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Rule2024-30369

Energy Conservation Program: Energy Conservation Standards for Consumer Gas-fired Instantaneous Water Heaters

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Published

December 26, 2024

Effective

March 11, 2025

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 gas-fired instantaneous water heaters, which are a type of consumer water heater. EPCA also requires the U.S. Department of Energy ("DOE" or the "Department") to periodically review its existing standards to determine whether more-stringent standards would be technologically feasible and economically justified, and would result in significant energy savings. In this final rule, DOE is adopting amended energy conservation standards for gas-fired instantaneous water heaters. It has determined that the amended energy conservation standards for these products would result in significant conservation of energy, and are technologically feasible and economically justified.

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[Federal Register Volume 89, Number 247 (Thursday, December 26, 2024)]
[Rules and Regulations]
[Pages 105188-105285]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-30369]

[[Page 105187]]

Vol. 89

Thursday,

No. 247

December 26, 2024

Part II

Department of Energy

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10 CFR Part 430

Energy Conservation Program: Energy Conservation Standards for Consumer
Gas-fired Instantaneous Water Heaters; Final Rule

Federal Register / Vol. 89 , No. 247 / Thursday, December 26, 2024 /
Rules and Regulations

[[Page 105188]]

DEPARTMENT OF ENERGY

10 CFR Part 430

[EERE-2017-BT-STD-0019]
RIN 1904-AF65

Energy Conservation Program: Energy Conservation Standards for
Consumer Gas-fired Instantaneous Water Heaters

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

ACTION: Final rule.

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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 gas-fired
instantaneous water heaters, which are a type of consumer water heater.
EPCA also requires the U.S. Department of Energy (``DOE'' or the
``Department'') to periodically review its existing standards to
determine whether more-stringent standards would be technologically
feasible and economically justified, and would result in significant
energy savings. In this final rule, DOE is adopting amended energy
conservation standards for gas-fired instantaneous water heaters. It
has determined that the amended energy conservation standards for these
products would result in significant conservation of energy, and are
technologically feasible and economically justified.

DATES: The effective date of this rule is March 11, 2025. Compliance
with the amended standards established for gas-fired instantaneous
water heaters in this final rule is required on and after December 26,
2029.

ADDRESSES: The docket for this rulemaking, which includes Federal
Register notices, public meeting attendee lists and transcripts,
comments, and other supporting documents/materials, is available for
review at <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/EERE-2017-BT-STD-0019">www.regulations.gov/docket/EERE-2017-BT-STD-0019</a>. The docket web page contains instructions on how
to access all documents, including public comments, in the docket.
For further information on how to review the docket, contact the
Appliance and Equipment Standards Program staff at (202) 287-1445 or by
email: <a href="/cdn-cgi/l/email-protection#317041415d58505f52546245505f55504355426044544245585e5f427154541f555e541f565e47">[email&#160;protected]</a>.

FOR FURTHER INFORMATION CONTACT: Ms. Julia Hegarty, U.S. Department of
Energy, Office of Energy Efficiency and Renewable Energy, Building
Technologies Office, EE-5B, 1000 Independence Avenue SW, Washington,
DC, 20585-0121. Telephone: (202) 586-0729. Email:
<a href="/cdn-cgi/l/email-protection#34754444585d555a57516740555a505546504765415147405d5b5a477451511a505b511a535b42">[email&#160;protected]</a>.
Mr. Uchechukwu ``Emeka'' Eze, U.S. Department of Energy, Office of
the General Counsel, GC-33, 1000 Independence Avenue SW, Washington,
DC, 20585-0121. Telephone: (240) 961-8879. Email:
<a href="/cdn-cgi/l/email-protection#0f7a6c676a6c677a64787a216a756a4f677e216b606a21686079">[email&#160;protected]</a>.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Synopsis of the Final Rule
A. Benefits and Costs to Consumers
B. Impact on Manufacturers
C. National Benefits and Costs
D. Conclusion
II. Introduction
A. Authority
B. Background
1. Current Standards
2. History of Standards Rulemaking for Gas-fired Instantaneous
Water Heaters
III. General Discussion
A. General Comments
1. General Support
2. Support for Updated Analysis and Standards at EL 2
3. General Opposition
4. Comments on Higher Standards Than Proposed in the NOPR
B. Scope of Coverage
C. Test Procedure
D. Technological Feasibility
1. General
2. Maximum Technologically Feasible Levels
E. Energy Savings
1. Determination of Savings
2. Significance of Savings
F. Economic Justification
1. Specific Criteria
a. Economic Impact on Manufacturers and Consumers
b. Savings in Operating Costs Compared to Increase in Price (LCC
and PBP)
c. Energy Savings
d. Lessening of Utility or Performance of Products
e. Impact of Any Lessening of Competition
f. Need for National Energy Conservation
g. Other Factors
2. Rebuttable Presumption
IV. Methodology and Discussion of Related Comments
A. Market and Technology Assessment
1. Product Classes
2. Technology Options
B. Screening Analysis
1. Screened-Out Technologies
2. Remaining Technologies
C. Engineering Analysis
1. Products With Current UEF-Based Standards
a. Efficiency Levels
b. Design Options
c. Cost Analysis
d. Shipping Costs and Manufacturer Selling Price
e. Cost-Efficiency Results
2. Products Without Current UEF-Based Standards
a. Crosswalk to Equivalent-Stringency UEF-Based Standards
b. Consideration of More Stringent Standards
D. Markups Analysis
E. Energy Use Analysis
1. Building Sample
2. Hot Water Use Determination
3. Energy Use Determination
F. Life-Cycle Cost and Payback Period Analysis
1. Product Cost
2. Installation Cost
a. Basic Installation Costs
b. Venting Costs
c. Condensate Management Costs
3. Annual Energy Consumption
4. Energy Prices
5. Maintenance and Repair Costs
6. Product Lifetime
7. Discount Rates
8. Energy Efficiency Distribution in the No-New-Standards Case
9. Payback Period Analysis
10. Accounting for Product Switching
11. Analytical Results
G. Shipments Analysis
1. Impact of Repair vs. Replace
H. National Impact Analysis
1. Product Efficiency Trends
2. National Energy Savings
3. Net Present Value Analysis
I. Consumer Subgroup Analysis
1. Low-Income Households
2. Senior-Only Households
3. Small Business Subgroup
J. Manufacturer Impact Analysis
1. Overview
2. Government Regulatory Impact Model and Key Inputs
a. Manufacturer Production Costs
b. Shipments Projections
c. Capital and Product Conversion Costs
d. Manufacturer Markup Scenarios
3. Discussion of MIA Comments
K. Emissions Analysis
1. Air Quality Regulations Incorporated in DOE's Analysis
L. Monetizing Emissions Impacts
1. Monetization of Greenhouse Gas Emissions
a. Social Cost of Carbon
b. Social Cost of Methane and Nitrous Oxide
2. Monetization of Other Emissions Impacts
M. Utility Impact Analysis
N. Employment Impact Analysis
V. Analytical Results and Conclusions
A. Trial Standard Levels
B. Economic Justification and Energy Savings
1. Economic Impacts on Individual Consumers
a. Life-Cycle Cost and Payback Period
b. Consumer Subgroup Analysis

