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Proposed Rule2022-07141

Energy Conservation Program: Energy Conservation Standards for Room Air Conditioners

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Published

April 7, 2022

Issuing agencies

Energy Department

Abstract

The Energy Policy and Conservation Act, as amended ("EPCA"), prescribes energy conservation standards for various consumer products and certain commercial and industrial equipment, including room air conditioners. EPCA also requires the U.S. Department of Energy ("DOE") to periodically determine whether more-stringent standards would be technologically feasible and economically justified, and would result in significant energy savings. In this notice of proposed rulemaking ("NOPR"), DOE proposes amended energy conservation standards for room air conditioners, and also announces a webinar to receive comment on these proposed standards and associated analyses and results.

Full Text

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[Federal Register Volume 87, Number 67 (Thursday, April 7, 2022)]
[Proposed Rules]
[Pages 20608-20688]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-07141]

[[Page 20607]]

Vol. 87

Thursday,

No. 67

April 7, 2022

Part IV

Department of Energy

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10 CFR Parts 429 and 430

Energy Conservation Program: Energy Conservation Standards for Room Air
Conditioners; Proposed Rule

Federal Register / Vol. 87, No. 67 / Thursday, April 7, 2022 /
Proposed Rules

[[Page 20608]]

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DEPARTMENT OF ENERGY

10 CFR Parts 429 and 430

[EERE-2014-BT-STD-0059]
RIN 1904-AD97

Energy Conservation Program: Energy Conservation Standards for
Room Air Conditioners

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

ACTION: Notice of proposed rulemaking and announcement of a webinar.

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SUMMARY: The Energy Policy and Conservation Act, as amended (``EPCA''),
prescribes energy conservation standards for various consumer products
and certain commercial and industrial equipment, including room air
conditioners. EPCA also requires the U.S. Department of Energy
(``DOE'') to periodically determine whether more-stringent standards
would be technologically feasible and economically justified, and would
result in significant energy savings. In this notice of proposed
rulemaking (``NOPR''), DOE proposes amended energy conservation
standards for room air conditioners, and also announces a webinar to
receive comment on these proposed standards and associated analyses and
results.

DATES: DOE will hold a webinar on Tuesday, May 3, 2022, from 12:30 p.m.
to 4:30 p.m. See section VIII, ``Public Participation,'' for webinar
registration information, participant instructions, and information
about the capabilities available to webinar participants.
Comments: DOE will accept comments, data, and information regarding
this NOPR no later than June 6, 2022.
Comments regarding the likely competitive impact of the proposed
standard should be sent to the Department of Justice contact listed in
the ADDRESSES section on or before May 9, 2022.

ADDRESSES: Interested persons are encouraged to submit comments using
the Federal eRulemaking Portal at <a href="http://www.regulations.gov">www.regulations.gov</a>. Follow the
instructions for submitting comments. Alternatively, interested persons
may submit comments, identified by docket number EERE-2014-BT-STD-0059,
by any of the following methods:

(1) Federal eRulemaking Portal: <a href="http://www.regulations.gov">www.regulations.gov</a>. Follow the
instructions for submitting comments.
(2) Email: <a href="/cdn-cgi/l/email-protection#93c1fcfcfed2d0a1a3a2a7c0c7d7a3a3a6aad3f6f6bdf7fcf6bdf4fce5">[email&#160;protected]</a>. Include the docket
number EERE-2014-BT-STD-0059 in the subject line of the message.

No telefacsimilies (``faxes'') will be accepted. For detailed
instructions on submitting comments and additional information on this
process, see section IV of this document.
Although DOE has routinely accepted public comment submissions
through a variety of mechanisms, including postal mail and hand
delivery/courier, the Department has found it necessary to make
temporary modifications to the comment submission process in light of
the ongoing Covid-19 pandemic. DOE is currently suspending receipt of
public comments via postal mail and hand delivery/courier. If a
commenter finds that this change poses an undue hardship, please
contact Appliance Standards Program staff at (202) 586-1445 to discuss
the need for alternative arrangements. Once the COVID-19 pandemic
health emergency is resolved, DOE anticipates resuming all of its
regular options for public comment submission, including postal mail
and hand delivery/courier.
Docket: The docket for this activity, which includes Federal
Register notices, comments, and other supporting documents/materials,
is available for review at <a href="http://www.regulations.gov">www.regulations.gov</a>. All documents in the
docket are listed in the <a href="http://www.regulations.gov">www.regulations.gov</a> 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 <a href="http://www.regulations.gov/docket?D=EERE-2014-BT-STD-0059">www.regulations.gov/docket?D=EERE-2014-BT-STD-0059</a>. The docket web page contains
instructions on how to access all documents, including public comments,
in the docket. See section VIII of this document for information on how
to submit comments through <a href="http://www.regulations.gov">www.regulations.gov</a>.
Written comments regarding the burden-hour estimates or other
aspects of the collection-of-information requirements contained in this
proposed rule may be submitted to Office of Energy Efficiency and
Renewable Energy following the instructions at <a href="http://RegInfo.gov">RegInfo.gov</a>.
EPCA requires the Attorney General to provide DOE a written
determination of whether the proposed standard is likely to lessen
competition. The U.S. Department of Justice Antitrust Division invites
input from market participants and other interested persons with views
on the likely competitive impact of the proposed standard. Interested
persons may contact the Division at <a href="/cdn-cgi/l/email-protection#a1c4cfc4d3c6d88fd2d5c0cfc5c0d3c5d2e1d4d2c5cecb8fc6ced7">[email&#160;protected]</a> on or
before the date specified in the DATES section. Please indicate in the
``Subject'' line of your email the title and Docket number of this
proposed rulemaking.

FOR FURTHER INFORMATION CONTACT:
Mr. Bryan Berringer, 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) 586-0371. Email: <a href="/cdn-cgi/l/email-protection#fdbc8d8d91949c939e98ae899c93999c8f998eac88988e899492938ebd9898d3999298d39a928b">[email&#160;protected]</a>.
Ms. Sarah Butler, U.S. Department of Energy, Office of the General
Counsel, GC-33, 1000 Independence Avenue SW, Washington, DC 20585-0121.
Telephone: (202) 586-1777. Email: <a href="/cdn-cgi/l/email-protection#e3b08291828bcda196978f8691a38b92cd878c86cd848c95">[email&#160;protected]</a>.
For further information on how to submit a comment, review other
public comments and the docket, or participate in the webinar, contact
the Appliance and Equipment Standards Program staff at (202) 287-1445
or by email: <a href="/cdn-cgi/l/email-protection#8bcafbfbe7e2eae5e8eed8ffeae5efeaf9eff8dafeeef8ffe2e4e5f8cbeeeea5efe4eea5ece4fd">[email&#160;protected]</a>.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Synopsis of the Proposed 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 Room ACs
C. Deviation From Appendix A
III. General Discussion
A. Product Classes and Scope of Coverage
B. Test Procedure
C. Technological Feasibility
1. General
2. Maximum Technologically Feasible Levels
D. Energy Savings
1. Significance of Savings
E. 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. Scope of Coverage and Product Classes
2. Technology Options
a. Reduced Evaporator Air Recirculation
b. Compressors
c. Significant New Alternatives Policy (SNAP)-Approved
Refrigerants

[[Page 20609]]

B. Screening Analysis
1. Screened-Out Technologies
2. Remaining Technologies
C. Engineering Analysis
1. Efficiency Analysis
a. Baseline Efficiency
b. Higher Efficiency Levels
2. Cost Analysis
3. Cost-Efficiency Results
D. Markups Analysis
E. Energy Use Analysis
F. Life-Cycle Cost and Payback Period Analysis
1. Product Cost
2. Installation Cost
3. Annual Energy Consumption
a. Rebound Effect
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
G. Shipments Analysis
H. National Impact Analysis
1. Product Efficiency Trends
2. National Energy Savings
3. Net Present Value Analysis
I. Consumer Subgroup Analysis
J. Manufacturer Impact Analysis
1. Overview
2. Government Regulatory Impact Model and Key Inputs
a. Manufacturer Production Costs
b. Shipments Projections
c. Product and Capital Conversion Costs
d. Manufacturer Markup Scenarios
3. Manufacturer Interviews
4. 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 Air Pollutants
M. Utility Impact Analysis
N. Employment Impact Analysis
V. Analytical Results and Conclusions
A. Trial Standard Levels
B. Economic Justification and Energy Savings
1. Economic Impacts on Individual Consumers
a. Life-Cycle Cost and Payback Period
b. Consumer Subgroup Analysis
c. Rebuttable Presumption Payback
2. Economic Impacts on Manufacturers
a. Industry Cash Flow Analysis Results
b. Direct Impacts on Employment
c. Impacts on Manufacturing Capacity
d. Impacts on Subgroups of Manufacturers
e. Cumulative Regulatory Burden
3. National Impact Analysis
a. Significance of Energy Savings
b. Net Present Value of Consumer Costs and Benefits
c. Indirect Impacts on Employment
4. Impact on Utility or Performance of Products
5. Impact of Any Lessening of Competition
6. Need of the Nation To Conserve Energy
7. Other Factors
8. Summary of National Economic Impacts
C. Conclusion
1. Benefits and Burdens of TSLs Considered for Room AC Standards
2. Annualized Benefits and Costs of the Proposed Standards
VI. Cooling Capacity Verification
VII. Procedural Issues and Regulatory Review
A. Review Under Executive Orders 12866 and 13563
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
VIII. Public Participation
A. Attendance at the Webinar
B. Procedure for Submitting Prepared General Statements for
Distribution
C. Conduct of the Public Meeting
D. Submission of Comments
E. Issues on Which DOE Seeks Comment
IX. Approval of the Office of the Secretary

I. Synopsis of the Proposed Rule

Title III, Part B \1\ of EPCA,\2\ established the Energy
Conservation Program for Consumer Products Other Than Automobiles. (42
U.S.C. 6291-6309) These products include room air conditioners (``room
ACs''), the subject of this proposed rulemaking.
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\1\ For editorial reasons, upon codification in the U.S. Code,
Part B was redesignated Part A.
\2\ All references to EPCA in this document refer to the statute
as amended through the Infrastructure Investment and Jobs Act,
Public Law 117-58 (Nov. 15, 2021).
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Pursuant to EPCA, any new or amended energy conservation standard
must be designed to achieve the maximum improvement in energy
efficiency that DOE determines is technologically feasible and
economically justified. (42 U.S.C. 6295(o)(2)(A)) Furthermore, the new
or amended standard must result in a significant conservation of
energy. (42 U.S.C. 6295(o)(3)(B)) EPCA also provides that not later
than 6 years after issuance of any final rule establishing or amending
a standard, DOE must publish either a notice of determination that
standards for the product do not need to be amended, or a notice of
proposed rulemaking including new proposed energy conservation
standards (proceeding to a final rule, as appropriate). (42 U.S.C.
6295(m))
In accordance with these and other statutory provisions discussed
in this document, DOE proposes amended energy conservation standards
for room ACs. The proposed standards, which are expressed in the amount
of cooling provided per amount of energy consumed, measured in British
thermal units per watt-hour (Btu/Wh) are shown in Table I.1. These
proposed standards, if adopted, would apply to all room ACs listed in
Table I.1 manufactured in, or imported into, the United States starting
on the date 3 years after the publication of the final rule for this
proposed rulemaking.
BILLING CODE 6450-01-P

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A. Benefits and Costs to Consumers

Table I.2 presents DOE's evaluation of the economic impacts of the
proposed standards on consumers of room ACs, as measured by the average
life-cycle cost (``LCC'') savings and the simple payback period
(``PBP'').\3\ The average LCC savings are positive for all product
classes, and the PBP is less than the average lifetime of a room AC,
which is estimated to be 9 years (see section IV.F.6 of this document).
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\3\ The average LCC savings refer to consumers that are affected
by a standard and are measured relative to the efficiency
distribution in the no-new-standards case, which depicts the market
in the compliance year in the absence of new or amended standards
(see section IV.F.8 of this document). The simple PBP, which is
designed to compare specific efficiency levels, is measured relative
to the baseline product (see section IV.F.9 of this document).

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[GRAPHIC] [TIFF OMITTED] TP07AP22.012

BILLING CODE 6450-01-C
DOE's analysis of the impacts of the proposed 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 (2021-2055). Using a real discount rate of
7.2 percent, DOE estimates that the INPV for manufacturers of room ACs
in the case without amended standards is $1.08 billion in 2020$. Under
the proposed standards, the change in INPV is estimated to range from -
6.0 percent to 7.8 percent, which is approximately -$64.5 million to
$84.1 million. In order to bring products into compliance with amended
standards, DOE estimated that the industry would incur total conversion
costs of $22.8 million.
DOE's analysis of the impacts of the proposed 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 4
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\4\ All monetary values in this document are expressed in 2020
dollars.
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DOE's analyses indicate that the proposed energy conservation
standards for room ACs would save a significant amount of energy.
Relative to the case without amended standards, the lifetime energy
savings for room ACs purchased in the 30-year period that begins in the
anticipated year of compliance with the amended standards (2026-2055)
amount to 1.40 quadrillion British thermal units (``Btu''), or
quads.\5\ This represents a savings of 12 percent relative to the
energy use of these products in the case without amended standards
(referred to as the ``no-new-standards case'').
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\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.
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The cumulative net present value (``NPV'') of total consumer
benefits of the proposed standards for room ACs are $4.83 billion (at a
7-percent discount rate) and $10.56 billion (at a 3-percent discount
rate). This NPV expresses the estimated total value of future
operating-cost savings minus the estimated increased product costs for
room ACs purchased in 2026-2055.
In addition, the proposed standards for room ACs are projected to
yield significant environmental benefits. DOE estimates that the
proposed standards would result in cumulative emission reductions (over
the same period as for energy savings) of 49.5 million metric tons
(``Mt'') \6\ of carbon dioxide (``CO<INF>2</INF>''), 19.1 thousand tons
of sulfur dioxide (``SO<INF>2</INF>''), 69.4 thousand tons of nitrogen
oxides (``NO<INF>X</INF>''), 339.3 thousand tons of methane
(``CH<INF>4</INF>''), 0.5 thousand tons of nitrous oxide
(``N<INF>2</INF>O''), and 0.1 tons of mercury (``Hg'').\7\
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\6\ A metric ton is equivalent to 1.1 short tons. Results for
emissions other than CO<INF>2</INF> 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 2021 (``AEO 2021''). AEO 2021 represents current Federal and
State legislation and final implementation of regulations as of the
time of its preparation. See section IV.K of this document for
further discussion of AEO 2021 assumptions that effect air pollutant
emissions.
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DOE estimates the value of climate benefits from a reduction in
greenhouse gases using four different estimates of the social cost of
CO<INF>2</INF> (``SC-CO<INF>2</INF>''), the social cost of methane
(``SC-CH<INF>4</INF>''), and the social cost of nitrous oxide (``SC-
N<INF>2</INF>O''). Together these represent the

