action strengthens or erodes the authority and
rights of parents in the education, nurture, and supervision of their
children; (3) the action helps the family perform its functions, or
substitutes governmental activity for the function; (4) the action
increases or decreases disposable income or poverty of families and
children; (5) the proposed benefits of the action justify the financial
impact on the family; (6) the action may be carried out by State or
local government or by the family; and whether (7) the action
establishes an implicit or explicit policy concerning the relationship
between the behavior and personal responsibility of youth, and the
norms of society. In evaluating the above factors, DOE has concluded
that it is not necessary to prepare a Family Policymaking Assessment as
none of the above factors are implicated. Further, this proposed
determination would not have any financial impact on families nor any
impact on the autonomy or integrity of the family as an institution.
DOE has considered how the benefits of this final rule compare to
the possible financial impact on a family (the only factor listed that
is relevant to this proposed rule). As part of its rulemaking process,
DOE must determine whether the energy conservation standards enacted in
this final rule are economically justified. As discussed in section
V.C.1 of this document, DOE has determined that the standards enacted
in this final rule are economically justified because the benefits to
consumers would far outweigh the costs to manufacturers. Families will
also see LCC savings as a result of this final rule. Moreover, as
discussed further in section V.B.1 of this document, DOE has determined
that for low-income households, average LCC savings and
[[Page 105284]]
PBP at the considered efficiency levels are improved (i.e., higher LCC
savings and lower PBP) as compared to the average for all households.
Further, the standards will also result in climate and health benefits
for families.
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 (February 22, 2002), and DOE's guidelines were published at 67
FR 62446 (Oct. 7, 2002). Pursuant to OMB Memorandum M-19-15, 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 is likely to have a
significant adverse effect on the supply, distribution, or use of
energy; or (2) 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 gas-fired instantaneous water
heaters, 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. Information Quality
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.
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.\202\ 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 report.\203\
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\202\ The 2007 ``Energy Conservation Standards Rulemaking Peer
Review Report'' is available at: energy.gov/eere/buildings/downloads/energy-conservation-standards-rulemaking-peer-review-report-0 (last accessed August 29, 2024).
\203\ The report is available at: www.nationalacademies.org/our-work/review-of-methods-for-setting-building-and-equipment-performance-standards.
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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 the Office of Information and Regulatory Affairs has
determined that the rule meets the criteria set forth in 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, Reporting and recordkeeping requirements,
and Small businesses.
Signing Authority
This document of the Department of Energy was signed on December
16, 2024, 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 December 16, 2024.
Treena V. Garrett,
Federal Register Liaison Officer, U.S. Department of Energy.
For the reasons set forth in the preamble, DOE amends part 430 of
chapter II, subchapter D, of title 10 of the Code of Federal
Regulations, as set forth below:
[[Page 105285]]
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 revising paragraph (d)(3) and adding paragraph
(d)(4) to read as follows:
Sec. 430.32 Energy and water conservation standards and their
compliance dates.
* * * * *
(d) * * *
(3) The uniform energy factor of water heaters manufactured on or
after December 26, 2029 shall not be less than the following:
Table 15 to Paragraph (d)(3)
----------------------------------------------------------------------------------------------------------------
Effective storage
Product class volume (Veff) * and Draw pattern UEF *
input rating
----------------------------------------------------------------------------------------------------------------
Gas-fired Instantaneous Water Heater. <2 gallons (``gal'') Very Small............. 0.64.
and <=50,000 Btu/h. Low.................... 0.64.
Medium................. 0.64.
High................... 0.64.
<2 gal and >50,000 Btu/ Very Small............. 0.89.
h. Low.................... 0.91.
Medium................. 0.91.
High................... 0.93.
>=2 gal and <=200,000 Very Small............. 0.2534-(0.0018 x Veff).
Btu/h. Low.................... 0.5226-(0.0022 x Veff).
Medium................. 0.5919-(0.0020 x Veff).
High................... 0.6540-(0.0017 x Veff).
----------------------------------------------------------------------------------------------------------------
* Veff is the Effective Storage Volume (in gallons), as determined pursuant to Sec. 429.17 of this chapter.
(4) The provisions of paragraph (d) of this section are separate
and severable from one another. Should a court of competent
jurisdiction hold any provision(s) of paragraph (d) of this section to
be stayed or invalid, such action shall not affect any other provision
of paragraph (d) of this section.
* * * * *
Note: The following letter will not appear in the Code of
Federal Regulations.
October 12, 2023
U.S. Department of Justice: Antitrust Division, Ami Grace-Tardy,
Assistant General Counsel for Legislation, Regulation and Energy
Efficiency, U.S. Department of Energy, Washington, DC 20585, Re: Energy
Conservation Standards for Consumer Water Heaters DOE Docket No. EERE-
2017-BT-STD-0019
Dear Assistant General Counsel Grace-Tardy:
I am responding to your August 23, 2023 letter seeking the views of
the Attorney General about the potential impact on competition of
proposed energy conservation standards for consumer water heaters.
Your request was submitted under section 325(o)(2)(B)(i)(V) of the
Energy Policy and Conservation Act, as amended (ECPA), 42 U.S.C.
6295(o)(2)(B)(i)(V), which requires the Attorney General to determine
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, by placing certain
manufacturers at an unjustified competitive disadvantage, or by
inducing avoidable inefficiencies in production or distribution of
particular products. 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 (``NOPR'') (88 FR 49058, July 28, 2023) and the
related Technical Support Document. We have also reviewed public
comments and information provided by industry participants and have
reviewed the transcript and information presented at the Webinar of the
Public Meeting held on September 13, 2023. Based on this review, we do
not have an evidentiary basis to conclude that the proposed energy
conservation standards for consumer water heaters are likely to
substantially lessen competition.
Sincerely,
David G.B. Lawrence,
Policy Director.
[FR Doc. 2024-30369 Filed 12-23-24; 8:45 am]
BILLING CODE 6450-01-P