[[Page 105189]]

c. Rebuttable Presumption Payback
2. Economic Impacts on Manufacturers
a. Industry Cash Flow Analysis Results
b. Direct Impacts on Employment
c. Impacts on Manufacturing Capacity
d. Impacts on Subgroups of Manufacturers
e. Cumulative Regulatory Burden
3. National Impact Analysis
a. National Energy Savings
b. Net Present Value of Consumer Costs and Benefits
c. Indirect Impacts on Employment
4. Impact on Utility or Performance of Products
5. Impact of Any Lessening of Competition
6. Need of the Nation To Conserve Energy
7. Other Factors
8. Summary of Economic Impacts
C. Conclusion
1. Benefits and Burdens of TSLs Considered for Gas-fired
Instantaneous Water Heater Standards
2. Annualized Benefits and Costs of the Adopted Standards
3. Compliance Dates
VI. Procedural Issues and Regulatory Review
A. Review Under Executive Orders 12866, 13563, and 14094
B. Review Under the Regulatory Flexibility Act
C. Review Under the Paperwork Reduction Act
D. Review Under the National Environmental Policy Act of 1969
E. Review Under Executive Order 13132
F. Review Under Executive Order 12988
G. Review Under the Unfunded Mandates Reform Act of 1995
H. Review Under the Treasury and General Government
Appropriations Act, 1999
I. Review Under Executive Order 12630
J. Review Under the Treasury and General Government
Appropriations Act, 2001
K. Review Under Executive Order 13211
L. Information Quality
M. Congressional Notification
VII. Approval of the Office of the Secretary

I. Synopsis of the Final Rule

The Energy Policy and Conservation Act, Public Law 94-163, as
amended (``EPCA''),\1\ authorizes DOE to regulate the energy efficiency
of a number of consumer products and certain industrial equipment. (42
U.S.C. 6291-6317, as codified) Title III, Part B of EPCA \2\
established the Energy Conservation Program for Consumer Products Other
Than Automobiles. (42 U.S.C. 6291-6309) These products include gas-
fired instantaneous water heaters, the subject of this document. (42
U.S.C. 6292(a)(4))
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\1\ All references to EPCA in this document refer to the statute
as amended through the Energy Act of 2020, Public Law 116-260 (Dec.
27, 2020), which reflect the last statutory amendments that impact
Parts A and A-1 of EPCA.
\2\ For editorial reasons, upon codification in the U.S. Code,
Part B was redesignated Part A.
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Pursuant to EPCA, DOE is required to review its existing energy
conservation standards for covered consumer products no later than six
years after issuance of any final rule establishing or amending a
standard. (42 U.S.C. 6295(m)(1)) Pursuant to that statutory provision,
DOE must publish either a notification of determination that standards
for the product do not need to be amended, or a notice of proposed
rulemaking (``NOPR'') including new proposed energy conservation
standards (proceeding to a final rule, as appropriate). (Id.) Any new
or amended energy conservation standard must be designed to achieve the
maximum improvement in energy efficiency that DOE determines is
technologically feasible and economically justified. (42 U.S.C.
6295(o)(2)(A)) Furthermore, the new or amended standard must result in
significant conservation of energy. (42 U.S.C. 6295(o)(3)(B)) DOE has
conducted this review of the energy conservation standards for gas-
fired instantaneous water heaters under EPCA's six-year-lookback
authority described herein. Additionally, for gas-fired instantaneous
water heaters with 2 or more gallons of storage volume and gas-fired
instantaneous water heaters with less than or equal to 50,000 British
thermal units per hour (``Btu/h'') of input, DOE is following the
provisions in EPCA to translate the current energy factor (``EF'')-
based standards to the uniform energy factor (``UEF'') metric. (42
U.S.C. 6295(e)(5))
In accordance with these and other statutory provisions discussed
in this document, DOE analyzed the benefits and burdens of four trial
standard levels (``TSLs'') for gas-fired instantaneous water heaters
with less than 2 gallons of effective storage volume and rated inputs
greater than 50,000 Btu/h. The TSLs and their associated benefits and
burdens are discussed in detail in sections V.A through V.C of this
document. As discussed in section V.C of this document, DOE has
determined that TSL 2 represents the maximum improvement in energy
efficiency that is technologically feasible and economically justified.
The adopted standards, which are expressed in UEF are shown in table
I.1. These standards apply to products with effective storage volumes
less than 2 gallons and input ratings greater than 50,000 Btu/h (as
listed in table I.1) and manufactured in, or imported into, the United
States starting on December 26, 2029.
For all other gas-fired instantaneous water heaters, DOE is
adopting new standards that do not constitute an increase to
stringency, but simply a change in rating metric to the UEF descriptor.
These standards apply to all remaining products listed in table I.1 and
manufactured in, or imported into, the United States starting on
December 26, 2029.