[[Page 20612]]

social cost of greenhouse gases (``SC-GHG''). DOE used interim SC-GHG
values developed by an Interagency Working Group on the Social Cost of
Greenhouse Gases (``IWG'').\8\ The derivation of these values is
discussed in section IV.L of this document. For presentational
purposes, the climate benefits associated with the average SC-GHG at a
3-percent discount rate is $2.39 billion. DOE does not have a single
central SC-GHG point estimate and it emphasizes the importance and
value of considering the benefits calculated using all four SC-GHG
estimates.
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\8\ See Interagency Working Group on Social Cost of Greenhouse
Gases, Technical Support Document: Social Cost of Carbon, Methane,
and Nitrous Oxide. Interim Estimates Under Executive Order 13990,
Washington, DC, February 2021, available at <a href="http://www.whitehouse.gov/wp-content/uploads/2021/02/TechnicalSupportDocument_SocialCostofCarbonMethaneNitrousOxide.pdf?source=email">www.whitehouse.gov/wp-content/uploads/2021/02/TechnicalSupportDocument_SocialCostofCarbonMethaneNitrousOxide.pdf?source=email</a>.
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DOE also estimates health benefits from SO<INF>2</INF> and
NO<INF>X</INF> emissions reductions.\9\ DOE estimates the present value
of the health benefits would be $1.82 billion using a 7-percent
discount rate, and $4.14 billion using a 3-percent discount rate.\10\
DOE is currently only monetizing (for SO<INF>2</INF> and
NO<INF>X</INF>) PM<INF>2.5</INF> precursor health benefits and (for
NO<INF>X</INF>) ozone precursor health benefits, but will continue to
assess the ability to monetize other effects such as health benefits
from reductions in direct PM<INF>2.5</INF> emissions.\11\
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\9\ DOE estimated the monetized value of NO<INF>X</INF> and
SO<INF>2</INF> emissions reductions associated with electricity
savings using benefit per ton estimates from the scientific
literature. See section IV.L.2 of this document for further
discussion.
\10\ DOE estimates the economic value of these emissions
reductions resulting from the considered TSLs for the purpose of
complying with the requirements of Executive Order 12866.
\11\ On March 16, 2022, the Fifth Circuit Court of Appeals (No.
22-30087) granted the federal government's emergency motion for stay
pending appeal of the February 11, 2022, preliminary injunction
issued in Louisiana v. Biden, No. 21-cv-1074-JDC-KK (W.D. La.). As a
result of the Fifth Circuit's order, the preliminary injunction is
no longer in effect, pending resolution of the federal government's
appeal of that injunction or a further court order. Among other
things, the preliminary injunction enjoined the defendants in that
case from ``adopting, employing, treating as binding, or relying
upon'' the interim estimates of the social cost of greenhouse
gases--which were issued by the Interagency Working Group on the
Social Cost of Greenhouse Gases on February 26, 2021--to monetize
the benefits of reducing greenhouse gas emissions. In the absence of
further intervening court orders, DOE will revert to its approach
prior to the injunction and present monetized benefits where
appropriate and permissible under law.
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Table I.3 summarizes the economic benefits and costs expected to
result from the proposed standards for room ACs. In the table, total
benefits for both the 3-percent and 7-percent cases are presented using
the average GHG social costs with 3-percent discount rate. DOE does not
have a single central SC-GHG point estimate and it emphasizes the
importance and value of considering the benefits calculated using all
four SC-GHG estimates. The estimated total net benefits using each of
the four SC-GHG estimates are presented in section V.B.8 of this
document.
BILLING CODE 6540-01-P

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The benefits and costs of the proposed standards, for room ACs sold
in 2026-2055, 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 the
benefits of GHG, NO<INF>X,</INF> and SO<INF>2</INF> emission
reductions, all annualized.\12\
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\12\ To convert the time-series of costs and benefits into
annualized values, DOE calculated a present value in 2021, the year
used for discounting the NPV of total consumer costs and savings.
For the benefits, DOE calculated a present value associated with
each year's shipments in the year in which the shipments occur
(e.g., 2030), and then discounted the present value from each year
to 2021. The calculation uses discount rates of 3 and 7 percent for
all costs and benefits. 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.
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The national operating 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 room ACs shipped in 2026-
2055. The climate benefits associated with reduced GHG emissions
achieved as a result of the proposed standards are also calculated
based on the lifetime of room ACs shipped in 2026-2055.
Estimates of annualized benefits and costs of the proposed
standards are shown in Table I.4 of this document. 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 SO<INF>2</INF> and NO<INF>X</INF>
emissions, and the 3-percent discount rate case for climate benefits
from reduced GHG emissions, the estimated cost of the standards
proposed in this rule is $216.9 million per year in increased equipment
costs, while the estimated annual benefits are $727.5 million in
reduced equipment operating costs, $137.5 million in climate benefits,
$192.1 million in health benefits. In this case, the net benefit would
amount to $840.2 million per year.
Using a 3-percent discount rate for all benefits and costs, the
estimated cost of the proposed standards is $190.1 million per year in
increased equipment costs, while the estimated annual benefits are
$796.7 million in reduced operating costs, $137.5 million in climate
benefits, and $237.9 million in health benefits. In this case, the net
benefit would amount to $982.0 million per year.

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BILLING CODE 6450-01-C

[[Page 20616]]

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

D. Conclusion

DOE has tentatively concluded that the proposed standards represent
the maximum improvement in energy efficiency that is technologically
feasible and economically justified, and would result in the
significant conservation of energy. Based on the analyses described
previously, DOE has tentatively concluded that the benefits of the
proposed standards to the Nation (energy savings, positive NPV of
consumer benefits, consumer LCC savings, and emission reductions) would
outweigh the burdens (loss of INPV for manufacturers and LCC increases
for some consumers).
DOE also considered more-stringent energy efficiency levels as
potential standards, and is still considering them in this rulemaking.
However, DOE has tentatively concluded that the potential burdens of
the more-stringent energy efficiency levels would outweigh the
projected benefits.
Based on consideration of the public comments DOE receives in
response to this document and related information collected and
analyzed during the course of this rulemaking effort, DOE may adopt
energy efficiency levels presented in this document that are either
higher or lower than the proposed standards, or some combination of
level(s) that incorporate the proposed standards in part.

II. Introduction

The following section briefly discusses the statutory authority
underlying this proposed rule, as well as some of the relevant
historical background related to the establishment of standards for
room ACs.

A. Authority

EPCA authorizes DOE to regulate the energy efficiency of a number
of consumer products and certain industrial equipment. Title III, Part
B of EPCA established the Energy Conservation Program for Consumer
Products Other Than Automobiles. These products include room ACs, the
subject of this document. (42 U.S.C. 6292(a)(2)) EPCA prescribed energy
conservation standards for these products (42 U.S.C. 6295(c)(1)), and
directs DOE to conduct future rulemakings to determine whether to amend
these standards. (42 U.S.C. 6295(c)(2)) EPCA further provides that, not
later than 6 years after the issuance of any final rule establishing or
amending a standard, DOE must publish either a notice of determination
that standards for the product do not need to be amended, or a NOPR
including new proposed energy conservation standards (proceeding to a
final rule, as appropriate). (42 U.S.C. 6295(m)(1))
The energy conservation program under EPCA consists essentially of
four parts: (1) Testing, (2) labeling, (3) the establishment of Federal
energy conservation standards, and (4) certification and enforcement
procedures. Relevant provisions of 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 for particular State laws or regulations, in accordance with
the procedures and other provisions set forth under EPCA. (See 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 products comply with the applicable energy
conservation standards adopted under EPCA and when making
representations to the public regarding the energy use or efficiency of
those products. (42 U.S.C. 6293(c) and 42 U.S.C. 6295(s)) Similarly,
DOE must use these test procedures to determine whether the products
comply with standards adopted pursuant to EPCA. (42 U.S.C. 6295(s)) The
DOE test procedures for room ACs appear at title 10 of the Code of
Federal Regulations (``CFR'') part 430, subpart B, appendix F.
DOE must follow specific statutory criteria for prescribing new or
amended standards for covered products, including room ACs. 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))
Moreover, DOE may not prescribe a standard: (1) For certain
products, including room ACs, if no test procedure has been established
for the product, or (2) if DOE determines by rule that the standard is
not technologically feasible or economically justified. (42 U.S.C.
6295(o)(3)(A)-(B)) In deciding whether a proposed standard is
economically justified, DOE must determine whether the benefits of the
standard exceed its burdens. (42 U.S.C. 6295(o)(2)(B)(i)) DOE must make
this determination after receiving comments on the proposed standard,
and by considering, to the greatest extent practicable, the following
seven statutory factors:

(1) The economic impact of the standard on manufacturers and
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 establishes a rebuttable presumption that a standard
is economically justified if the Secretary finds that the additional
cost to the consumer of purchasing a product complying with an energy
conservation standard level will be less than three times the value of
the energy savings during the first year that the consumer will receive
as a result of the standard, as calculated under the applicable test
procedure. (42 U.S.C. 6295(o)(2)(B)(iii))
EPCA also contains what is known as an ``anti-backsliding''
provision, which prevents the Secretary from prescribing any amended
standard that either increases the maximum allowable energy use or
decreases the minimum required energy efficiency of a covered product.
(42 U.S.C. 6295(o)(1)) Also, the Secretary may not prescribe an amended
or new standard if interested persons

[[Page 20617]]

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. DOE must specify a different standard level for a type
or class of product that has the same function or intended use, if DOE
determines that products within such group: (A) Consume a different
kind of energy from that consumed by other covered products within such
type (or class); or (B) have a capacity or other performance-related
feature which other products within such type (or class) do not have
and such feature justifies a higher or lower standard. (42 U.S.C.
6295(q)(1)) In determining whether a performance-related feature
justifies a different standard for a group of products, DOE must
consider such factors as the utility to the consumer of the 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 contained in the Energy
Independence and Security Act of 2007 (``EISA 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's current test procedures for room ACs address
standby mode and off mode energy use. In this rulemaking, DOE intends
to incorporate such energy use into any amended energy conservation
standards that it may adopt.

B. Background

1. Current Standards
In a direct final rule published on April 21, 2011 (``April 2011
Direct Final Rule''), DOE prescribed the current energy conservation
standards for room ACs. 76 FR 22454. These standards are set forth in
DOE's regulations at 10 CFR 430.32(b) and are repeated in Table II.1
where CEER stands for ``Combined Energy Efficiency Rating.''
[GRAPHIC] [TIFF OMITTED] TP07AP22.015

2. History of Standards Rulemaking for Room ACs
EPCA prescribed initial energy conservation standards for room ACs
and further directed DOE to conduct two cycles of rulemakings to
determine whether to amend these standards. (42 U.S.C. 6295(c)(1)-(2))
DOE completed the first of these rulemaking cycles on September 24,
1997, by adopting amended performance standards for room ACs
manufactured on or after October 1, 2000. 62 FR 50122. Additionally,
DOE completed a second rulemaking cycle to amend the standards for room
ACs by issuing the April 2011 Direct Final Rule, in which DOE
prescribed the current energy conservation standards for room ACs
manufactured on or after April 21, 2014. 76 FR 22454 (April 21, 2011).
DOE subsequently published a final rule amending the compliance date
for the

[[Page 20618]]

current room AC standards to June 1, 2014. 76 FR 52852 (Aug. 24, 2011).
In a separate notice, also published on August 24, 2011, DOE confirmed
the adoption of these energy conservation standards in a notice of
effective date and compliance dates for the April 2011 Direct Final
Rule. 76 FR 52854.
As part of the current analysis, on June 18, 2015, DOE prepared a
Request for Information (``June 2015 RFI''), which solicited
information from the public to help DOE determine whether amended
standards for room ACs would result in a significant amount of
additional energy savings and whether those standards would be
technologically feasible and economically justified.\13\ 80 FR 34843.
---------------------------------------------------------------------------

\13\ Pursuant to amendments to appendix A to 10 CFR part 430,
subpart C (``Appendix A'') DOE generally will issue an early
assessment request for information announcing that DOE is
considering initiating a rulemaking proceeding. Section 6(a)(1) of
Appendix A; see also 85 FR 8626, 8637 (Feb. 14, 2020) and 86 FR
70892 (December 13, 2021). Section 6(a)(2) of Appendix A provides
that if the DOE determines it is appropriate to proceed with a
rulemaking, the preliminary stages of a rulemaking to issue or amend
an energy conservation standard that DOE will undertake will be a
Framework Document and Preliminary Analysis, or an Advance Notice of
Proposed Rulemaking. Because this proposed rulemaking was already in
progress at the time the relevant amendments to the Process Rule
were published, DOE did not reinitiate the entire rulemaking
process. Additionally, the June 2015 RFI presented the issues,
analyses, and processes relevant to consideration of amended
standards for room ACs.
---------------------------------------------------------------------------

Comments received following the publication of the June 2015 RFI
helped DOE identify and resolve issues related to the subsequent
preliminary analysis.\14\ DOE published a notice of public meeting and
availability of the preliminary technical support document (``TSD'') on
June 17, 2020 (``June 2020 Preliminary Analysis''). 85 FR 36512.
---------------------------------------------------------------------------

\14\ Comments are available at <a href="http://www.regulations.gov/document/EERE-2014-BT-STD-0059-0001/comment">www.regulations.gov/document/EERE-2014-BT-STD-0059-0001/comment</a>.
---------------------------------------------------------------------------

DOE subsequently held a public meeting on August 5, 2020, to
discuss and receive comments on the preliminary TSD. The preliminary
TSD that presented the methodology and results of the preliminary
analysis is available at: <a href="http://www.regulations.gov/document/EERE-2014-BT-STD-0059-0013">www.regulations.gov/document/EERE-2014-BT-STD-0059-0013</a>.
DOE received comments in response to the June 2020 Preliminary
Analysis from the interested parties listed in Table II.2.
[GRAPHIC] [TIFF OMITTED] TP07AP22.016

A parenthetical reference at the end of a comment quotation or
paraphrase provides the location of the item in the public record.\15\
---------------------------------------------------------------------------

\15\ The parenthetical reference provides a reference for
information located in the docket of DOE's rulemaking to develop
energy conservation standards for room ACs. (Docket No. EERE-2014-
BT-STD-0059, which is maintained at <a href="http://www.regulations.gov/docket?D=EERE-2014-BT-STD-0059">www.regulations.gov/docket?D=EERE-2014-BT-STD-0059</a>). The references are arranged as
follows: (commenter name, comment docket ID number, page of that
document).
---------------------------------------------------------------------------

C. Deviation From Appendix A

In accordance with section 3(a) of 10 CFR part 430, subpart C,
appendix A (``appendix A''), DOE notes that it is deviating from the
provision in appendix A regarding the pre-NOPR stages for an energy
conservation standards rulemaking. Section 6(d)(2) of appendix A
specifies that the length of the public comment period for a NOPR will
vary depending upon the circumstances of the particular rulemaking, but
will not be less than 75 calendar days. For this NOPR, DOE has opted to
instead provide a 60-day comment period. As stated, DOE requested
comment in the June 2015 RFI on the technical and economic analyses and
provided stakeholders a 76-day comment period. 80 FR 34843, 80 FR
44301. Additionally, DOE provided a 74-day comment period for the June
2020 preliminary analysis. 85 FR 36512, 85 FR 52280. DOE has relied on
many of the same analytical assumptions and approaches as used in the
preliminary assessment and has determined that a 60-day comment period,
in conjunction

[[Page 20619]]

with the prior comment periods, provides sufficient time for interested
parties to review the proposed rule and develop comments.

III. General Discussion

DOE developed this proposal after considering oral and written
comments, data, and information from interested parties that represent
a variety of interests. The following discussion addresses issues
raised by these commenters.

A. Product Classes and Scope of Coverage

When evaluating and establishing energy conservation standards, DOE
divides covered products into product classes by the type of energy
used or by capacity or other performance-related features that justify
differing standards. In making a determination whether a performance-
related feature justifies a different standard, DOE must consider such
factors as the utility of the feature to the consumer and other factors
DOE determines are appropriate. (42 U.S.C. 6295(q)) DOE's preliminary
analysis indicated that the current room AC product classes are still
appropriate.

B. Test Procedure

EPCA sets forth generally applicable criteria and procedures for
DOE's adoption and amendment of test procedures. (42 U.S.C. 6293)
Manufacturers of covered products must use these test procedures to
certify to DOE that their product complies with energy conservation
standards and to quantify the efficiency of their product. In addition,
consistent with section 8(d)(1)(i) of appendix A, DOE will finalize
amended test procedures that impact measured energy use or efficiency
at least 180 days prior to the close of the comment period for a NOPR
proposing new or amended energy conservation standards. DOE published a
test procedure final rule on March 29, 2021, retaining the CEER metric
used to express DOE's current energy conservation standards for room
ACs in Btu/Wh. 86 FR 16446. DOE's test procedures for room ACs appear
at appendix F to 10 CFR part 430, subpart B.

C. Technological Feasibility

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

D. Energy Savings

For each trial standard level (``TSL''), DOE projected energy
savings from application of the TSL to room ACs purchased in the 30-
year period that begins in the year of compliance with the proposed
standards (2026-2055).\16\ The savings are measured over the entire
lifetime of a room AC purchased in the previous 30-year 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.
---------------------------------------------------------------------------

\16\ Each TSL is composed of specific efficiency levels for each
product class. The TSLs considered for this NOPR are described in
section V.A of this document. DOE conducted a sensitivity analysis
that considers impacts for products shipped in a 9-year period.
---------------------------------------------------------------------------

DOE used its national impact analysis (``NIA'') spreadsheet model
to estimate national energy savings (``NES'') from potential amended or
new standards for room ACs. The NIA spreadsheet model (described in
section IV.H of this document) calculates energy savings in terms of
site energy, which is the energy directly consumed by products at the
locations where they are used. For electricity, DOE reports national
energy savings in terms of primary energy savings, which is the savings
in the energy that is used to generate and transmit the site
electricity. DOE also calculates NES in terms of full-fuel cycle
(``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.\17\ 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.
---------------------------------------------------------------------------

\17\ 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).
---------------------------------------------------------------------------

1. 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)) Although the term ``significant'' is
not defined in the EPCA, the U.S. Court of Appeals, for the District of
Columbia Circuit in Natural Resources Defense Council v. Herrington,
768 F.2d 1355, 1373 (D.C. Cir. 1985), opined that Congress intended
``significant'' energy savings in the context of EPCA to be savings
that were not ``genuinely trivial.''
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

[[Page 20620]]

given rulemaking.\18\ For example, the United States recently rejoined
the Paris Agreement and will exert leadership in confronting the
climate crisis. These actions have placed an increased emphasis on the
importance of energy savings that reduce greenhouse gas emissions and
help mitigate the climate crisis. Additionally, some covered products
and equipment, particularly those providing space cooling, such as room
ACs, are likely to consume significant energy during periods of peak
energy demand. The impacts of these products on the energy
infrastructure can be more pronounced than products with relatively
constant demand. Lastly, in evaluating the significance of energy
savings, DOE considers differences in primary energy and FFC effects
for different covered products and equipment when determining whether
energy savings are significant. Primary energy and FFC effects include
the energy consumed in electricity production (depending on load
shape), in distribution and transmission, and in extracting,
processing, and transporting primary fuels (i.e., coal, natural gas,
petroleum fuels), and thus present a more complete picture of the
impacts of energy conservation standards.
---------------------------------------------------------------------------

\18\ 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).
---------------------------------------------------------------------------

Accordingly, DOE is evaluating the significance of energy savings
on a case-by-case basis. DOE has initially determined the energy
savings for the TSL proposed in this rulemaking are nontrivial, and,
therefore, DOE considers them ``significant'' within the meaning of 42
U.S.C. 6295(o)(3)(B).

E. 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 proposed rulemaking.
a. Economic Impact on Manufacturers and Consumers
In determining the impacts of a potential amended standard on
manufacturers, DOE conducts an MIA, as discussed in section IV.J of
this document. DOE first uses an annual cash-flow approach to determine
the quantitative impacts. This step includes both a short-term
assessment--based on the cost and capital requirements during the
period between when a regulation is issued and when entities must
comply with the regulation--and a long-term assessment over a 30-year
period. The industry-wide impacts analyzed include (1) INPV, which
values the industry on the basis of expected future cash flows, (2)
cash flows by year, (3) changes in revenue and income, and (4) other
measures of impact, as appropriate. Second, DOE analyzes and reports
the impacts on different types of manufacturers, including impacts on
small manufacturers. Third, DOE considers the impact of standards on
domestic manufacturer employment and manufacturing capacity, as well as
the potential for standards to result in plant closures and loss of
capital investment. Finally, DOE takes into account cumulative impacts
of various DOE regulations and other product-specific regulatory
requirements on manufacturers.
For individual consumers, measures of economic impact include the
changes in LCC and PBP associated with new or amended standards. These
measures are discussed further in the following section. For consumers
in the aggregate, DOE also calculates the national net present value of
the consumer costs and benefits expected to result from particular
standards. DOE also evaluates the 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 expense (including energy,
maintenance, and repair expenditures) discounted over the lifetime of
the product. The LCC analysis requires a variety of inputs, such as
product prices, product energy consumption, energy prices, maintenance
and repair costs, product lifetime, and discount rates appropriate for
consumers. To account for uncertainty and variability in specific
inputs, such as product lifetime and discount rate, DOE uses a
distribution of values, with probabilities attached to each value.
The PBP is the estimated amount of time (in years) it takes
consumers to recover the increased purchase cost (including
installation) of a more-efficient product through lower operating
costs. DOE calculates the PBP by dividing the change in purchase cost
due to a more-stringent standard by the change in annual operating cost
for the year that standards are assumed to take effect.
For its LCC and PBP analysis, DOE assumes that consumers will
purchase the covered products in the first year of compliance with new
or amended standards. The LCC savings for the considered efficiency
levels are calculated relative to the case that reflects projected
market trends in the absence of new or amended standards. DOE's LCC and
PBP analysis is discussed in further detail in section IV.F of this
document.
c. Energy Savings
Although significant conservation of energy is a separate statutory
requirement for adopting an energy conservation standard, EPCA requires
DOE, in determining the economic justification of a standard, to
consider the total projected energy savings that are expected to result
directly from the standard. (42 U.S.C. 6295(o)(2)(B)(i)(III)) As
discussed in section III.D of this document, DOE uses the NIA
spreadsheet models to project national energy savings.
d. Lessening of Utility or Performance of Products
In establishing product classes and in evaluating design options
and the impact of potential standard levels, DOE evaluates potential
standards that would not lessen the utility or performance of the
considered products. (42 U.S.C. 6295(o)(2)(B)(i)(IV)) Based on data
available to DOE, the standards proposed in this document would not
reduce the utility or performance of the products under consideration
in this rulemaking.
e. Impact of Any Lessening of Competition
EPCA directs DOE to consider the impact of any lessening of
competition, as determined in writing by the Attorney General, that is
likely to result from a proposed 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 proposed standard and to transmit such determination to the
Secretary within 60

[[Page 20621]]

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))
DOE will transmit a copy of this proposed rule to the Attorney General
with a request that the Department of Justice (``DOJ'') provide its
determination on this issue. DOE will publish and respond to the
Attorney General's determination in the final rule. DOE invites comment
from the public regarding the competitive impacts that are likely to
result from this proposed rule. In addition, stakeholders may also
provide comments separately to DOJ regarding these potential impacts.
See the ADDRESSES section for information to send comments to DOJ.
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 proposed 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 proposed standards are likely to result in
environmental benefits in the form of reduced emissions of air
pollutants and greenhouse gases (``GHGs'') associated with energy
production and use. As part of the analysis of the need for national
energy and water conservation, 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.
g. Other Factors
In determining whether an energy conservation standard is
economically justified, DOE may consider other factors that the
Secretary deems to be relevant. (42 U.S.C. 6295(o)(2)(B)(i)(VII)) To
the extent DOE identifies any relevant information regarding economic
justification that does not fit into the other categories described
previously, DOE could consider such information under ``other
factors.''
2. Rebuttable Presumption
As set forth in 42 U.S.C. 6295(o)(2)(B)(iii), EPCA creates a
rebuttable presumption that an energy conservation standard is
economically justified if the additional cost to the consumer of a
product that meets the standard is less than three times the value of
the first year's energy savings resulting from the standard, as
calculated under the applicable DOE test procedure. DOE's LCC and PBP
analyses generate values used to calculate the effects that proposed
energy conservation standards would have on the payback period for
consumers. These analyses include, but are not limited to, the 3-year
payback period contemplated under the rebuttable-presumption test. In
addition, DOE routinely conducts an economic analysis that considers
the full range of impacts to consumers, manufacturers, the Nation, and
the environment, as required under 42 U.S.C. 6295(o)(2)(B)(i). The
results of this analysis serve as the basis for DOE's evaluation of the
economic justification for a potential standard level (thereby
supporting or rebutting the results of any preliminary determination of
economic justification). The rebuttable presumption payback calculation
is discussed in section IV.F.9 of this document.

IV. Methodology and Discussion of Related Comments

This section addresses the analyses DOE has performed for this
proposed rulemaking with regard to room ACs. Separate subsections
address each component of DOE's analyses.
DOE used several analytical tools to estimate the impact of the
standards proposed 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 national impacts analysis uses a
second spreadsheet set that provides shipments projections and
calculates national energy savings and net present value of total
consumer costs and savings expected to result from potential energy
conservation standards. DOE uses the third spreadsheet tool, the
Government Regulatory Impact Model (``GRIM''), to assess manufacturer
impacts of potential standards. These three spreadsheet tools are
available on the DOE website for this proposed rulemaking:
<a href="http://www.regulations.gov/docket?D=EERE-2014-BT-STD-0059">www.regulations.gov/docket?D=EERE-2014-BT-STD-0059</a>. Additionally, DOE
used output from the latest version of the Energy Information
Administration's (``EIA's'') Annual Energy Outlook (``AEO''), a widely
known energy projection for the United States, 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 proposed 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 room ACs.
The key findings of DOE's market assessment are summarized in the
following sections. See chapter 3 of the NOPR TSD for further
discussion of the market and technology assessment.
1. Scope of Coverage and Product Classes
In the June 2020 Preliminary Analysis, DOE did not identify any
potential changes to the room AC scope of coverage or product classes.
85 FR 36512.
The Joint Commenters expressed concerns regarding DOE's current set
of room AC product classes. (Joint Commenters, No. 20 at p. 1 \19\) The
Joint Commenters disagreed with DOE's explanation that Product Classes
1 and 6 are necessary, despite having the same efficiency requirements
as Product Classes 2 and 7, respectively, to recognize the value to
certain consumer segments of a low-cost, low-cooling capacity room AC
in Product Classes 1 and 6. They did not object to maintaining these
product class distinctions based on cooling capacity, but suggested
that cost must not be a rationale for maintaining the

[[Page 20622]]

distinctions because cost is not a ``performance-related feature.'' Id.
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\19\ A notation in the form ``Joint Commenters, No. 20 at p. 1''
identifies a written comment: (1) Made by the Joint Commenters; (2)
recorded in document number 20 that is filed in the docket of this
energy conservation standards rulemaking (Docket No. EERE-2014-BT-
STD-0059) and available for review at <a href="http://www.regulations.gov">www.regulations.gov</a>; and (3)
which appears on page 1 of document number 20.
---------------------------------------------------------------------------

DOE understands the Joint Commenters' concerns about cost being a
rationale for distinguishing product classes. However, the cost is
substantively related to the performance-related features used to
distinguish between the product classes, namely product size and
weight. The NOPR analysis, based on models currently on the market,
identified different efficiency levels above the ENERGY STAR[supreg]
qualification levels for Product Classes 1 and 2, showing that these
product classes have performance-related distinctions between them.
While DOE is not proposing to combine product classes at this time,
DOE is proposing a clarifying modification to the cooling capacity
descriptors delineating the product classes, specifying that the
capacity used to determine the product class of a basic model is the
certified cooling capacity and expressing the capacity ranges to the
nearest hundred British thermal units per hour (``Btu/h'') in
accordance with the rounding instruction in 10 CFR 429.15(a)(3). For
example, Product Class 2 currently specifies it includes room ACs with
capacities ranging from 6,000 to 7,999 Btu/h; however, DOE recognizes
that based on the rounding instruction in 10 CFR 429.15(a)(3), the
upper range of this product class is, in practice, 7,900 Btu/h.
Accordingly, DOE proposes in this NOPR to revise the threshold values
of cooling capacity in the product class descriptions to the nearest
hundred Btu/h that would not exceed the existing thresholds. DOE
believes this slight modification that is being proposed for product
class delineation is what manufacturers are using today in practice due
to the rounding instruction at 10 CFR 429.15(a)(3) and will not impact
compliance with current energy conservation standards. DOE is simply
proposing to add clarity and consistency amongst two existing
regulatory provisions.
DOE requests comment on the proposal to make clarifying amendments
to the product class descriptions, but otherwise not make any changes
to room AC product classes.
For ease of reviewing this NOPR, DOE is presenting the results of
its analysis using the existing product class descriptions. The
proposed new labeling of the product class thresholds using the rounded
cooling capacity values are included in the proposed standards in Table
I.1 and Table V.58 of this document.
2. Technology Options
In the preliminary market analysis and technology assessment, DOE
identified 22 technology options that would likely improve the
efficiency of room ACs, as measured by the DOE test procedure:

[[Page 20623]]

[GRAPHIC] [TIFF OMITTED] TP07AP22.017

Several commenters provided feedback on some of these technology
options. These comments are summarized below, along with DOE's
responses.
a. Reduced Evaporator Air Recirculation
The Joint Commenters referenced a 2013 National Renewable Energy
Laboratory (``NREL'') study in which room AC performance was found to
degrade with evaporator air recirculation, with the cooling coefficient
of performance (``COP'') decreasing by 7 percent on
average.20 21 The Joint Commenters emphasized NREL's
conclusion that the room AC energy efficiency ratio (``EER'') could be
improved by at least 1 Btu/Wh using simple and low-cost methods such as
supplying air from the bottom rather than the top of the interior face,
or providing an attachment fin to separate supply and return airflows.
The Joint Commenters noted that DOE mentioned the results of this NREL
study in the preliminary TSD but did not consider reduced evaporator
air recirculation in the engineering analysis. Thus, given the large
potential energy savings, the Joint Commenters urged DOE to investigate
how to model the efficiency improvement associated with reduced
evaporator air recirculation. (Joint Commenters, No. 20 at p. 2)
---------------------------------------------------------------------------

\20\ As determined using experimental infrared camera imaging
techniques applied to units outside of controlled calorimeter
chamber conditions.
\21\ <a href="http://s3.amazonaws.com/szmanuals/f50601c1a4960b3d7627df44cc951d28">s3.amazonaws.com/szmanuals/f50601c1a4960b3d7627df44cc951d28</a>.
---------------------------------------------------------------------------

DOE is aware of, and has reviewed the 2013 NREL study cited by the
Joint Commenters, and notes that that study had a limited sample of
four room ACs from only two different manufacturers (Frigidaire and GE/
Haier), and found a wide range of COP degradation due to evaporator air
recirculation, from losses as low as 2 percent to as high as 19
percent. Without intensive airflow modeling of each unit analyzed in
the DOE teardown sample, more data on evaporator air recirculation in
the market as a whole, and test data from a unit incorporating the sort
of airflow changes suggested by NREL (DOE is not aware of such a unit
on the market), DOE is unable to properly assess the impacts, both
positive and negative of evaporator air recirculation reduction as a
technology. Therefore, DOE is not incorporating this technology into
its engineering analysis. DOE seeks

[[Page 20624]]

additional comment on whether evaporator air recirculation should be
included in the engineering analysis.
b. Compressors
AHAM and GEA stated that their data do not support DOE's
assumptions regarding the efficiency of single-speed compressors.
(AHAM, No. 19 at p. 12; GEA, No. 26 at pp. 1-2)
Feedback given to DOE by manufacturers during interviews supported
the commenters' assertion that the efficiency of the most efficient
single-speed compressor available was overestimated in the June 2020
Preliminary Analysis. Upon further analysis, DOE has reduced its
estimate for the efficiency of the most efficient single-speed R-410a
compressor available, from 13.1 to 10.9 Btu/Wh, based on a
comprehensive survey of compressor catalogues and information provided
by manufacturers, as discussed further in chapter 3 of the NOPR TSD.
However, as discussed below, DOE also implemented a changeover from R-
410A to R-32 refrigerant, resulting in the most efficient available
single-speed compressor being 12.7 Btu/Wh. DOE requests comment on the
updated single-speed compressor maximum efficiency estimates.
c. Significant New Alternatives Policy (SNAP)--Approved Refrigerants
In the June 2020 Preliminary Analysis, DOE discussed the potential
for alternative refrigerants, restricted to the Significant New
Alternatives Policy (``SNAP'')--approved refrigerants (i.e., R-32, R-
441A, R-290),\22\ but decided to forgo implementing them in the
engineering analysis because they either did not significantly improve
unit efficiency or DOE lacked sufficient technical and economic data to
assess the costs and benefits of a changeover. AHAM, the California
IOUs, Joint Commenters, and NEEA disagreed with DOE's decision not to
consider these alternative refrigerants in the engineering analysis.
They stated that alternative refrigerants are already in use for some
product classes to meet current energy conservation standards
(baseline) and ENERGY STAR (Efficiency Level (``EL 2'')) levels. (AHAM,
No. 19 at pp. 10-11; California IOUs, No. 23 at p. 3; Joint Commenters,
No. 20 at p. 2; NEEA, No. 24 at pp. 4-5; NEEA, Public Meeting
Transcript, No. 18 at pp. 59-60) \23\ AHAM emphasized the significant
costs associated with changing refrigerant type. (AHAM, No. 19 at pp.
10-11) The California IOUs, Joint Commenters, and NEEA specifically
noted that room ACs using R-32 are now widely available in the United
States, suggesting that the use of alternative refrigerants is not cost
prohibitive to manufacturers, as DOE stated in the preliminary TSD.
NEEA stated that manufacturers using R-32 in air conditioning systems
have generally found energy savings ranging from 8 to 11 percent. AHAM,
the California IOUs, and NEEA noted that there is currently a proposed
rule from the California Air Resource Board (``CARB'') that would ban
all refrigerants with global warming potential (``GWP'') equal to or
greater than 750 in new residential and commercial AC systems beginning
in 2023 and would likely push additional manufacturers to explore
alternative refrigerants.\24\ (AHAM, No. 19 at pp. 10-11; California
IOUs, No. 23 at p. 3; Joint Commenters, No. 20 at p. 2; NEEA, No. 24 at
pp. 4-5; NEEA, Public Meeting Transcript, No. 18 at pp. 59-60) The
Joint Commenters referenced a study performed by the Oak Ridge National
Laboratory (``ORNL'') in which ORNL developed a high-efficiency room AC
to determine the viability of a window AC unit with an EER over 13.0
Btu/Wh and found that using a ``drop-in'' 85-percent R-32 mixture as
the refrigerant in place of R-410A boosted efficiency by about 3
percent and, thus, that pure R-32 would offer an additional efficiency
gain. The Joint Commenters referenced another ORNL study in which a
room AC unit was modified to use propane (R-290) and demonstrated an
increase in EER of 17 percent. The Joint Commenters also stated that,
while any cost impacts to consumers and/or manufacturers should be
considered as part of the economic analysis, cost cannot be a
consideration in determining what is technologically feasible. (Joint
Commenters, No. 20 at p. 2) Thus, AHAM, the California IOUs, Joint
Commenters, and NEEA urged DOE to further investigate alternative
refrigerants as a technology option. (AHAM, No. 19 at pp. 10-11;
California IOUs, No. 23 at p. 3; Joint Commenters, No. 20 at p. 2;
NEEA, No. 24 at pp. 4-5) NEEA specifically urged DOE to consider R-32.
(NEEA, No. 24 at pp. 4-5) The California IOUs encouraged DOE to work
closely with CARB, the American Society of Heating, Refrigerating and
Air-Conditioning Engineers (``ASHRAE'') Standing Standard Project
Committee 15--Safety Standard for Refrigeration Systems, and the Air-
Conditioning, Heating, and Refrigeration Institute (``AHRI'') Low-GWP
Alternative Refrigeration Evaluation Program to address in this
rulemaking the efficiency benefits from using low-GWP refrigerants in
room ACs. (California IOUs, No. 23 at p. 3)
---------------------------------------------------------------------------