Table I.1--Energy Conservation Standards for Gas-Fired Instantaneous Water Heaters
----------------------------------------------------------------------------------------------------------------
Effective storage
Product class volume (Veff) * and Draw pattern UEF
input rating
----------------------------------------------------------------------------------------------------------------
Gas-fired Instantaneous Water <2 gallons (``gal'') Very Small............... 0.64
Heater. and <=50,000 Btu/h.
Low...................... 0.64
Medium................... 0.64
High..................... 0.64
<2 gal and >50,000 Very Small............... 0.89
Btu/h.
Low...................... 0.91
Medium................... 0.91
High..................... 0.93
>=2 gal and <=200,000 Very Small............... 0.2534-(0.0018 x Veff)
Btu/h.
Low...................... 0.5226-(0.0022 x Veff)
Medium................... 0.5919-(0.0020 x Veff)
High..................... 0.6540-(0.0017 x Veff)
----------------------------------------------------------------------------------------------------------------
* Veff is the Effective Storage Volume (in gallons), as determined pursuant to 10 CFR 429.17.

[[Page 105190]]

The following sections of this synopsis summarize the findings of
the analysis carried out for gas-fired instantaneous water heaters with
less than 2 gallons of effective storage volume and rated inputs
greater than 50,000 Btu/h.

A. Benefits and Costs to Consumers 3
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\3\ All monetary values in this document are expressed in 2023
dollars unless indicated otherwise. For purposes of discounting
future monetary values, the present year in the analysis was 2024.
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The average life-cycle cost (``LCC'') savings are $112, and the
simple payback period (``PBP''),\4\ 8.9 years, is less than the 20-year
average lifetime of a gas-fired instantaneous water heater (see section
IV.F of this document).
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\4\ The average LCC savings refer to consumers that are affected
by a standard and are measured relative to the efficiency
distribution in the no-new-standards case, which depicts the market
in the compliance year in the absence of new or amended standards
(see section IV.F.9 of this document). The simple PBP, which is
designed to compare specific efficiency levels, is measured relative
to the baseline product (see section IV.C of this document).
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DOE's analysis of the impacts of the adopted standards on consumers
is described in section IV.F of this document.

B. Impact on Manufacturers

The industry net present value (``INPV'') is the sum of the
discounted cash flows to the industry from the base year through the
end of the analysis period (2024-2059). Using a real discount rate of
9.6 percent, DOE estimates that the INPV for manufacturers of gas-fired
instantaneous water heaters in the case without amended standards is
$1,193.9 million in 2023$. Under the adopted standards, DOE estimates
the change in INPV to range from -2.8 percent to 3.4 percent, which is
approximately -$33.7 million to $40.5 million. In order to bring
products into compliance with amended standards, it is estimated that
industry will incur total conversion costs of $20.4 million.
DOE's analysis of the impacts of the adopted standards on
manufacturers is described in section IV.J of this document. The
analytic results of the manufacturer impact analysis (``MIA'') are
presented in section V.B.2 of this document.

C. National Benefits and Costs

DOE's analyses indicate that the adopted energy conservation
standards for gas-fired instantaneous water heaters would save a
significant amount of energy. Relative to the case without amended
standards, the lifetime energy savings for gas-fired instantaneous
water heaters purchased during the 30-year period that begins in the
anticipated year of compliance with the amended standards (2030-2059),
amount to 0.58 quadrillion British thermal units (``Btu''), or
quads.\5\ This represents a savings of 1.9 percent relative to the
energy use of these products in the case without amended standards
(referred to as the ``no-new-standards case'').
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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.
---------------------------------------------------------------------------