\22\ For the latest information on EPA SNAP regulations, visit:
<a href="http://www.epa.gov/snap/snap-regulations">www.epa.gov/snap/snap-regulations</a>.
\23\ A notation in the form ``NEEA, Public Meeting Transcript,
No. 18 at pp. 59-60'' identifies an oral comment that DOE received
on August 25, 2020 during the public meeting, and was recorded in
the public meeting transcript in the docket for this energy
conservation standards rulemaking (Docket No. EERE-2014-BT-STD-
0059). This particular notation refers to a comment (1) made by the
Northwest Energy Efficiency Alliance during the public meeting; (2)
recorded in document number 18, which is the public meeting
transcript that is filed in the docket of this energy conservation
standards rulemaking; and (3) which appears on pages 59 through 60
of document number 18.
\24\ See <a href="https://ww2.arb.ca.gov/rulemaking/2020/hfc2020">https://ww2.arb.ca.gov/rulemaking/2020/hfc2020</a> for more
information on the CARB refrigerant rulemaking.
---------------------------------------------------------------------------

DOE is aware that R-32 refrigerant is currently in use in the room
AC market and that adoption of the refrigerant in room ACs is
increasing, in part due to the CARB regulation regarding low-GWP
refrigerants. R-32 has a GWP of 675, just under a third of the GWP of
R-410a, which is 2,090. However, the research findings on efficiency
impacts due to the transition from R-410A to R-32 are inconsistent,
ranging from a 2-percent decrease in efficiency to the 8- to 11-percent
increase cited by NEEA. Due to these inconsistent data, DOE did not
consider efficiency gains due to R-32 implementation alone. However, as
discussed previously, DOE found that the most efficient single-speed
compressors available on the market use R-32 refrigerant, so DOE did
incorporate a changeover to R-32 in the engineering analysis to capture
the compressor efficiency gains that are technologically feasible by
implementing improved-efficiency single-speed compressors (which use R-
32 refrigerant) in place of existing baseline-efficiency single-speed
compressors (which use R-410A refrigerant). DOE requests comment on the
approach to addressing alternative refrigerants in this engineering
analysis.

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 working prototypes will not
be considered further.
(2) Practicability to manufacture, install, and service. If it is
determined that mass production and reliable installation and servicing
of a technology in commercial products could not be achieved on the
scale

[[Page 20625]]

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 or product availability. If it is
determined that a technology would have significant adverse impact on
the utility of the product to significant subgroups of consumers or
would 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) Adverse impacts on health or safety. 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 design option
utilizes proprietary technology that represents a unique pathway to
achieving a given efficiency level, that technology will not be
considered further due to the potential for monopolistic concerns.
Sections 6(b)(3) and 7(b) of appendix A.
In summary, 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 subsequent sections include comments from interested
parties pertinent to the screening criteria, 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 June 2020 Preliminary Analysis, DOE considered screening out
air and water economizers and suction-line heat exchangers in the
screening analysis, based on their negative impacts on product utility
to consumers and on manufacturing impracticality.
AHAM agreed with DOE screening out these technologies. AHAM stated,
as DOE noted, air and water economizers and suction line heat
exchangers would increase the size and weight of room ACs, which would
negatively impact consumer utility and require retooling. AHAM further
stated that suction line heat exchangers could also decrease compressor
lifetime. (AHAM, No. 19 at p. 10)
DOE agrees with the comments made by AHAM and proposes to screen
out the same technologies in this NOPR analysis. For additional
details, see chapter 4 of the NOPR TSD. DOE requests comment on the
technologies screened out in the NOPR screening analysis.
2. Remaining Technologies
Through a review of each technology, DOE tentatively concludes that
all of the other identified technologies listed in section IV.A.2 of
this document met all five screening criteria to be examined further as
design options in DOE's NOPR analysis. In summary, DOE did not screen
out the following technology options:

[[Page 20626]]

[GRAPHIC] [TIFF OMITTED] TP07AP22.018

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 represent unique-pathway
proprietary technologies). For additional details, see chapter 4 of the
NOPR TSD.

C. Engineering Analysis

The purpose of the engineering analysis is to establish the
relationship between the efficiency and cost of room ACs. 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 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).
1. Efficiency Analysis
DOE typically uses one of two approaches to develop energy
efficiency levels for the engineering analysis: (1) Relying on observed
efficiency levels in the market (i.e., the efficiency-level approach),
or (2) determining the incremental efficiency improvements associated
with incorporating specific design options to a baseline model (i.e.,
the design-option approach). Using the efficiency-level approach, the
efficiency levels established for the analysis are determined based on
the market distribution of existing products (in other words, based on
the range of efficiencies and efficiency level ``clusters'' that
already exist on the market). Using the design option approach, the
efficiency levels established for the analysis are determined through
detailed engineering calculations and/or computer simulations of the
efficiency improvements from implementing specific design options that
have been identified in the technology assessment. DOE may also rely on
a combination of these two approaches. For example, the efficiency-
level approach (based on actual products on the market) may be extended
using the design option approach to ``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

[[Page 20627]]

the maximum efficiency level currently available on the market).
In this proposed rulemaking, DOE relies on a combination of these
two approaches. For each product class, DOE analyzed a few units from
different manufacturers to ensure the analysis was representative of
various designs on the market. The analysis involved physically
disassembling commercially available products, reviewing publicly
available cost information, and modeling equipment cost. From this
information, DOE estimated the manufacturer production costs (``MPCs'')
for a range of products currently available on the market. DOE then
considered the design options manufacturers would likely rely on to
improve product efficiencies. From this information, DOE estimated the
cost and efficiency impacts of incorporating specific design options at
each efficiency level.
DOE analyzed six efficiency levels as part of the engineering
analysis: (1) The current DOE standard (baseline); (2) an intermediate
level above the baseline but below the ENERGY STAR level, either
halfway between the two or at a level where a number of models were
certified (EL 1); (3) the ENERGY STAR efficiency criterion (EL 2); (4)
the efficiency attainable by a unit with the most efficient R-32
single-speed compressor on the market (EL 3); (5) an intermediate level
representing the efficiency of variable-speed units on the market, as
tested by DOE using the recently amended test procedure (EL 4); and (6)
the maximum technologically feasible (max-tech) efficiency (EL 5).
In evaluating the technologies manufacturers could use to achieve
the analyzed efficiency levels, DOE considered design options which
made the largest impact on unit efficiency and for which the cost-
efficiency relationship was well defined. Accordingly, DOE implemented
increased heat exchanger area, condenser coil subcoolers, improved
blower motor efficiency, improved compressor efficiency, variable-speed
compressors, and low standby-power electronic controls as design
options, some or all of which were used to estimate the cost required
to reach each efficiently level. DOE did not consider for analysis
certain technologies that met the screening criteria but were unable to
be evaluated for one or more of the following reasons: (1) Data are not
available to evaluate the energy efficiency characteristics of the
technology, (2) available data suggest that the efficiency benefits of
the technology are negligible, and (3) certain technologies cannot be
measured according to the conditions and methods specified in the
existing test procedure. Further information on how the design options
were chosen and implemented in the engineering analysis is available in
chapter 5 of the NOPR TSD.
a. Baseline Efficiency
For each product class, DOE generally selects a baseline model as a
reference point for each class, and measures changes resulting from
potential energy conservation standards against the baseline. 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.
For this NOPR, DOE selected 19 baseline units, of the 48 total
units selected, that fell within 12 of the 16 room AC product classes
as reference points for each analyzed product class, against which DOE
measured changes that would result from amended energy conservation
standards to support the engineering, LCC, and PBP analyses. The
baseline units in each of the analyzed product classes represent the
basic characteristics of equipment in that class
b. Higher Efficiency Levels
As part of DOE's analysis, the maximum available efficiency level
is the highest efficiency unit currently available on the market. DOE
also defines the ``max-tech'' efficiency level to represent the maximum
possible efficiency for a given product. As discussed in chapter 5 of
the NOPR TSD, for the max-tech level, DOE modeled replacing permanent
split capacitor (``PSC'') fan motors with more efficient electronically
commutated motors (``ECMs''), replacing single-speed compressors with
the maximum efficiency variable-speed compressors available, reducing
standby power to the minimum observed in DOE's teardown sample, and
increasing the cabinet and heat exchanger to the largest feasible sizes
to improve efficiency. For all product classes, the max-tech level
identified for EL 5 exceeds any other regulatory or voluntary
efficiency criteria currently in effect.
DOE notes that the max-tech level is based entirely on modeled
combinations of design options that have not yet been combined in a
commercially available product. Notably, the key design option,
variable-speed compressors, are nascent in room ACs, and because there
are no models on the market or prototypes that implement these highest
efficiency variable-speed compressors, the efficiency level at max-tech
for each product class is a numerical estimation. This is in contrast
to the variable-speed compressors currently implemented in room ACs on
the market today, for which performance has been characterized through
testing. Furthermore, the room AC test procedure measures variable-
speed unit performance differently than test procedures for other air
conditioning products, so limited performance and efficiency data are
available for the most efficient examples of this emergent technology
for room ACs.
Additionally, the most efficient variable-speed compressors that
were implemented in the analysis at the max-tech efficiency level are
manufactured by one manufacturer and have rated EERs between 11.2 and
11.7 Btu/Wh, with a range of rated capacities between 4,705 Btu/h and
16,170 Btu/h. Given the lack of information regarding availability of
these highest efficiency variable-speed compressors, and the limited
number of variable-speed compressors rated at or near the compressors
considered for the max-tech efficiency level, there may not be
widespread availability of these high-efficiency variable-speed
compressors.
The Joint Commenters and NEEA encouraged DOE to consider evaluating
additional efficiency levels, particularly an intermediate level
between EL 3 and EL 4. According to the Joint Commenters and NEEA, the
most efficient products available today fall between these two
efficiency levels. (Joint Commenters, No. 20 at pp. 2-3; NEEA, No. 24
at pp. 3 and 7) DOE agrees that the most efficient available units
should be represented in the engineering analysis. In particular,
variable-speed models, of which an increasing number of models are
available, were not included in a separate efficiency level in the
preliminary engineering analysis as a stand-alone design option.
Therefore, DOE included a new efficiency level (EL 4) in the NOPR
engineering analysis, between EL 3 and the max-tech level (EL 4 in the
preliminary analysis, now EL 5 for this NOPR). This new EL 4 is an
intermediate efficiency level that represents the efficiency of
variable-speed units on the market, as tested by DOE using the recently
amended test procedure. DOE modeled all teardown units to reach this
efficiency level in the engineering analysis by replacing each single-
speed compressor with a variable-speed compressor and

[[Page 20628]]

adjusting the rated efficiency of the modeled variable-speed compressor
to achieve the target overall CEER value. DOE requests comment on the
new efficiency level (EL 4) in the engineering analysis.
AHAM and GEA stated that any energy standard levels achievable only
with variable-speed compressors should not be selected and asserted
that EL 3 and above would require the use of variable-speed
compressors. AHAM and GEA further stated that manufacturers would
likely begin using variable-speed compressors to meet energy
conservation standards at EL 3. GEA supported AHAM's position and noted
that incorporating variable-speed compressors into existing room AC
units requires platform-level changes to room AC designs and
manufacturing facilities. GEA further stated that, while variable-speed
compressors are becoming available in some products, the technology is
not sufficiently cost-effective to use as the basis for setting an
energy standard level for this proposed rulemaking. Thus, AHAM and GEA
urged DOE to adjust its analysis to reflect the use of variable-speed
compressors at EL 3. (AHAM, No. 19 at pp. 11-12; GEA, No. 26 at pp. 1-
2)
As discussed in section IV.A.2.b of this document, DOE adjusted its
estimated efficiency for the most efficient available single-speed
compressors, thus slightly reducing the CEER level for EL 3, but along
with the additional proposed changeover to more efficient compressors
that use R-32 refrigerant, room ACs that implement single-speed
compressors are still expected to meet EL 3. Therefore, DOE did not
revise its analysis to assume that the use of variable-speed
compressors would be necessary to achieve EL 3. DOE requests comment on
the approach to design EL 3 as the level reached by the most efficient
single-speed room ACs.
2. Cost Analysis
The cost analysis portion of the engineering analysis is conducted
using one or a combination of cost approaches. The selection of cost
approach depends on a suite of factors, including the availability and
reliability of public information, characteristics of the regulated
product, the availability and timeliness of purchasing the product on
the market. The cost approaches are summarized as follows:
<bullet> 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.
<bullet> 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 (``BOM'') for the product.
<bullet> Price surveys: If neither a physical nor catalog teardown
is feasible (for example, for tightly integrated products such as
fluorescent lamps, which are infeasible to disassemble and for which
parts diagrams are unavailable) or cost-prohibitive and 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 physical
teardowns. The resulting BOM provides the basis for the MPC estimates.
DOE estimated the cost of the highest efficiency single-speed and
variable-speed compressors implemented in EL 3 and EL 5, respectively,
by extrapolating the costs from price surveys of other compressors. DOE
used this approach because, as discussed previously, DOE is not aware
of these most efficient single-speed and variable-speed compressors
being implemented in any available room ACs to date.
3. Cost-Efficiency Results
The results of the engineering analysis are presented as cost-
efficiency data for each of the efficiency levels for each of the
product classes that were analyzed, as well as those extrapolated from
a product class with similar cooling capacity and features. DOE
developed estimates of MPCs for each unit in the teardown sample, and
also performed additional modeling for each of the teardown samples, to
develop a comprehensive set of MPCs at each efficiency level. DOE then
consolidated the resulting MPCs for each of DOE's teardown units and
modeled units using a weighted average for product classes in which DOE
analyzed units from multiple manufacturers. DOE's weighting factors
were based on a market penetration analysis for each of the
manufacturers within each product class. The resulting weighted-average
incremental MPCs (i.e., the additional costs manufacturers would likely
incur by producing room ACs at each efficiency level compared to the
baseline) are provided in Tables 5.5.5 and 5.5.6 in chapter 5 of the
NOPR TSD. See chapter 5 of the NOPR TSD for additional detail on the
engineering analysis. DOE requests comment on the incremental MPCs from
the NOPR engineering analysis.