The cumulative net present value (``NPV'') of total consumer
benefits of the standards for gas-fired instantaneous water heaters
ranges from $0.87 billion (at a 7-percent discount rate) to $3.06
billion (at a 3-percent discount rate). This NPV expresses the
estimated total value of future operating-cost savings minus the
estimated increased product and installation costs for gas-fired
instantaneous water heaters purchased during the period 2030-2059.
In addition, the adopted standards for gas-fired instantaneous
water heaters are projected to yield significant environmental
benefits. DOE estimates that the standards will result in cumulative
emission reductions (over the same period as for energy savings) of 32
million metric tons (``Mt'') \6\ of carbon dioxide
(``CO<INF>2</INF>''), 0.12 thousand tons of sulfur dioxide
(``SO<INF>2</INF>''), 86 thousand tons of nitrogen oxides
(``NO<INF>X</INF>''), 398 thousand tons of methane
(``CH<INF>4</INF>''), 0.06 thousand tons of nitrous oxide
(``N<INF>2</INF>O''), and an increase of 0.0004 tons of mercury
(``Hg'') due to a small increase in electricity use at the adopted
standards.\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 2023 (``AEO2023''). AEO2023 reflects, to the extent
possible, laws and regulations adopted through mid-November 2022,
including the Inflation Reduction Act. See section IV.K of this
document for further discussion of AEO2023 assumptions that affect
air pollutant emissions.
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DOE estimates the value of climate benefits from a reduction in
greenhouse gases (``GHG'') using 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'').\8\ Together these represent the social cost of GHG
(``SC-GHG''). DOE used an updated set of SC-GHG estimates published in
2023 by the Environmental Protection Agency (``EPA'') (``2023 SC-
GHG''), as well as the interim SC-GHG values (in terms of benefit per
ton of GHG avoided) developed by an Interagency Working Group on the
Social Cost of Greenhouse Gases (``IWG'') in 2021 (``2021 Interim SC-
GHG''), which DOE used in the notice of proposed rulemaking for this
rule before the updated values were available.\9\ These values is
discussed in section IV.L of this document. The climate benefits
associated with the average SC-GHG at a 2-percent near-term Ramsey
discount rate using the 2023 SC-GHG estimates are estimated to be $7.1
billion, and the climate benefits associated with the average 2021
Interim SC-GHG estimates at a 3-percent discount rate are estimated to
be $1.7 billion. DOE notes, however, that the adopted standards would
be economically justified even without inclusion of the estimated
monetized benefits of reduced GHG emissions.
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\8\ Estimated climate-related benefits are provided in
compliance with Executive Order 12866.
\9\ Technical Support Document: Social Cost of Carbon, Methane,
and Nitrous Oxide Interim Estimates Under Executive Order 13990
published in February 2021 by the IWG. (``February 2021 SC-GHG
TSD''). <a href="http://www.whitehouse.gov/wp-content/uploads/2021/02/TechnicalSupportDocument_SocialCostofCarbonMethaneNitrousOxide.pdf">www.whitehouse.gov/wp-content/uploads/2021/02/TechnicalSupportDocument_SocialCostofCarbonMethaneNitrousOxide.pdf</a>.
<a href="https://www.epa.gov/system/files/documents/2023-12/eo12866_oil-and-gas-nsps-eg-climate-review-2060-av16-final-rule-20231130.pdf">https://www.epa.gov/system/files/documents/2023-12/eo12866_oil-and-gas-nsps-eg-climate-review-2060-av16-final-rule-20231130.pdf</a>;
<a href="https://www.epa.gov/system/files/documents/2023-12/epa_scghg_2023_report_final.pdf">https://www.epa.gov/system/files/documents/2023-12/epa_scghg_2023_report_final.pdf</a> (last accessed July 3, 2024).
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DOE estimated the monetary health benefits of SO<INF>2</INF> and
NO<INF>X</INF> emissions reductions using benefit per ton estimates
from the EPA's Benefits Mapping and Analysis Program,\10\ as discussed
in section IV.L of this document. DOE did not monetize the change in
mercury emissions because the quantity is very small. DOE estimated the
present value of the health benefits would be $0.9 billion using a 7-
percent discount rate, and $2.7 billion using a 3-percent discount
rate.\11\ DOE is currently only monetizing health benefits from changes
in ambient fine particulate matter (``PM<INF>2.5</INF>'')
concentrations from two precursors (SO<INF>2</INF> and NO<INF>X</INF>),
and from changes in ambient ozone from one precursor (NO<INF>X</INF>),
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.
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\10\ U.S. EPA. Estimating the Benefit per Ton of Reducing
Directly-Emitted PM<INF>2.5</INF>, PM<INF>2.5</INF> Precursors and
Ozone Precursors from 21 Sectors. Available at: <a href="http://www.epa.gov/benmap/estimating-benefit-ton-reducing-pm25-precursors-21-sectors">www.epa.gov/benmap/estimating-benefit-ton-reducing-pm25-precursors-21-sectors</a>.
\11\ DOE estimates the economic value of these emissions
reductions resulting from the considered TSLs for the purpose of
complying with the requirements of Executive Order 12866.
---------------------------------------------------------------------------

Table I.2 summarizes the monetized benefits and costs expected to
result from the amended standards for gas-

[[Page 105191]]

fired instantaneous water heaters. There are other important
unquantified effects, including certain unquantified climate benefits,
unquantified public health benefits from the reduction of toxic air
pollutants and other emissions, unquantified energy security benefits,
and distributional effects, among others.