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 MPC estimates derived in the
engineering analysis to consumer prices, which are then used in the LCC
and PBP analysis and in the manufacturer impact analysis. At each step
in the distribution channel, companies mark up the price of the product
to cover business costs and profit margin.
To account for manufacturers' non-production costs and profit
margin, DOE applied a non-production cost 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 reports filed
by publicly traded manufacturers primarily engaged in appliance
manufacturing and whose combined product range includes room ACs.
For room ACs, DOE further developed baseline and incremental
markups for each link in the distribution chain (after the product
leaves the manufacturer). 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.\25\
---------------------------------------------------------------------------

\25\ 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.
---------------------------------------------------------------------------

DOE relied on economic data from the U.S. Census Bureau to estimate
average baseline and incremental markups. Specifically, DOE used the
2017 Annual Retail Trade Survey for the ``electronics and appliance
stores'' sector to develop retailer markups; \26\ and the 2017 Annual
Wholesale Trade Survey for the ``household appliances, and electrical
and electronic goods merchant

[[Page 20629]]

wholesalers'' sector to estimate wholesaler markups.\27\
---------------------------------------------------------------------------

\26\ U.S. Census Bureau, Annual Retail Trade Survey. 2017.
<a href="http://www.census.gov/programs-surveys/arts.html">www.census.gov/programs-surveys/arts.html</a>.
\27\ U.S. Census Bureau, Annual Wholesale Trade Survey. 2017.
<a href="http://www.census.gov/awts">www.census.gov/awts</a>.
---------------------------------------------------------------------------

Chapter 12 of the NOPR TSD provides additional detail on the
manufacturer markup and chapter 6 of this NOPR TSD provides additional
detail on DOE's development of the baseline and incremental retail
markups.

E. Energy Use Analysis

The purpose of the energy use analysis is to determine the annual
energy consumption of room ACs at different efficiencies in
representative U.S. single-family homes, multi-family residences,
manufactured housing, and commercial buildings, and to assess the
energy savings potential of increased room AC efficiency. The energy
use analysis estimates the range of energy use of room ACs 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 monetary savings in consumer
operating costs that could result from adoption of amended or new
standards.
To estimate annual room AC use and energy consumption in the June
2020 Preliminary Analysis, DOE first calculated the number of operating
hours in cooling mode for each room AC in the residential and
commercial samples using the reported energy use for room air
conditioning in the Residential Energy Consumption Survey (``RECS'')
2015 \28\ and Commercial Building Energy Consumption Survey (``CBECS'')
2012,\29\ along with estimates of the EER of the room AC(s) in each
sample home or building. DOE based the latter on the reported age (or
simulated age) of the unit and historical data on shipment-weighted
average EER. In the June 2020 Preliminary Analysis, the estimated mean
number of cooling mode operating hours for the residential room AC
sample is 912 hours for the 6,000 to 7,999 Btu/h product class, 636
hours for the 8,000 to 13,999 Btu/h product classes, 422 hours for the
14,999 to 19,999 Btu/h product class, and 261 hours for the >=20,000
Btu/h product class. The estimated mean number of cooling mode
operating hours for the commercial room AC sample is 746 hours for the
6,000 to 7,999 Btu/h product class, 868 hours for the 8,000 to 13,999
Btu/h product classes, 921 hours for the 14,999 to 19,999 Btu/h product
class, and 1,073 hours for the >=20,000 Btu/h product class. DOE
assumed that units plugged in, but not in cooling mode, would be in
standby mode and included the contribution of standby power consumption
in its energy use model.
---------------------------------------------------------------------------

\28\ U.S. Department of Energy-Energy Information
Administration, Residential Energy Consumption Survey, 2015 Public
Use Microdata Files, 2015. Washington, DC. Available online at:
<a href="http://www.eia.doe.gov/emeu/recs/recspubuse15/pubuse15.html">www.eia.doe.gov/emeu/recs/recspubuse15/pubuse15.html</a>. DOE will
update all the 2015 RECS data to 2020 RECS if it is available prior
to the final rule.
\29\ U.S. Department of Energy-Energy Information
Administration, Commercial Buildings Energy Consumption Survey, 2012
Public Use Microdata Files, 2012. Washington, DC. Available online
at: <a href="http://www.eia.doe.gov/emeu/cbecs/cbecspubuse12/pubuse12.html">www.eia.doe.gov/emeu/cbecs/cbecspubuse12/pubuse12.html</a>. DOE will
update all 2012 CBECS data to 2018 CBECS when it becomes available.
---------------------------------------------------------------------------

AHAM agreed that, in the absence of field data on annual operating
hours, DOE should use the most recent version of RECS and CBECS to
establish the annual operating hours for residential room ACs. (AHAM,
No. 19 at p. 15)
NEEA believes DOE has identified energy savings associated with
room ACs, but contends that there are more energy savings achievable.
NEEA encourages DOE to look at more of the efficiency technology
options and how they perform the energy analysis in order to get more
savings. (NEEA, Public Meeting Transcript, No. 18 at pp. 8-9) NEEA
suggested modifying the energy use analysis to capture more of the
benefits of other technologies in the market that are not necessarily
captured in the current test procedure. (Id. at pp. 57-58)
DOE notes that the standards rulemaking must recommend efficiency
levels that are both economically justified and technologically
feasible. The availability of technologies used to achieve different
efficiency levels are identified in the market and technology
assessment (see chapter 3 of the NOPR TSD). DOE's engineering analysis
analyzes technologies in currently available room AC units. The energy
use analysis uses the efficiency levels and power consumption values
from the engineering analysis. Estimates for energy consumption are
based on available data of how room ACs are operated in the field. DOE
welcomes information about additional technologies that can be analyzed
in the rulemaking process.
NEEA recommended that DOE include fan-only hours in its analysis
and take into account energy savings from variable-speed fans and
motors. NEEA stated that fan-only operation is likely to account for a
significant number of operating hours, resulting in a significant
portion of overall energy use. (NEEA, No. 24 at p. 5) Rice suggested
measuring the energy consumption of the fan-mode during cooling mode
operation when the fan typically runs continuously while the compressor
cycles. If it is not accounted for, Rice recommended, at a minimum,
that the energy use information on the Energy Label indicate that the
energy costs is based on the economy mode setting. (Rice, No. 25 at p.
3)
DOE is unaware of a data set that can be used to estimate the
amount of time room ACs spend in fan-only mode. For this NOPR analysis,
DOE included the impact of fan-only mode energy consumption to the
total energy use consumption, based on available data for portable ACs.
Based on field metering data of portable ACs, fan-only mode is
estimated at 30 percent of cooling mode hours.\30\ DOE assumed that
models below ENERGY STAR efficiency level would operate in fan-only
mode 30 percent of cooling mode hours. For ELs that meet or exceed the
ENERGY STAR level, DOE assumed a reduction in the amount of time the
unit spent in fan-only mode based on the ENERGY STAR Version 4.2 for
room ACs criterion requiring that the unit run in off-cycle fan mode
less than 17 percent of the time spent in off-cycle mode. Thus, for ELs
that meet or exceed the ENERGY STAR efficiency level, DOE assumed units
would operate in fan-only mode 5 percent of cooling mode hours. DOE
welcomes feedback on its approach and any additional data that can be
provided to estimate the amount of time spent in fan-only mode.
---------------------------------------------------------------------------

\30\ Burke et al., 2014. ``Using Field-Metered Data to Quantify
Annual Energy Use of Residential Portable Air Conditioners.'' LBNL,
Berkeley, CA. LBNL Report LBNL-6469E. September 2014.
---------------------------------------------------------------------------

DOE notes that the Federal Trade Commission is responsible for the
information included on the yellow EnergyGuide labels.
Edison Electric Institute (``EEI'') noted that, in northern
climates, many consumers unplug their units or even take them out of
the windows during the wintertime, meaning the 8,000 standby hours
value used in the annual energy use calculation formula could be an
overestimate. EEI suggested gathering more data on this. (EEI, Public
Meeting Transcript, No. 18 at pp. 51-52)
DOE agrees that many consumers unplug their room AC units in the
non-cooling seasons in northern climates. However, DOE is not aware of
reliable, publicly available data for hours spent in standby and off
modes in room ACs. DOE recognizes that a room AC may be unplugged for a
certain percentage of time, and, therefore, will not be in either
standby mode or off mode. For the purposes of this NOPR analysis, DOE
estimates that approximately half of room ACs are unplugged for half of
the year. The ``unplugged'' time associated

[[Page 20630]]

with these units is averaged over all units. DOE estimates active mode
based on RECS inputs and time spent in fan-only mode based on available
data for portable ACs. Standby hours comprise the remaining time. See
chapter 7 of the NOPR TSD for further discussion.
The California IOUs noted that, in the LCC Excel spreadsheet
downloaded from DOE's website, for product class (``PC'') 2, the
cooling mode operating hours are 2,922 hours, but for PC 3, the cooling
mode operating hours are only 217 hours.\31\ The California IOUs
expressed concern at the cooling mode operating hour difference between
PC 2 and PC 3. (California IOUs, Public Meeting Transcript, No. 18 at
pp. 55-56)
---------------------------------------------------------------------------

\31\ The Room Air Conditioning Life-Cycle Cost Analysis
Spreadsheets (EERE-2014-BT-STD-0059-0010) can be found at
<a href="http://beta.regulations.gov/document/EERE-2014-BT-STD-0059-0010">beta.regulations.gov/document/EERE-2014-BT-STD-0059-0010</a>.
---------------------------------------------------------------------------

DOE's LCC spreadsheet model uses a Monte Carlo simulation in its
LCC calculations. Operating hours vary for each house in the household
sample and are used as an input into the LCC calculations. The hours
mentioned in the California IOUs comment represent the operating hours
for one household in the sample and are not representative of the full
household sample, or an entire Monte Carlo simulation. The average
hours of use for the full sample used for each product class can be
found in chapter 7 of the NOPR TSD.
Appliance Standards Awareness Project (``ASAP''), Rice, California
IOUs, NEEA, and the Joint Commenters encouraged DOE to investigate
modifications to the energy use model to account for potential energy
savings by variable-speed units. ASAP stated that variable-speed units
would be able to reduce cycling losses in addition to providing
additional part-load benefits. (ASAP, Public Meeting Transcript, No. 18
at p. 54) Rice noted that DOE's energy use methodology in the June 2020
Preliminary Analysis does not capture the benefits of part load
operation and suggested applying a performance adjustment factor
(``PAF'') for ELs with variable-speed compressors. (Rice, No. 25 at p.
2) NEEA and the California IOUs further stated the energy use model in
the June 2020 Preliminary Analysis only used the full-load energy EER
of the compressors to calculate energy savings, meaning the analysis
does not capture any inefficiencies due to single-speed compressor
cycling at part load. (California IOUs, No. 23 at p. 2; NEEA, No. 24 at
p. 5) The Joint Commenters noted that in addition to significantly
reducing cycling losses, variable-speed operation improves heat
exchanger effectiveness at reduced cooling loads, resulting in
additional energy savings. (Joint Commenters, No. 20 at pp. 3-4)
For this NOPR analysis, DOE modified its approach to calculating
energy use for models that use a variable-speed compressor to account
for the reduced energy consumption during part load operation. Unlike
single-speed compressors, variable-speed compressors have the ability
to operate at part load depending on the cooling load. The amount of
the time spent in part load operation will depend on the local climate
of the household or business operating the room AC. For example, room
ACs in milder climates will spend more time in part load operation
relative to a household in a hot climate where a compressor is likely
to run at maximum load. DOE accounted for geographic-dependent climate
variability by calculating U.S. State-dependent PAFs using historical
climate data spanning the period from 2008-2016 from the National
Oceanic and Atmospheric Administration.\32\ For each state in the U.S.,
DOE performed a temperature bin analysis to calculate within the
cooling season (June through August) the fraction of time the outdoor
dry bulb temperature was in one of four temperature bins: 80-84 degrees
Fahrenheit (``[deg]F''), 85-89 [deg]F, 90-94 [deg]F, and 95-99 [deg]F.
DOE then calculated the corresponding PAF for each state using the
methodology developed for variable-speed drive units in the test
procedure and applied the PAF to the EER at full load. DOE requests
feedback on its approach to calculating the energy-use of variable-
speed compressors and would welcome field metered data to further
investigate the varying amounts of energy use due to single-speed and
variable-speed units.
---------------------------------------------------------------------------

\32\ National Oceanic and Atmospheric Administration. Quality
Controlled Local Climate Data. <a href="http://www.ncdc.noaa.gov/cdo-web/">www.ncdc.noaa.gov/cdo-web/</a>.
---------------------------------------------------------------------------

Rice stated that the off-cycle energy use term in the June 2020
Preliminary Analysis energy-use model is inappropriate for a variable-
speed room AC. Rice stated that it should be modified to account for
lower standby energy usage due to longer run times in the cooling
season for variable-speed units in meeting the cooling season load.
Rice notes that since DOE's calculation of energy use in cooling mode
assumes operation at full rated cooling capacity, it is inappropriate
for use in the standby energy use term for variable-speed room ACs.
(Rice, No. 25 at p. 2)
DOE's test procedure requires that the low compressor speed at the
low test condition achieve a capacity that is 47-57 percent of the
``peak'' rated capacity. Therefore, DOE would not expect a variable-
speed compressor unit to enter off-cycle mode above loads 47 percent of
the rated capacity, which is close to a representative of outdoor
temperature conditions of 82 [deg]F. In this NOPR analysis, DOE
calculates the energy use of variable-speed units using a geographic-
dependent performance adjustment factor to account for time the unit
spends at partial load. DOE is unaware of a data-set that would allow
for the estimation of the change in cooling run time of variable-speed
units relative to a single-speed unit. DOE welcomes any available
information or data that can be used to improve assumptions in the
energy use model.
The California IOUs noted that DOE uses EER to estimate average
annual energy use, however, only CEER is listed for each energy use
results tables in chapter 7 of the preliminary TSD. To minimize
confusion that CEER was used to calculate the average annual energy
use, the California IOUs recommended that DOE add EER to energy use
tables along with the corresponding CEER for each EL. (California IOUs,
No. 23 at p. 3)
DOE has included both EER and CEER in the energy use results tables
in the NOPR TSD.
Chapter 7 of the NOPR TSD provides details on DOE's energy use
analysis for room ACs.

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
room ACs. 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:
[ballot] 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, 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.
[ballot] 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

[[Page 20631]]

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 room ACs in the absence of new or
amended energy conservation standards. In contrast, the PBP for a given
efficiency level is measured relative to the baseline product.
For each considered efficiency level in each product class, DOE
calculated the LCC and PBP for a nationally representative set of
housing units and commercial buildings. As stated previously, DOE
developed household samples from the 2015 RECS \33\ and commercial
building samples from the 2012 CBECS. For each sample household or
building, DOE determined the energy consumption for the room AC 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 room ACs.
---------------------------------------------------------------------------

\33\ DOE will update all the 2015 RECS data to 2020 RECS if it
is available prior to the final rule. Similarly, DOE will update all
2012 CBECS data to 2018 CBECS when it becomes available.
---------------------------------------------------------------------------

Inputs to the calculation of total installed cost include the cost
of the product--which includes MPCs, manufacturer markups, retailer and
distributor markups, 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. 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 and PBP relies on
a Monte Carlo simulation to incorporate uncertainty and variability
into the analysis. The Monte Carlo simulations randomly sample input
values from the probability distributions and room AC user samples. For
this rulemaking, the Monte Carlo approach is implemented in MS Excel
together with the Crystal Ball\TM\ add-on.\34\ The model calculated the
LCC and PBP for products at each efficiency level for 10,000 housing
units or commercial buildings per simulation run. The analytical
results include a distribution of 10,000 data points showing the range
of LCC savings for a given efficiency level relative to the no-new-
standards case efficiency distribution. In performing an iteration of
the Monte Carlo simulation for a given consumer, product efficiency is
chosen based on its probability. If the chosen product efficiency is
greater than or equal to the efficiency of the standard level under
consideration, the LCC and PBP calculation reveals that a consumer is
not impacted by the standard level. By accounting for consumers who
already purchase more-efficient products, DOE avoids overstating the
potential benefits from increasing product efficiency.
---------------------------------------------------------------------------

\34\ 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 <a href="http://www.oracle.com/middleware/technologies/crystalball.html">www.oracle.com/middleware/technologies/crystalball.html</a>
(last accessed August 31, 2021).
---------------------------------------------------------------------------

DOE calculated the LCC and PBP for all consumers of room ACs as if
each were to purchase a new product in the expected year of required
compliance with new or amended standards. Amended standards would apply
to room ACs manufactured 3 years after the date on which any new or
amended standard is published. (42 U.S.C. (m)(4)(A)(i)) For purposes of
its analysis, DOE used 2026 as the first year of compliance with any
amended standards for room ACs.
Table IV.3 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 NOPR TSD and its appendices.
[GRAPHIC] [TIFF OMITTED] TP07AP22.019

[[Page 20632]]

1. Product Cost
To calculate consumer product costs, DOE multiplied the MPCs
developed in the engineering analysis by the markups described
previously (along with sales taxes). DOE used different markups for
baseline products and higher-efficiency products because DOE applies an
incremental markup to the increase in MSP associated with higher-
efficiency products.
Economic literature and historical data suggest that the real costs
of many products may trend downward over time according to ``learning''
or ``experience'' curves. Experience curve analysis implicitly includes
factors such as efficiencies in labor, capital investment, automation,
materials prices, distribution, and economies of scale at an industry-
wide level. To derive the learning rate parameter for room ACs that
utilize single-speed compressors, DOE obtained historical Producer
Price Index (``PPI'') data for room ACs from the Bureau of Labor
Statistics (``BLS''). A PPI specific to ``room air-conditioners and
dehumidifiers, except portable dehumidifiers'' was available for the
time period between 1990 and 2009.\35\ After 2009, PPI data was only
available for the broader product family of ``refrigeration and forced
air heating equipment,'' which includes room ACs, spanning the years
2010-2020.\36\ Inflation-adjusted price indices were calculated by
dividing the PPI series by the gross domestic product index from Bureau
of Economic Analysis for the same years. Using data from 1990-2020, the
estimated learning rate (defined as the fractional reduction in price
expected from each doubling of cumulative production) is 25 percent.
---------------------------------------------------------------------------

\35\ Room air-conditioners and dehumidifiers, except portable
dehumidifiers PPI series ID: PCU3334153334156; <a href="http://www.bls.gov/ppi/">www.bls.gov/ppi/</a>.
\36\ Air-conditioning, refrigeration, and forced air heating
equipment manufacturing, Primary Products PPI series ID:
PCU333415333415P; <a href="http://www.bls.gov/ppi/">www.bls.gov/ppi/</a>.
---------------------------------------------------------------------------

The Joint Commenters suggested an analysis with learning rates
associated with specific technology options or components. (Joint
Commenters, No. 20 at pp. 4-5)
DOE considered the inclusion of variable-speed compressors as a
technology option in EL 4 and EL 5. To develop future prices specific
for that technology, DOE applied a different price trend to the
controls portion of the variable-speed compressors that contributes to
the price increments moving from EL 3 (an efficiency level achieved
with the highest efficiency single-speed compressor) to EL 4 and EL 5.
DOE used PPI data on ``semiconductors and related device
manufacturing'' between 1967 and 2020 to estimate the historic price
trend of electronic components in the control.\37\ The regression
performed as an exponential trend line fit results in an R-square of
0.99, with an annual price decline rate of 6.3 percent. See chapter 8
of the NOPR TSD for further details on this topic.
---------------------------------------------------------------------------

\37\ Semiconductors and related device manufacturing PPI series
ID: PCU334413334413; <a href="http://www.bls.gov/ppi/">www.bls.gov/ppi/</a>.
---------------------------------------------------------------------------

The Joint Commenters noted that DOE's estimate of the learning rate
for room ACs is likely a conservative estimate of how prices will
decline over time. (Joint Commenters, No. 20 at pp. 4-5)
A retrospective analysis of the April 2011 Direct Final Rule for
room ACs \38\ compared the room AC average model-level price changes
based on web-scraped retail price data from 2013 to 2017 (ex-post data)
and the price factor index for the corresponding period derived in the
April 2011 Direct Final Rule (ex-ante data). The result shows that the
ex-ante data and ex-post data share similar price declining trends, and
thus provide independent validation of the experience curve methodology
adopted by DOE in the rulemaking analysis. To account for the
uncertainties in the experience curve estimation, DOE also considered
two alternative product price forecasts for room ACs (a high price
decline and a low price decline scenarios and estimated their impacts
on the consumer NPV for various standard levels (see section IV.H.3 of
this document for details).
---------------------------------------------------------------------------

\38\ Ganeshalingam, M., Ni, C., and Yang, H-C. 2021. A
Retrospective Analysis of the 2011 Direct Final Rule for Room Air
Conditioners. Lawrence Berkeley National Laboratory. LBNL-2001413.
---------------------------------------------------------------------------

DOE requests comments on its assumption and methodology for
determining equipment price trends.
2. Installation Cost
Installation cost includes labor, overhead, and any miscellaneous
materials and parts needed to install the product. As in the June 2020
Preliminary Analysis, DOE found no evidence that installation costs
would be impacted with increased efficiency levels and, thus, did not
include installation costs in the LCC calculation.
3. Annual Energy Consumption
For each sampled household or business, DOE determined the energy
consumption for a room AC at different efficiency levels using the
approach described previously in section IV.E of this document.
a. Rebound Effect
Higher-efficiency room ACs reduce the operating costs for a
consumer, which can lead to greater use of room ACs. A direct rebound
effect occurs when a product that is made more efficient is used more
intensively, such that the expected energy savings from the efficiency
improvement may not fully materialize. At the same time, consumers
benefit from increased utilization of products due to rebound. Overall
consumer welfare (taking into account additional costs and benefits) is
generally understood to increase from rebound. DOE did not find any
data on the rebound effect that is specific to room ACs. In the April
2011 Direct Final Rule, DOE estimated a rebound of 15 percent for room
ACs for the NIA but did not include rebound in the LCC analysis. 76 FR
22454, 22511. Given the uncertainty and lack of data specific to room
ACs, DOE did not include the rebound effect in the LCC analysis for
this NOPR. DOE does include rebound in the NIA for a conservative
estimate of national energy savings and the corresponding impact to
consumer NPV. As in the April 2011 Direct Final Rule, DOE used a
rebound effect of 15 percent for room ACs. See sections IV.H.2 and
IV.H.3 of this document for further details on how the rebound effect
is applied in the NIA.
4. Energy Prices
Because marginal electricity price more accurately captures the
incremental savings associated with a change in energy use from higher
efficiency, it provides a better representation of incremental change
in consumer costs than average electricity prices. Therefore, DOE
applied average electricity prices for the energy use of the product
purchased at baseline efficiency, and marginal electricity prices for
the incremental change in energy use associated with the other
efficiency levels considered.
DOE derived annual electricity prices in 2020 for each census
division using data from EEI Typical Bills and Average Rates
reports.\39\ For the residential sector, DOE used the EEI data to
define a marginal price as the ratio of the change in the bill to the
change in energy consumption. For the commercial sector, marginal
prices depend on both the change in electricity consumption and the
change in monthly

[[Page 20633]]

peak-coincident demand. DOE used the EEI data to estimate both marginal
energy charges and marginal demand charges.
---------------------------------------------------------------------------

\39\ Edison Electric Institute. Typical Bills and Average Rates
Report. 2020. Winter 2020, Summer 2020: Washington, DC.
---------------------------------------------------------------------------

DOE calculated weighted-average values for average and marginal
price for the nine census divisions for both the residential and
commercial sectors. As the EEI data are published separately for summer
and winter, DOE calculated seasonal prices for each division and
sector. See chapter 8 of the NOPR TSD for details.
To estimate energy prices in future years, DOE multiplied the
average regional energy prices by a projection of annual change in
national-average residential and commercial energy price in AEO
2021.\40\ AEO 2021 has an end year of 2050. To estimate electricity
price trends after 2050, DOE used the average annual rate of change in
electricity price from 2035 through 2050.
---------------------------------------------------------------------------

\40\ Energy Information Administration. Annual Energy Outlook
2021 with Projections to 2050. Washington, DC. Available at
<a href="http://www.eia.gov/forecasts/aeo/">www.eia.gov/forecasts/aeo/</a>.
---------------------------------------------------------------------------

Rice suggested that consideration be given to showing energy cost
information for both economy and cool mode settings to account for
units with higher efficiency blower motor/fan assemblies that would
have lower energy costs relative to less efficient blowers/fans in off-
cycle mode. (Rice, No. 25 at p. 3)
As described in section IV.E of this document, DOE includes the
energy contribution of fan-mode including time spent in off-cycle mode.
DOE determines energy costs for the full range of product classes and
efficiency levels.
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. Typically,
small incremental increases in product efficiency produce no, or only
minor, changes in repair and maintenance costs compared to baseline
efficiency products. In this NOPR analysis, DOE did not include
maintenance costs in the LCC.
In the June 2020 Preliminary Analysis, DOE assumed that repair
frequencies are low and increase for the higher-capacity units due to
more expensive equipment costs. DOE assumed that 1 percent of small-
sized units (below 8,000 Btu/h), 2 percent of medium-sized units (8,000
to 20,000 Btu/h), and 3 percent of large-sized units (above 20,000 Btu/
h) are maintained or repaired each year. DOE assumed that an average
service call and repair/maintenance takes about 1 hour for small and
medium-sized units and 2 hours for large units, and that the average
material cost is equal to one-half of the incremental equipment cost.
DOE maintains these assumptions in the NOPR analysis.
6. Product Lifetime
For room ACs, DOE developed a distribution of lifetimes from which
specific values are assigned to the appliances in the samples. DOE
conducted an analysis of actual lifetime in the field using a
combination of historical shipments data, the stock of the considered
appliances in the American Housing Survey, and responses in RECS on the
age of the appliances in the homes. The data allowed DOE to estimate a
survival function, which provides an average appliance lifetime. This
analysis yielded a lifetime probability distribution with an average
lifetime for room ACs of approximately 9 years. See chapter 8 of the
NOPR TSD for further details.
7. Discount Rates
In the calculation of the LCC, DOE applies discount rates
appropriate to residential and commercial sectors to estimate the
present value of future operating costs. DOE estimated a distribution
of residential and commercial discount rates for room ACs based on
consumer financing costs and the opportunity cost of consumer funds
(for the residential sector) and cost of capital of publicly traded
firms (for the commercial sector).
For households, DOE applies weighted-average discount rates
calculated from consumer debt and asset data, rather than marginal or
implicit discount rates.\41\ DOE notes that the LCC does not analyze
the appliance purchase decision, so the implicit discount rate is not
relevant in this model. The LCC estimates net present value over the
lifetime of the product, so the appropriate discount rate will reflect
the general opportunity cost of household funds, taking this time scale
into account. Given the long time horizon modeled in the LCC, the
application of a marginal interest rate associated with an initial
source of funds is inaccurate. Regardless of the method of purchase,
consumers are expected to continue to rebalance their debt and asset
holdings over the LCC analysis period, based on the restrictions
consumers face in their debt payment requirements and the relative size
of the interest rates available on debts and assets. DOE estimates the
aggregate impact of this rebalancing using the historical distribution
of debts and assets.
---------------------------------------------------------------------------

\41\ 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.
---------------------------------------------------------------------------

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 Survey of Consumer Finances \42\
(``SCF'') for 1995, 1998, 2001, 2004, 2007, 2010, 2013, 2016, and 2019.
Using the SCF and other sources, DOE developed a distribution of rates
for each type of debt and asset by income group to represent the rates
that may apply in the year in which amended standards would take
effect. 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, weighted by the shares
of each type, is 4.3 percent. See chapter 8 of the NOPR TSD for further
details on the development of consumer discount rates.
---------------------------------------------------------------------------

\42\ U.S. Board of Governors of the Federal Reserve System.
Survey of Consumer Finances. 1995, 1998, 2001, 2004, 2007, 2010,
2013, 2016, and 2019. (Last accessed August 20, 2021.)
<a href="http://www.federalreserve.gov/econresdata/scf/scfindex.htm">www.federalreserve.gov/econresdata/scf/scfindex.htm</a>.
---------------------------------------------------------------------------

For commercial-sector room ACs, DOE used the cost of capital 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 the cost of capital is the weighted-
average cost to the firm of equity and debt financing. This corporate
finance approach is referred to as the weighted-average cost of
capital. DOE used currently available economic data in developing
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

[[Page 20634]]

case (i.e., the case without amended or new energy conservation
standards).
DOE utilized confidential 2019 shipments data disaggregated by
product class and efficiency provided by AHAM in response to the June
2020 Preliminary Analysis to estimate the efficiency distribution in
2019. In the preliminary analysis, DOE assumed an annual 0.25 percent
increase in shipment-weighted CEER to develop the efficiency
distribution in 2026. The efficiency trend used in this NOPR is
supported by a retrospective analysis of the April 2011 Direct Final
Rule which used a similar efficiency trend.\43\ For this NOPR, DOE
assumed this trend applied to efficiency levels with single-speed
compressors (EL 0, EL 1, EL 2, and EL 3). DOE assumed the adoption of
variable-speed technologies (EL 4 and EL 5) would follow a Bass
diffusion curve which describes how new technologies diffuse into the
consumer market.\44\ DOE assumed that shipments to variable-speed
technologies would account for 5 percent of shipments in each product
class by 2026. The estimated market shares for the no-new-standards
case for room ACs in 2026 are shown in Table IV.4 through Table IV.6 of
this document. See chapter 8 of the NOPR TSD for further information on
the derivation of the efficiency distributions.
---------------------------------------------------------------------------

\43\ Ganeshalingam, M., Ni, C., and Yang, H-C. 2021. A
Retrospective Analysis of the 2011 Direct Final Rule for Room Air
Conditioners. Lawrence Berkeley National Laboratory. LBNL-2001413.
\44\ Bass, F. M. A New Product Growth Model for Consumer
Durables. Management Science. 1969. 15(5): pp. 215-227.
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BILLING CODE 6450-01-C
DOE requests feedback on its approach to projecting the efficiency
distribution in 2026.
9. Payback Period Analysis
The payback period is the amount of time it takes the consumer to
recover the additional installed cost of more-efficient products,
compared to baseline products, through energy cost savings. Payback
periods are expressed in years. Payback periods that exceed the life of
the product mean that the increased total installed cost is not
recovered in reduced operating expenses.
The inputs to the PBP calculation for each efficiency level are the
change in total installed cost of the product and the change in the
first-year annual operating expenditures relative to the baseline. The
PBP calculation uses the same inputs as the LCC analysis, except that
discount rates are not needed.
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.