Table I.2--Summary of Monetized Benefits and Costs of the Adopted Energy
Conservation Standards for Gas-fired Instantaneous Water Heaters at TSL
2 Shipped During the Period 2030-2059
[Veff < 2 gal, Rated Input > 50,000 Btu/h]
------------------------------------------------------------------------
Billion 2023$
------------------------------------------------------------------------
3% discount rate
------------------------------------------------------------------------
Consumer Operating Cost Savings......................... 4.5
Climate Benefits * (2023 SC-GHG estimates).............. 7.1
Climate Benefits * (2021 interim SC-GHG estimates)...... 1.7
Health Benefits **...................................... 2.7
Total Benefits [dagger] (2023 SC-GHG estimates)......... 14.3
Total Benefits [dagger] (2021 interim SC-GHG estimates). 8.9
Consumer Incremental Product Costs [Dagger]............. 1.5
Net Benefits [dagger] (2023 SC-GHG estimates)........... 12.8
Net Benefits [dagger] (2021 interim SC-GHG estimates)... 7.4
Change in Producer Cashflow (INPV) [Dagger][Dagger]..... (0.03)-0.04
------------------------------------------------------------------------
7% discount rate
------------------------------------------------------------------------
Consumer Operating Cost Savings......................... 1.7
Climate Benefits * (2023 SC-GHG estimates).............. 7.1
Climate Benefits * (2021 interim SC-GHG estimates)...... 1.7
Health Benefits **...................................... 0.9
Total Benefits [dagger] (2023 SC-GHG estimates)......... 9.6
Total Benefits [dagger] (2021 interim SC-GHG estimates). 4.2
Consumer Incremental Product Costs [Dagger]............. 0.8
Net Benefits [dagger] (2023 SC-GHG estimates)........... 8.9
Net Benefits [dagger] (2021 interim SC-GHG estimates)... 3.4
Change in Producer Cashflow (INPV) [Dagger][Dagger]..... (0.03)-0.04
------------------------------------------------------------------------
Note: These results include consumer, climate, and health benefits that
accrue after 2030 from the products shipped during the period 2030-
2059.
* Climate benefits are calculated using different estimates of the
social cost of carbon (SC-CO2), methane (SC-CH4), and nitrous oxide
(SC-N2O). Climate benefits are estimated using two separate sets of
estimates of the social cost for each greenhouse gas, an updated set
published in 2023 by the Environmental Protection Agency (EPA) (``2023
SC-GHG'') and the interim set of estimates used in the NOPR which were
published in 2021 by the Interagency Working Group on the SC-GHG (IWG)
(``2021 Interim SC-GHG'') (see section IV.L of this document). For
presentational purposes of this table, the climate benefits associated
with the average SC-GHG at a 2 percent near-term Ramsey discount rate
are shown for the 2023 SC-GHG estimates, and the climate benefits
associated with the average SC-GHG at a 3 percent discount rate are
shown for the 2021 interim SC-GHG estimates.
** Health benefits are calculated using benefit-per-ton values for NOX
and SO2. DOE is currently only monetizing (for SO2 and NOX) PM2.5
precursor health benefits and (for NOX) ozone precursor health
benefits, but will continue to assess the ability to monetize other
effects such as health benefits from reductions in direct PM2.5
emissions. Table 5 of the EPA's Estimating the Benefit per Ton of
Reducing PM Precursors from 21 Sectors TSD provides a summary of the
health impact endpoints quantified in the analysis. See section IV.L
of this document for more details.
[dagger] Total and net benefits include those consumer, climate, and
health benefits that can be quantified and monetized. For presentation
purposes, total and net benefits for both the 3-percent and 7-percent
cases are presented using the average SC-GHG with 2-percent near-term
Ramsey discount rate for the 2023 estimate and the average SC-GHG with
3-percent discount rate for the 2021 interim SC-GHG estimate.
[Dagger] Costs include incremental equipment costs as well as
installation costs.
[Dagger][Dagger] Operating Cost Savings are calculated based on the life-
cycle costs analysis and national impact analysis as discussed in
detail below. See sections IV.F and IV.H of this document. DOE's
national impacts analysis includes all impacts (both costs and
benefits) along the distribution chain beginning with the increased
costs to the manufacturer to manufacture the product and ending with
the increase in price experienced by the consumer. DOE also separately
conducts a detailed analysis on the impacts on manufacturers (i.e.,
manufacturer impact analysis, or ``MIA''). See section IV.J of this
document. In the detailed MIA, DOE models manufacturers' pricing
decisions based on assumptions regarding investments, conversion
costs, cashflow, and margins. The MIA produces a range of impacts,
which is the rule's expected impact on the INPV. The change in INPV is
the present value of all changes in industry cash flow, including
changes in production costs, capital expenditures, and manufacturer
profit margins. Change in INPV is calculated using the industry
weighted average cost of capital value of 9.6 percent that is
estimated in the MIA (see chapter 12 of the final rule technical
support document (``TSD'') for a complete description of the industry
weighted average cost of capital). For gas-fired instantaneous water
heaters, the change in INPV ranges from -$34 million to $41 million.
DOE accounts for that range of likely impacts in analyzing whether a
TSL is economically justified. See section V.C of this document. DOE
is presenting the range of impacts to the INPV under two manufacturer
markup scenarios: the Preservation of Gross Margin scenario, which is
the manufacturer markup scenario used in the calculation of Consumer
Operating Cost Savings in this table; and the Preservation of
Operating Profit scenario, where DOE assumed manufacturers would not
be able to increase per-unit operating profit in proportion to
increases in manufacturer production costs. DOE includes the range of
estimated INPV in the above table, drawing on the MIA explained
further in section IV.J of this document to provide additional context
for assessing the estimated impacts of this final rule to society,
including potential changes in production and consumption, which is
consistent with OMB's Circular A-4 and E.O. 12866. If DOE were to
include the INPV into the net benefit calculation (2023 SC-GHG
estimates) for this final rule, the net benefits would be $12.8
billion at 3-percent discount rate and $8.9 billion at 7-percent
discount rate. Parentheses indicate negative ( ) values.