[[Page 20636]]

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.\45\
The shipments model takes an accounting approach, tracking market
shares of each product class and the vintage of units in the stock.
Stock accounting uses product shipments as inputs to estimate the age
distribution of in-service product stocks for all years. The age
distribution of in-service product stocks is a key input to
calculations of both the NES and NPV, because operating costs for any
year depend on the age distribution of the stock.
---------------------------------------------------------------------------

\45\ 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.
---------------------------------------------------------------------------

Total shipments for room ACs are developed by considering the
demand from replacements for units in stock that fail and the demand
from first-time owners in existing households. DOE calculated shipments
due to replacements using the retirement function developed for the LCC
analysis. DOE calculated shipments due to first-time owners in existing
households using estimates from room AC saturation in RECS 2015 and
projections of housing stock from AEO 2021. See chapter 8 of the NOPR
TSD for details.
DOE considers the impacts on shipments from changes in product
purchase price and operating cost associated with higher energy
efficiency levels using a price elasticity and an efficiency
elasticity. As in the June 2020 Preliminary Analysis, DOE employs a
0.2-percent efficiency elasticity rate and a price elasticity of -0.45
in its shipments model. These values are based on analysis of
aggregated data for five residential appliances including room ACs.\46\
The market impact is defined as the difference between the product of
price elasticity of demand and the change in price due to a standard
level, and the product of the efficiency elasticity and the change in
operating costs due to a standard level.
---------------------------------------------------------------------------

\46\ Fujita, K. (2015) Estimating Price Elasticity using Market-
Level Appliance Data. Lawrence Berkeley National Laboratory, LBNL-
188289.
---------------------------------------------------------------------------

ASAP and the Joint Commenters noted that the efficiency elasticity
was omitted from chapter 9 of the preliminary TSD. (ASAP, Public
Meeting Transcript, No. 18 at pp. 94-95; Joint Commenters, No. 20 at p.
5) ASAP and the Joint Commenters encouraged DOE to confirm and clarify
whether the efficiency elasticity is considered in calculating the
standards-case shipments. (Joint Commenters, No. 20 at p. 5)
Chapter 9 of the NOPR TSD has been updated to display the impact of
the price and efficiency elasticity in calculating the standards-case
shipments.
AHAM recommended that DOE do as it generally does and rely on
shipment-weighted data in its analysis and provided DOE data for 2019
shipments by product class. (AHAM, No. 19 at p. 9)
DOE appreciates the 2019 shipments by product class and efficiency
level provided by AHAM and has updated the NOPR to reflect the AHAM
data.
NEEA noted that DOE's shipment projections are likely low and do
not follow the market's historical trends--DOE's analysis showed a very
small growth in annual shipments through 2052 to a peak of
approximately 8.5 million units per year. NEEA stated that this slow
growth trend does not match the historic growth seen in the room AC
market. For the number of replacement units, NEEA recommended that DOE
amend its analysis to consider early retirement of units driven by new
features, such as increased efficiency and smart rooms ACs, which could
increase the number of shipments. For new units, NEEA recommended that
DOE consider an increasing market penetration factor to account for the
growth of room AC use in climates where cooling has not been needed
traditionally. (NEEA, No. 24 at pp. 5-6)
DOE notes that between 2014 and 2019, room AC shipments have been
approximately 7 million units with no clear indication of steady growth
over that period. DOE determines the replacement market from lifetime
estimates of room ACs. Early retirement of units to purchase more
efficient and/or units with additional features are currently accounted
for in the lifetime distribution. A retrospective analysis of the April
2011 Direct Final Rule for room ACs,\47\ which also accounted for
shipments due to replacements and first-time owners, generally found
that DOE projections matched with AHAM shipments data in 2017 and 2018.
DOE acknowledges that a warming climate could increase purchase of room
ACs in climates where cooling has not been needed traditionally, but it
is not aware of any data that would facilitate an accurate estimate of
this future demand. DOE welcomes shipments data that include markets in
addition to replacement and first-time user markets.
---------------------------------------------------------------------------

\47\ Ganeshalingam, M., Ni, C., and Yang, H-C. 2021. A
Retrospective Analysis of the 2011 Direct Final Rule for Room Air
Conditioners. Lawrence Berkeley National Laboratory. LBNL-2001413.
---------------------------------------------------------------------------

Chapter 9 of the NOPR TSD provides additional details on the
shipments analysis.
DOE requests comment on its general methodology for estimating
shipments.

H. National Impact Analysis

The NIA assesses the 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.\48\
(``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 room ACs sold from
2026 through 2055.
---------------------------------------------------------------------------

\48\ The NIA accounts for impacts in the 50 states.
---------------------------------------------------------------------------

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.7 summarizes the inputs and methods DOE used for the NIA
analysis for the NOPR. Discussion of these inputs and methods follows
the table.

[[Page 20637]]

See chapter 10 of the NOPR TSD for further details.
[GRAPHIC] [TIFF OMITTED] TP07AP22.023

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.7 of this document describes how DOE developed an
energy efficiency distribution for the no-new-standards case (which
yields a shipment-weighted average efficiency) for each of the
considered product classes for the year of anticipated compliance with
an amended or new standard. To project the trend in efficiency absent
amended standards for room ACs over the entire shipments projection
period, DOE assumed that market share for ELs with variable-speed
technologies would follow a Bass diffusion curve, while the shipment-
weighted CEER for ELs with single-speed compressors would increase
annually by 0.25 percent in CEER based on historical trends in
shipment-weighted efficiency.\49\ The approach is further described in
chapter 10 of the NOPR TSD.
---------------------------------------------------------------------------

\49\ Ganeshalingam, M., Ni, C., and Yang, H-C. 2021. A
Retrospective Analysis of the 2011 Direct Final Rule for Room Air
Conditioners. Lawrence Berkeley National Laboratory. LBNL-2001413.
---------------------------------------------------------------------------

In its reference scenario, DOE assumed that variable-speed
technologies would comprise 25 percent of the market by the end of the
analysis period (2055). DOE also performed sensitivity scenarios
assuming a low penetration of variable-speed technologies (10 percent
of the market in 2055) and a high penetration of variable-speed
technologies (50 percent of the market in 2055). The results of these
scenarios can be found in appendix 10E of the NOPR TSD. DOE requests
comment on its approach to projecting market share for variable-speed
technologies over the course of the analysis period.
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 in 2026. In the year of compliance, the
market shares of products in the no-new-standards case that do not meet
the standard under consideration would ``roll up'' to the minimum EL
that meets the standard, and the market share of products above the
standard would remain unchanged. As in the no-new-standards case, DOE
assumed an annual increase of 0.25 percent in CEER over the analysis
period for ELs with single-speed technology.
The Joint Commenters noted that data on sales over the past decade
suggest that the ``roll-up'' scenario considered by DOE may
underestimate the savings from amended standards and suggested DOE
consider reevaluating the use of the ``roll-up'' scenario for
estimating the market distribution of each efficiency level following
the adoption of a standard. (Joint Commenters, No. 20 at p. 5)
DOE acknowledges multiple drivers in the room AC market, one of
which is the amended standard process. Although DOE uses a roll-up to
allocate market share by efficiency level in the year a standard is
enacted, an efficiency trend is applied in subsequent years in the
standards case to account for the observed historical trends in
efficiency. See chapter 10 of the NOPR TSD for details.
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

[[Page 20638]]

from AEO 2021. Cumulative energy savings are the sum of the NES for
each year over the timeframe of the analysis.
Use of higher-efficiency products is occasionally associated with a
direct rebound effect, which refers to an increase in utilization of
the product due to the reduction in operating cost induced by improved
efficiency. A direct rebound effect occurs when a product that is made
more efficient is used more intensively, reducing expected energy
savings from the efficiency improvement. At the same time, consumers
can benefit from increased utilization of products due to the direct
rebound effect. DOE did not find any data on the rebound effect
specific to room ACs, but it applied a rebound effect of 15 percent as
suggested by Sorrell et al.\50\ and was done in the April 2011 Direct
Final Rule. The calculated NES at each efficiency level is therefore
reduced by 15 percent. DOE also included the rebound effect in the NPV
analysis accounting for the additional net benefit from increased room
AC usage as described in section IV.H.3 of this document.
---------------------------------------------------------------------------

\50\ Sorrell, S., J. Dimitropoulos, M. Sommerville. 2009.
Empirical estimates of the direct rebound effect: A review. Energy
Policy 37 (2009) 1356-1371.
---------------------------------------------------------------------------

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 \51\
that EIA uses to prepare its Annual Energy Outlook. The FFC factors
incorporate losses in production and delivery in the case of natural
gas (including fugitive emissions) and additional energy used to
produce and deliver the various fuels used by power plants. The
approach used for deriving FFC measures of energy use and emissions is
described in appendix 10B of the NOPR TSD.
---------------------------------------------------------------------------

\51\ For more information on NEMS, refer to The National Energy
Modeling System: An Overview 2009, DOE/EIA-0581(2009), October 2009.
Available at <a href="http://www.eia.gov/forecasts/aeo/index.cfm">www.eia.gov/forecasts/aeo/index.cfm</a>.
---------------------------------------------------------------------------

EEI suggested incorporating the AEO full-fuel-cycle conversion for
DOE's next update. (EEI, Public Meeting Transcript, No. 18 at pp. 83-
84)
For this NOPR analysis, DOE reports the full-fuel-cycle energy
savings in its NIA using inputs from AEO 2021. See chapter 10 of the
NOPR TSD for a full description.
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.6 of this document, DOE developed room
AC price trends based on historical PPI data. DOE applied the same
trends to project prices for each product class at each considered
efficiency level. By 2055, the end date of the analysis period, the
average single-speed compressor room AC price is projected to drop 23
percent and the variable-speed compressor room AC price is projected to
drop about 37 percent relative to 2020. DOE's projection of product
prices is described in appendix 10C of the NOPR TSD.
To evaluate the effect of uncertainty regarding the price trend
estimates, DOE investigated the impact of alternate product price
projections on the consumer NPV for the considered TSLs for room ACs.
In addition to the default price trend, DOE considered high and low
product price sensitivity cases. In the high price scenario, DOE based
the price decline of the non-variable speed controls portion on room AC
PPI data limited to the period between the period 1990-2009, which
shows a faster price decline relative to the full time series. For the
variable-speed controls portion, DOE used a faster price decline
derived from the lower bound of the 95 percent confidence interval
fitting PPI data for semiconductors. In the low price decline scenario,
DOE assumed a constant price for the non-variable-speed controls
portion of the price and a slower price decline estimate for the
variable-speed controls portion derived from the upper bound of the 95
percent confidence interval fitting PPI data for semiconductors over
the analysis period. The derivation of these price trends and the
results of these sensitivity cases are described in appendix 10C of the
NOPR 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 electricity. To estimate energy prices in future
years, DOE multiplied the average regional energy prices by the
projection of annual national-average residential and commercial energy
price changes in the Reference case from AEO 2021, which has an end
year of 2050. For the years after 2050, DOE used the average annual
rate of change in electricity price from 2035 through 2050. As part of
the NIA, DOE also analyzed scenarios that used inputs from variants of
the AEO 2021 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 NOPR TSD.
As described in section IV.H.2 of this document, DOE assumed a 15
percent rebound from an increase in utilization of the product arising
from the increase in efficiency (i.e., the direct rebound effect). In
considering the consumer welfare gained due to the direct rebound
effect, DOE accounted for change in consumer surplus attributed to
additional cooling 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 10F of the NOPR TSD for details on DOE's treatment of the
monetary valuation of the rebound effect. DOE requests comments on its
approach to monetizing the impact 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
NOPR, 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.\52\ The discount rates

[[Page 20639]]

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.
---------------------------------------------------------------------------

\52\ United States Office of Management and Budget. Circular A-
4: Regulatory Analysis. September 17, 2003. Section E. Available at
<a href="http://obamawhitehouse.archives.gov/omb/circulars_a004_a-4/">obamawhitehouse.archives.gov/omb/circulars_a004_a-4/</a> (last accessed
June 15, 2021).
---------------------------------------------------------------------------

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 NOPR, DOE analyzed
the impacts of the considered standard levels on two subgroups: (1)
Low-income households and (2) senior-only households. The analysis used
subsets of the 2015 RECS sample composed of households that meet the
criteria for the two subgroups and shows the percentages of those both
negatively and positively impacted. DOE used the LCC and PBP
spreadsheet model to estimate the impacts of the considered efficiency
levels on these subgroups for product classes with a sufficient sample
size in 2015 RECS to perform a Monte Carlo analysis. Chapter 11 of the
NOPR TSD describes the consumer subgroup analysis.

J. Manufacturer Impact Analysis

1. Overview
DOE performed a MIA to estimate the impacts of amended energy
conservation standards on manufacturers of room ACs. 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 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 Government
Regulatory Impact Model (``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 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 and domestic manufacturing employment between
a no-new-standards case and the various standards cases (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 Federal
product-specific regulations, and impacts on manufacturer subgroups.
The complete MIA is outlined in chapter 12 of the NOPR TSD.
DOE conducted the MIA for this proposed rulemaking in three phases.
In Phase 1 of the MIA, DOE prepared a profile of the room AC
manufacturing industry based on publicly available data and information
from its market and technology assessment, engineering analysis, and
shipments analysis. This preparation included a top-down analysis of
room AC manufacturers that DOE used to derive preliminary financial
parameters for the GRIM (e.g., 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
room AC manufacturing industry, including company filings of form 10-K
from the SEC,\53\ corporate annual reports, the April 2011 Direct Final
Rule, and the U.S. Census Bureau's Economic Census.\54\ DOE also relied
on subscription-based resources such as reports from Dun &
Bradstreet.\55\
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\53\ <a href="http://www.sec.gov/edgar/searchedgar/companysearch.html">www.sec.gov/edgar/searchedgar/companysearch.html</a>.
\54\ <a href="http://www.census.gov/programs-surveys/qpc/data/tables.html">www.census.gov/programs-surveys/qpc/data/tables.html</a>.
\55\ <a href="http://app.dnbhoovers.com">app.dnbhoovers.com</a>.
---------------------------------------------------------------------------

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 room ACs 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. See section IV.J.3 of this document for a
description of the key issues raised by manufacturers during the
interviews. 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

[[Page 20640]]

industry average. DOE identified one subgroup for a separate impact
analysis: Small business manufacturers. The small business subgroup is
discussed in section VII.B of this document, ``Review under the
Regulatory Flexibility Act'' and in chapter 12 of the NOPR TSD.
2. Government Regulatory Impact Model and Key Inputs
DOE uses the GRIM to quantify the changes in cash flow due to
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, 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 2021 (the base year of the MIA analysis) and continuing to
2055. DOE calculated INPVs by summing the stream of annual discounted
cash flows during this period. For manufacturers of room ACs, DOE used
a real discount rate of 7.2 percent, which was derived from public
financial data 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
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, and information gathered 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 NOPR TSD.
a. Manufacturer Production Costs
Manufacturing more efficient equipment is typically more expensive
than manufacturing baseline equipment 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. DOE models the
relationship between efficiency and MPCs as a part of its engineering
analysis. For a complete description of the MPCs, see chapter 5 of the
NOPR TSD.
b. Shipments Projections
The GRIM estimates manufacturer revenues based on total unit
shipment projections and the distribution of those shipments by product
class and 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. See chapter 9 of the NOPR TSD for
additional details on DOE's shipments projections.
c. Product and Capital Conversion Costs
Amended energy conservation standards could cause manufacturers to
incur conversion costs to bring their production facilities and
equipment designs into compliance. DOE evaluated the level of
conversion-related expenditures that would be needed to comply with
each considered efficiency level in each product class. For the MIA,
DOE classified these conversion costs into two major groups: (1)
Product conversion costs, and (2) capital conversion costs. Product
conversion costs are investments in research, development, testing,
marketing, and other non-capitalized costs necessary to make product
designs comply with amended energy conservation standards. 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. All
conversion-related investments occur between the year of publication of
the final rule and the year by which manufacturers must comply with the
new standard.
To calculate the MPCs for room ACs at and above the baseline, DOE
performed teardowns for representative units. The data generated from
these analyses were then used to estimate the capital investments in
equipment, tooling, and conveyor required of original equipment
manufacturers (``OEMs'') at each efficiency level, taking into account
such factors as product design, raw materials, purchased components,
and fabrication method. Changes in equipment, tooling, and conveyer
were used to estimate capital conversion costs. Additionally, capital
conversion costs accounted for investments in appearance tooling made
by manufacturers that are not OEMs.
DOE relied on feedback from industry to evaluate the product
conversion costs industry would likely incur at the considered standard
levels. DOE integrated feedback from manufacturers, both OEM and non-
OEM, on redesign effort and staffing to estimate product conversion
cost. Manufacturer numbers were aggregated to protect confidential
information.
The conversion cost figures used in the GRIM can be found in
section V.B.2 of this document. For additional information on the
capital and product conversion costs, see chapter 12 of the NOPR 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 non-production cost markups to the
MPCs estimated in the engineering analysis for each product class and
efficiency level. Modifying these 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
markup scenario, and (2) a preservation of per-unit operating profit
markup 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'' markup 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 manufacturer production
costs increase with efficiency, this scenario implies that the absolute
dollar markup will increase as well. DOE assumed the industry-average
manufacturer markup--which includes SG&A expenses, R&D expenses,
interest, and profit--to be 1.26 for room ACs. Manufacturers tend to
believe it is optimistic to assume that they would be able to maintain
the same gross margin percentage markup as their production costs
increase, particularly for minimally efficient products. Therefore, DOE
assumes that this scenario represents a high bound to industry

[[Page 20641]]

profitability under an amended energy conservation standard.
In the preservation of operating profit scenario, as the cost of
production goes up under a standards case, manufacturers are generally
required to reduce their 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 manufacturer markup
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 markup scenarios is presented in section V.B.2.a
of this document.
3. Manufacturer Interviews
DOE interviewed manufacturers representing approximately 40 percent
of the basic models in DOE's Compliance Certification Database
(``CCD''). Participants included OEMs and importers.
In interviews, DOE asked manufacturers to describe their major
concerns regarding potential increases in energy conservation standards
for room ACs. The following section highlights manufacturer concerns
that helped inform the projected potential impacts of an amended
standard on the industry. Manufacturer interviews are conducted under
non-disclosure agreements (``NDAs''), so DOE does not document these
discussions in the same way that it does public comments in the comment
summaries and DOE's responses throughout the rest of this document.
a. Compressor Availability
For the June 2020 Preliminary Analysis, DOE selected EL 3 levels to
represent an intermediate efficiency between EL 2 (the ENERGY STAR
level) and EL 4 (the max-tech level) \56\ that could be reached with
single-speed compressor designs for all product classes. 85 FR 36512.
In interviews, manufacturers raised concerns about the ability to meet
the preliminary analysis' CEER values at EL 3 without the use of
variable-speed compressors. Manufacturers asserted that the single-
speed compressors necessary to meet the preliminary analysis EL 3
levels are not available to all manufacturers and encouraged DOE to
base EL 3 on compressors that are widely available on the market.
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\56\ For the June 2020 Preliminary Analysis, DOE analyzed five
efficiency levels as part of its engineering analysis. In response
to stakeholder comments to the preliminary analysis, DOE analyzed an
additional efficiency level in the NOPR engineering analysis between
EL 3 and the max-tech level (EL 4 in the preliminary analysis, now
EL 5 for this NOPR).
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b. Physical Design Constraints
Manufacturers noted that through-the-wall (``TTW'') products are
designed to fit specific sleeve sizes and the market requires
replacement products to fit existing sleeves. Additionally, window
units are constrained by average window dimensions. Further,
manufacturers noted that they design the boxed product to meet either
50 pound (``lb'') or 150 lb weight thresholds, reflecting requirements
related to worker safety standards, parcel delivery service thresholds,
and customer utility. Manufacturers noted that maintaining existing
product dimensions is an important feature to their end-users,
particularly in the replacement market.
c. Cost Increases and Component Shortages
Manufacturers noted that recent increases in raw material prices,
escalating shipping and transportation costs, and limited component
availability all affect manufacturer production costs. As a result,
cost estimates based on historic 5-year averages would underestimate
current production costs.
4. Discussion of MIA Comments
In response to the June 2020 Preliminary Analysis, interested
parties submitted written comments addressing several topics including
cumulative regulatory burden.
AHAM and GEA commented that DOE should include proposed changes to
both standards and refrigerants, as well as the economic impact of U.S.
tariffs on Chinese imports, when determining the cumulative regulatory
burden placed on manufacturers. AHAM and GEA also urged DOE to
incorporate the financial results of cumulative regulatory burden
analysis into the GRIM to account for the time and resources needed to
comply with concurrent regulations. (AHAM, No. 19 at pp. 12 and 17-19;
GEA No. 26 at p. 2)
DOE analyzes cumulative regulatory burden pursuant to 10 CFR part
430, subpart C, appendix A. Pursuant to appendix A, the Department will
recognize and consider the overlapping effects on manufacturers of new
or revised DOE standards and other Federal regulatory actions affecting
the same products or equipment. The results of this analysis can be
found in section V.B.2.e of this document. DOE endeavors to provide
analyses that take market conditions and the effect of other Federal
regulatory actions into account, such as the U.S. tariffs on Chinese
imports and the transition to alternative refrigerants. DOE
incorporates these factors into their range of analyses, including the
market and technology assessment, screening analysis, engineering
analysis, energy usage analysis, NIA, and MIA.
In consideration of AHAM's comment on the possibility that
California may prohibit HFCs and the resulting transition to
alternative refrigerants (AHAM, No. 40 at p. 12), DOE evaluated
potential impacts of CARB's proposed 750 GWP limit on the energy
efficiency of new room ACs. This State regulation is specific to the
products regulated by this NOPR and would require redesign of the
covered product. Based on interviews and through review of market data,
DOE found that all but one OEM is producing R-32 room AC models.
Additionally, based on interview feedback, all OEMs intend to
transition entirely to R-32 room ACs by 2023 regardless of DOE actions
related to the energy conservation standards for room ACs. Thus, DOE
did not consider the redesign costs related to R-32 to be conversion
costs, as the change in refrigerant is independent of DOE actions
related to any amended energy conservation standards.
DOE is aware of one OEM still in the process of redesigning room
ACs to make use of R-32 and to comply with the requirements in
Underwriters Laboratories (``UL'') Standard UL 60335-2-40, ``Household
and Similar Electrical Appliances--Safety--Part 2-40: Particular
Requirements for Electrical Heat Pumps, Air-Conditioners and
Dehumidifiers'' (``UL 60335-2-40'') for their products that are
manufactured in-house. To account for these investments, DOE
incorporated an estimate of the on-going costs for that business into
its GRIM.
Regarding U.S. tariffs on Chinese imports, tariff levels have
escalated in recent years. At the time of the April 2011 Direct Final
Rule, most room ACs imported into the U.S. were manufactured in China.
Since that time, the Section 301 tariffs on room ACs increased to 10
percent in September 2018 and to 25 percent in May 2019.\57\

[[Page 20642]]

As result of tariffs, as noted by AHAM, ``some manufacturers have had
to shift production to other countries to avoid the tariffs.'' (AHAM,
No. 19 at pp. 18-19) DOE understands that these products are now made
in countries in East Asia and Southeast Asia not subject to Section 301
tariffs. However, due to uncertainty about the exact countries of
origin, DOE's engineering analysis continues to rely on data based on a
Chinese point of origin. To revise MPCs to account for points of origin
outside of China, DOE would require information on the countries of
manufacture and 5-year averages for key inputs, such as fully burdened
production labor wage rates and local raw material prices, used to
develop MPCs.
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\57\ The Office of the United States Trade Representative
(``USTR'') released a list of Chinese imports subject to new tariffs
on September 18, 2018. The tariffs were set at 10 percent and had an
effective date of September 24, 2018. Room ACs fall under Harmonized
Tariffs Schedule (``HTS'') code 8415.10.30, ``Window or wall type
air conditioning machines, self[hyphen]contained,'' and were subject
to those tariffs. The USTR press release on the adoption of the
tariffs and the affected imports can be found at: <a href="http://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/september/ustr-finalizes-tariffs-200">ustr.gov/about-us/policy-offices/press-office/press-releases/2018/september/ustr-finalizes-tariffs-200</a>. The Notice of Modification of Section 301 can
be found at: <a href="http://ustr.gov/sites/default/files/enforcement/301Investigations/83%20FR%2047974.pdf">ustr.gov/sites/default/files/enforcement/301Investigations/83%20FR%2047974.pdf</a>.
Initially, the tariffs on room ACs were set to increase to 25
percent on January 1, 2019. The increase was delayed in subsequent
negotiations. Ultimately the USTR raised tariffs on room ACs to 25
percent on May 10, 2019. The USTR press release on the increase in
tariffs can be found at: <a href="http://ustr.gov/sites/default/files/enforcement/301Investigations/83%20FR%2047974.pdf">ustr.gov/sites/default/files/enforcement/301Investigations/83%20FR%2047974.pdf</a>. The Notice of Modification of
Section 301 can be found at: <a href="http://ustr.gov/sites/default/files/enforcement/301Investigations/84_FR_20459.pdf">ustr.gov/sites/default/files/enforcement/301Investigations/84_FR_20459.pdf</a>.
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To better model the impact of Section 301 tariffs on room AC
products that continue to be manufactured in China, DOE requires
additional information about the portion of products still manufactured
in China and how the tariffs are absorbed by the entities along the
room AC value chain, such as the foreign OEMs, U.S. importers,
retailers, and consumers. Increases in retail price may affect consumer
purchasing decisions, as captured by the price sensitivity modeled in
the shipments analysis.
Additional details about cumulative regulatory burden and requests
for comment can be found in section V.B.2.d of this document.

K. Emissions Analysis

The emissions analysis consists of two components. The first
component estimates the effect of potential energy conservation
standards on power sector and site (where applicable) combustion
emissions of CO<INF>2</INF>, NO<INF>X</INF>, SO<INF>2</INF>, and Hg.
The second component estimates the impacts of potential standards on
emissions of two additional greenhouse gases, CH<INF>4</INF> and
N<INF>2</INF>O, as well as the reductions to 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 power sector emissions of CO<INF>2</INF>,
NO<INF>X</INF>, SO<INF>2</INF>, and Hg uses marginal emissions factors
that were derived from data in AEO 2021, as described in section IV.M
of this document. Details of the methodology are described in the
appendices to chapters 13 and 15 of the NOPR TSD.
Power sector emissions of CO<INF>2</INF>, CH<INF>4</INF>, and
N<INF>2</INF>O are estimated using Emission Factors for Greenhouse Gas
Inventories published by the EPA.\58\ The FFC upstream emissions are
estimated based on the methodology described in chapter 15 of the NOPR
TSD. The upstream emissions include both emissions from extraction,
processing, and transportation of fuel, and ``fugitive'' emissions
(direct leakage to the atmosphere) of CH<INF>4</INF> and
CO<INF>2</INF>.
---------------------------------------------------------------------------

\58\ <a href="http://www.epa.gov/sites/production/files/2016-09/documents/emission-factors_nov_2015_v2.pdf">www.epa.gov/sites/production/files/2016-09/documents/emission-factors_nov_2015_v2.pdf</a> (last accessed June 14, 2021).
---------------------------------------------------------------------------

The emissions intensity factors are expressed in terms of physical
units per megawatt-hours (``MWh'') or million British thermal units
(``MMBtu'') of site energy savings. 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 2021, which incorporates the projected impacts of existing air
quality regulations on emissions. AEO 2021 generally represents current
legislation and environmental regulations, including recent government
actions that were in place at the time of preparation of AEO 2021,
including the emissions control programs discussed in the following
paragraphs.\59\
---------------------------------------------------------------------------

\59\ For further information, see the Assumptions to AEO 2021
report that sets forth the major assumptions used to generate the
projections in the Annual Energy Outlook. Available at <a href="http://www.eia.gov/outlooks/aeo/assumptions/">www.eia.gov/outlooks/aeo/assumptions/</a> (last accessed June 14, 2021).
---------------------------------------------------------------------------

SO<INF>2</INF> 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 SO<INF>2</INF> for affected EGUs in the 48 contiguous States and
the District of Columbia (D.C.). (42 U.S.C. 7651 et seq.)
SO<INF>2</INF> 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 SO<INF>2</INF>
emissions, and went into effect as of January 1, 2015.\60\ AEO 2021
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, any excess SO<INF>2</INF> emissions
allowances resulting from the lower electricity demand caused by the
adoption of an efficiency standard could be used to permit offsetting
increases in SO<INF>2</INF> emissions by another regulated EGU.
---------------------------------------------------------------------------

\60\ CSAPR requires states to address annual emissions of
SO<INF>2</INF> and NO<INF>X</INF>, precursors to the formation of
fine particulate matter (PM<INF>2.5</INF>) pollution, in order to
address the interstate transport of pollution with respect to the
1997 and 2006 PM<INF>2.5</INF> National Ambient Air Quality
Standards (``NAAQS''). CSAPR also requires certain states to address
the ozone season (May-September) emissions of NO<INF>X</INF>, 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).
---------------------------------------------------------------------------

However, beginning in 2016, SO<INF>2</INF> emissions began to fall
as a result of implementation of the Mercury and Air Toxics Standards
(``MATS'') for power plants. 77 FR 9304 (Feb. 16, 2012). In the MATS
final rule, EPA established a standard for hydrogen chloride as a
surrogate for acid gas hazardous air pollutants (``HAP''), and also
established a standard for SO<INF>2</INF> (a non-HAP acid gas) as an
alternative equivalent surrogate standard for acid gas HAP. The same
controls are used to reduce HAP and non-HAP acid gas; thus,
SO<INF>2</INF> emissions are being reduced as a result of the control
technologies installed on coal-fired power plants to comply with the
MATS requirements for acid gas. 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 SO<INF>2</INF> emissions.
Because of the emissions reductions under the MATS, it is unlikely that
excess SO<INF>2</INF> emissions allowances resulting from the lower
electricity demand would be needed or used to permit offsetting
increases in SO<INF>2</INF> emissions by another regulated EGU.
Therefore, energy conservation standards that decrease electricity

[[Page 20643]]

generation would generally reduce SO<INF>2</INF> emissions. DOE
estimated SO<INF>2</INF> emissions reduction using emissions factors
based on AEO2021.
CSAPR also established limits on NO<INF>X</INF> emissions for
numerous States in the eastern half of the United States. Energy
conservation standards would have little effect on NO<INF>X</INF>
emissions in those States covered by CSAPR emissions limits if excess
NO<INF>X</INF> emissions allowances resulting from the lower
electricity demand could be used to permit offsetting increases in
NO<INF>X</INF> emissions from other EGUs. In such case, NO<INF>X</INF>
emissions would remain near the limit even if electricity generation
goes down. A different case could possibly result, depending on the
configuration of the power sector in the different regions and the need
for allowances, such that NO<INF>X</INF> emissions might not remain at
the limit in the case of lower electricity demand. In this case, energy
conservation standards might reduce NO<INF>X</INF> 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 NO<INF>X</INF> emissions in States covered by CSAPR. Energy
conservation standards would be expected to reduce NO<INF>X</INF>
emissions in the States not covered by CSAPR. DOE used AEO 2021 data to
derive NO<INF>X</INF> 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
AEO 2021, which incorporates the MATS.

L. Monetizing Emissions Impacts

As part of the development of this proposed rule, for the purpose
of complying with the requirements of Executive Order 12866, DOE
considered the estimated monetary benefits from the reduced emissions
of CO<INF>2,</INF> CH<INF>4</INF>, N<INF>2</INF>O, NO<INF>X</INF>, and
SO<INF>2</INF> that are expected to result from each of the TSLs
considered. In order to make this calculation analogous to the
calculation of the NPV of consumer benefit, DOE considered the reduced
emissions expected to result over the lifetime of products shipped in
the projection period for each TSL. This section summarizes the basis
for the values used for monetizing the emissions benefits and presents
the values considered in this NOPR.
On March 16, 2022, the Fifth Circuit Court of Appeals (No. 22-
30087) granted the federal government's emergency motion for stay
pending appeal of the February 11, 2022, preliminary injunction issued
in Louisiana v. Biden, No. 21-cv-1074-JDC-KK (W.D. La.). As a result of
the Fifth Circuit's order, the preliminary injunction is no longer in
effect, pending resolution of the federal government's appeal of that
injunction or a further court order. Among other things, the
preliminary injunction enjoined the defendants in that case from
``adopting, employing, treating as binding, or relying upon'' the
interim estimates of the social cost of greenhouse gases--which were
issued by the Interagency Working Group on the Social Cost of
Greenhouse Gases on February 26, 2021--to monetize the benefits of
reducing greenhouse gas emissions. In the absence of further
intervening court orders, DOE will revert to its approach prior to the
injunction and present monetized benefits where appropriate and
permissible under law. DOE requests comment on how to address the
climate benefits and other non-monetized effects of the proposal.
1. Monetization of Greenhouse Gas Emissions
For the purpose of complying with the requirements of Executive
Order 12866, DOE estimates the monetized benefits of the reductions in
emissions of CO<INF>2</INF>, CH<INF>4</INF>, and N<INF>2</INF>O by
using a measure of the social cost (``SC'') of each pollutant (e.g.,
SC-GHGs). These estimates represent the monetary value of the net harm
to society associated with a marginal increase in emissions of these
pollutants in a given year, or the benefit of avoiding that increase.
These estimates are intended to include (but are not limited to)
climate-change-related changes in net agricultural productivity, human
health, property damages from increased flood risk, disruption of
energy systems, risk of conflict, environmental migration, and the
value of ecosystem services. DOE exercises its own judgment in
presenting monetized climate benefits as recommended by applicable
Executive orders and guidance, and DOE would reach the same conclusion
presented in this proposed rulemaking in the absence of the social cost
of greenhouse gases, including the February 2021 Interim Estimates
presented by the Interagency Working Group on the Social Cost of
Greenhouse Gases. DOE exercises its own judgment in presenting
monetized climate benefits as recommended by applicable Executive
Orders, and DOE would reach the same conclusion presented in this
notice in the absence of the social cost of greenhouse gases, including
the February 2021 Interim Estimates presented by the Interagency
Working Group on the Social Cost of Greenhouse Gases.
DOE estimated the global social benefits of CO<INF>2</INF>,
CH<INF>4</INF>, and N<INF>2</INF>O reductions (i.e., SC-GHGs) using the
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 Social Cost of Greenhouse Gases (IWG) (IWG, 2021). The SC-GHGs
is the monetary value of the net harm to society associated with a
marginal increase in emissions in a given year, or the benefit of
avoiding that increase. I

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