[[Page 105192]]

The benefits and costs of the adopted standards can also be
expressed in terms of annualized values. The monetary values for the
total annualized net benefits are: (1) the reduced consumer operating
costs, minus (2) the increase in product purchase prices and
installation costs, plus (3) the value of climate and health benefits
of emission reductions, all annualized.\12\
---------------------------------------------------------------------------

\12\ To convert the time-series of costs and benefits into
annualized values, DOE calculated a present value in 2024, the year
used for discounting the NPV of total consumer costs and savings.
For the benefits, DOE calculated a present value associated with
each year's shipments in the year in which the shipments occur
(e.g., 2020 or 2030), and then discounted the present value from
each year to 2024. Using the present value, DOE then calculated the
fixed annual payment over a 30-year period, starting in the
compliance year, that yields the same present value.
---------------------------------------------------------------------------

The national operating cost savings are domestic private U.S.
consumer monetary savings that occur as a result of purchasing the
covered products and are measured for the lifetime of gas-fired
instantaneous water heaters shipped during the period 2030-2059. The
benefits associated with reduced emissions achieved as a result of the
adopted standards are also calculated based on the lifetime of gas-
fired instantaneous water heaters shipped during the period 2030-2059.
Total benefits for both the 3-percent and 7-percent cases are presented
using the average SC-GHG with a 2 percent near-term Ramsey discount
rate for the 2023 SC-GHG estimates and the average SC-GHG with 3-
percent discount rate for the 2021 interim SC-GHG estimates.\13\
---------------------------------------------------------------------------

\13\ DOE notes that using consumption-based discount rates
(e.g., 2 or 3 percent) is appropriate when discounting the value of
climate impacts. Combining climate effects discounted at an
appropriate consumption-based discount rate with other costs and
benefits discounted at a capital-based rate (i.e., 7 percent) is
reasonable because of the different nature of the types of benefits
being measured.
---------------------------------------------------------------------------

Table I.3 presents the total estimated monetized benefits and costs
associated with the adopted standard, expressed in terms of annualized
values. The results under the primary estimate are as follows.
Using a 7-percent discount rate for consumer benefits and costs and
health benefits from reduced NO<INF>X</INF> and SO<INF>2</INF>
emissions, and the 2-percent near-term Ramsey discount rate case or the
3-percent discount rate case for climate benefits from reduced GHG
emissions, the estimated cost of the standards adopted in this rule is
$88 million per year in increased equipment costs, while the estimated
annual benefits are $187 million in reduced equipment operating costs,
$349 million in climate benefits (using the 2023 SC-GHG estimates) or
$98 million in climate benefits (using the 2021 interim SC-GHG
estimates), and $101 million in health benefits. In this case, the net
benefit would amount to $549 million per year (using the 2023 SC-GHG
estimates) or $297 million per year (using the 2021 interim SC-GHG
estimates).
Using a 3-percent discount rate for consumer benefits and costs and
health benefits from reduced NO<INF>X</INF> and SO<INF>2</INF>
emissions, and the 2-percent near-term Ramsey discount rate case or the
3-percent discount rate case for climate benefits from reduced GHG
emissions, the estimated cost of the standards is $87 million per year
in increased equipment costs, while the estimated annual benefits are
$268 million in reduced operating costs, $349 million in climate
benefits (using the 2023 SC-GHG estimates) or $98 million in climate
benefits (using the 2021 interim SC-GHG estimates), and $158 million in
health benefits. In this case, the net benefit would amount to $689
million per year (using the 2023 SC-GHG estimates) or $437 million per
year (using the 2021 interim SC-GHG estimates).

Table I.3--Annualized Benefits and Costs of the Adopted Energy Conservation Standards for Gas-Fired
Instantaneous Water Heaters at TSL 2 Shipped During the Period 2030-2059
[Veff <2 gal, rated input >50,000 Btu/h]
----------------------------------------------------------------------------------------------------------------
Million 2023$/year
-----------------------------------------------
Low-net- High-net-
Primary benefits benefits
estimate estimate estimate
----------------------------------------------------------------------------------------------------------------
3% discount rate
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings................................. 268 249 288
Climate Benefits * (2023 SC-GHG estimates)...................... 349 344 355
Climate Benefits * (2021 interim SC-GHG estimates).............. 98 96 100
Health Benefits **.............................................. 158 156 161
Total Benefits [dagger] (2023 SC-GHG estimates)................. 776 749 804
Total Benefits [dagger] (2021 interim SC-GHG estimates)......... 525 502 548
Consumer Incremental Product Costs [Dagger]..................... 87 86 89
Net Benefits [dagger] (2023 SC-GHG estimates)................... 689 663 715
Net Benefits [dagger] (2021 interim SC-GHG estimates)........... 437 416 459
Change in Producer Cashflow (INPV) [Dagger][Dagger]............. (3)-4 (3)-4 (3)-4
----------------------------------------------------------------------------------------------------------------
7% discount rate
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings................................. 187 174 200
Climate Benefits * (2023 SC-GHG estimates)...................... 349 344 355
Climate Benefits * (2021 interim SC-GHG estimates).............. 98 96 100
Health Benefits **.............................................. 101 99 102
Total Benefits [dagger] (2023 SC-GHG estimates)................. 637 616 658
Total Benefits [dagger] (2021 interim SC-GHG estimates)......... 386 369 402
Consumer Incremental Product Costs [Dagger]..................... 88 87 90
Net Benefits [dagger] (2023 SC-GHG estimates)................... 549 530 568
Net Benefits [dagger] (2021 interim SC-GHG estimates)........... 297 283 312

[[Page 105193]]

Change in Producer Cashflow (INPV) [Dagger][Dagger]............. (3)-4 (3)-4 (3)-4
----------------------------------------------------------------------------------------------------------------
Note: These results include consumer, climate, and health benefits that accrue after 2059 from the products
shipped during the period 2030-2059. The Primary, Low Net Benefits, and High Net Benefits Estimates utilize
projections of energy prices from the AEO2023 Reference case, Low Economic Growth case, and High Economic
Growth case, respectively. In addition, incremental equipment costs reflect a medium decline rate in the
Primary Estimate, a low decline rate in the Low Net Benefits Estimate, and a high decline rate in the High Net
Benefits Estimate. The methods used to derive projected price trends are explained in sections IV.F.1 and
IV.H.3 of this document. Note that the Benefits and Costs may not sum to the Net Benefits due to rounding.
* Climate benefits are calculated using different estimates of the global SC-GHG (see section IV.L of this
document). Climate benefits are estimated using two separate sets of estimates of the social cost for each
greenhouse gas, an updated set published in 2023 by the Environmental Protection Agency (EPA) (``2023 SC-
GHG'') and the interim set of estimates used in the NOPR which were published in 2021 by the Interagency
Working Group on the SC-GHG (IWG) (``2021 Interim SC-GHG'') (see section IV.L of this document). For
presentational purposes of this table, the climate benefits associated with the average SC-GHG at a 2 percent
near-term Ramsey discount rate are shown for the 2023 SC-GHG estimates, and the climate benefits associated
with the average SC-GHG at a 3 percent discount rate are shown for the 2021 interim SC-GHG estimates.
** Health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only monetizing
(for SO2 and NOX) PM2.5 precursor health benefits and (for NOX) ozone precursor health benefits, but will
continue to assess the ability to monetize other effects such as health benefits from reductions in direct
PM2.5 emissions. Table 5 of the EPA's Estimating the Benefit per Ton of Reducing PM2.5 Precursors from 21
Sectors TSD provides a summary of the health impact endpoints quantified in the analysis. See section IV.L of
this document for more details.
[dagger] Total benefits for both the 3-percent and 7-percent cases are presented using the average SC-GHG with 2-
percent near-term Ramsey discount rate for the 2023 estimate and the average SC-GHG with 3-percent discount
rate for the 2021 interim SC-GHG estimate.
[Dagger] Costs include incremental equipment costs as well as installation costs.
[Dagger][Dagger] Operating Cost Savings are calculated based on the life-cycle costs analysis and national
impact analysis as discussed in detail below. See sections IV.F and IV.H of this document. DOE's national
impacts analysis includes all impacts (both costs and benefits) along the distribution chain beginning with
the increased costs to the manufacturer to manufacture the product and ending with the increase in price
experienced by the consumer. DOE also separately conducts a detailed analysis on the impacts on manufacturers
(i.e., MIA). See section IV.J of this document. In the detailed MIA, DOE models manufacturers' pricing
decisions based on assumptions regarding investments, conversion costs, cashflow, and margins. The MIA
produces a range of impacts, which is the rule's expected impact on the INPV. The change in INPV is the
present value of all changes in industry cash flow, including changes in production costs, capital
expenditures, and manufacturer profit margins. The annualized change in INPV is calculated using the industry
weighted average cost of capital value of 9.6 percent that is estimated in the MIA (see chapter 12 of the
final rule TSD for a complete description of the industry weighted average cost of capital). For gas-fired
instantaneous water heaters, the annualized change in INPV ranges from -$3 million to $4 million. DOE accounts
for that range of likely impacts in analyzing whether a TSL is economically justified. See section V.C of this
document. DOE is presenting the range of impacts to the INPV under two manufacturer markup scenarios: the
Preservation of Gross Margin scenario, which is the manufacturer markup scenario used in the calculation of
Consumer Operating Cost Savings in this table; and the Preservation of Operating Profit scenario, where DOE
assumed manufacturers would not be able to increase per-unit operating profit in proportion to increases in
manufacturer production costs. DOE includes the range of estimated annualized change in INPV in the above
table, drawing on the MIA explained further in section IV.J of this document to provide additional context for
assessing the estimated impacts of this final rule to society, including potential changes in production and
consumption, which is consistent with OMB's Circular A-4 and E.O. 12866. If DOE were to include the INPV into
the annualized net benefit calculation (2023 SC-GHG estimates) for this final rule, the annualized net
benefits would range from $686 million to $693 million at 3-percent discount rate and would range from $546
million to $553 million at 7-percent discount rate. Parentheses indicate negative ( ) values.

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

D. Conclusion

DOE concludes that the standards adopted in this final rule
represent the maximum improvement in energy efficiency that is
technologically feasible and economically justified, and would result
in the significant conservation of energy. Specifically, with regards
to technological feasibility products achieving these standard levels
are already commercially available. As for economic justification,
DOE's analysis shows that the benefits of the standards exceed, to a
great extent, the burdens of the standards.
Using a 7-percent discount rate for consumer benefits and costs and
NO<INF>X</INF> and SO<INF>2</INF> reduction benefits, and a 2-percent
near-term Ramsey discount rate case or the 3-percent discount rate case
for GHG social costs, the estimated cost of the standards for gas-fired
instantaneous water heaters is $88 million per year in increased
product costs, while the estimated annual benefits are $187 million in
reduced product operating costs, $349 million in climate benefits
(using the 2023 SC-GHG estimates) or $98 million in climate benefits
(using the 2021 interim SC-GHG estimates), and $101 million in health
benefits. The net benefit amounts to $549 million per year (using the
2023 SC-GHG estimates) or $297 million per year (using the 2021 interim
SC-GHG estimates). DOE notes that the net benefits are substantial even
in the absence of the climate benefits,\14\ and DOE would adopt the
same standards in the absence of such benefits.
---------------------------------------------------------------------------

\14\ The information on climate benefits is provided in
compliance with Executive Order 12866.
---------------------------------------------------------------------------

The significance of energy savings offered by a new or amended
energy conservation standard cannot be determined without knowledge of
the specific circumstances surrounding a given rulemaking.\15\ For
example, some covered products and equipment have most of their energy
consumption occur during periods of peak energy demand. The impacts of
these products on the energy infrastructure can be more pronounced than
the impacts of products with relatively constant demand. Accordingly,
DOE evaluates the significance of energy savings on a case-by-case
basis.
---------------------------------------------------------------------------

\15\ Procedures, Interpretations, and Policies for Consideration
in New or Revised Energy Conservation Standards and Test Procedures
for Consumer Products and Commercial/Industrial Equipment, 86 FR
70892, 70901 (Dec. 13, 2021).

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

[[Page 105194]]

As previously mentioned, the standards are projected to result in
estimated national energy savings (``NES'') of 0.58 quads full-fuel-
cycle (``FFC''), the equivalent of the primary annual energy use of 4
million homes. Based on these findings, DOE has determined the energy
savings from the standard levels adopted in this final rule are
``significant'' within the meaning of 42 U.S.C. 6295(o)(3)(B). A more
detailed discussion of the basis for these conclusions is contained in
the remainder of this document and the accompanying TSD.

II. Introduction

The following section briefly discusses the statutory authority
underlying this final rule, as well as some of the relevant historical
background related to the establishment of standards for gas-fired
instantaneous water heaters, which, as discussed in section III.B of
this document, are a subset of consumer water heaters. Gas-fired
instantaneous water heaters are defined at 10 CFR 430.2 as a water
heater that uses gas as the main energy source, has a nameplate input
rating less than 200,000 Btu/h, and contains no more than one gallon of
water per 4,000 Btu per hour of input.

A. Authority

EPCA authorizes DOE to regulate the energy efficiency of a number
of consumer products and certain industrial equipment. (42 U.S.C. 6291-
6317, as codified) Title III, Part B of EPCA \16\ established the
Energy Conservation Program for Consumer Products Other Than
Automobiles. (42 U.S.C. 6291-6309) These products include gas-fired
instantaneous water heaters, the subject of this document. (42 U.S.C.
6292(a)(4))
---------------------------------------------------------------------------

\16\ As noted previously, for editorial reasons, upon
codification in the U.S. Code, Part B was redesignated Part A.
---------------------------------------------------------------------------

The energy conservation program under EPCA, consists essentially of
four parts: (1) testing, (2) labeling, (3) the establishment of Federal
energy conservation standards, and (4) certification and enforcement
procedures. Relevant provisions of EPCA specifically include
definitions (42 U.S.C. 6291), test procedures (42 U.S.C. 6293),
labeling provisions (42 U.S.C. 6294), energy conservation standards (42
U.S.C. 6295), and the authority to require information and reports from
manufacturers (42 U.S.C. 6296).
Federal energy efficiency requirements for covered products
established under EPCA generally supersede State laws and regulations
concerning energy conservation testing, labeling, and standards. (42
U.S.C. 6297(a)-(c)) DOE may, however, grant waivers of Federal
preemption in limited circumstances for particular State laws or
regulations, in accordance with the procedures and other provisions set
forth under EPCA. (42 U.S.C. 6297(d))
Subject to certain criteria and conditions, DOE is required to
develop test procedures to measure the energy efficiency, energy use,
or estimated annual operating cost of each covered product. (42 U.S.C.
6295(o)(3)(A) and 42 U.S.C. 6295(r)) Manufacturers of covered products
must use the prescribed DOE test procedure as the basis for certifying
to DOE that their product complies with the applicable energy
conservation standards and as the basis for any representations
regarding the energy use or energy efficiency of the product. (42
U.S.C. 6295(s) and 42 U.S.C. 6293(c)). Similarly, DOE must use these
test procedures to evaluate whether a basic model complies with the
applicable energy conservation standard(s). (42 U.S.C. 6295(s)) The DOE
test procedures for gas-fired instantaneous water heaters appear at
title 10 of the Code of Federal Regulations (``CFR'') part 430, subpart
B, appendix E (``appendix E'').
EPCA prescribed energy conservation standards for gas-fired
instantaneous water heaters (42 U.S.C. 6295(e)(1)) and directed DOE to
conduct future rulemakings to determine whether to amend these
standards. (42 U.S.C. 6295(e)(4)) Not later than six years after the
issuance of any final rule establishing or amending a standard, DOE
must publish either a notice of determination (``NOPD'') that standards
for the product do not need to be amended, or a NOPR including new
proposed energy conservation standards (proceeding to a final rule, as
appropriate). (42 U.S.C. 6295(m)(1)) DOE must make the analysis on
which a NOPD or NOPR is based publicly available and provide an
opportunity for written comment. (42 U.S.C. 6295(m)(2)) Not later than
two years after a NOPR is issued, DOE must publish a final rule
amending the energy conservation standard for the product. (42 U.S.C.
6295(m)(3)(A))
DOE must follow specific statutory criteria for prescribing new or
amended standards for covered products, including gas-fired
instantaneous water heaters. Any new or amended standard for a covered
product must be designed to achieve the maximum improvement in energy
efficiency that the Secretary of Energy (``Secretary'') determines is
technologically feasible and economically justified. (42 U.S.C.
6295(o)(2)(A)) Furthermore, DOE may not adopt any standard that would
not result in the significant conservation of energy. (42 U.S.C.
6295(o)(3)(B))
Moreover, DOE may not prescribe a standard if: (1) for certain
products, including gas-fired instantaneous water heaters, no test
procedure has been established for the product; or (2) DOE determines
by rule that the establishment of such standard will not result in
significant conservation of energy (or, for certain products, water),
or is not technologically feasible or economically justified. (42
U.S.C. 6295(o)(3)(A)-(B)) In deciding whether a proposed standard is
economically justified, DOE must determine whether the benefits of the
standard exceed its burdens. (42 U.S.C. 6295(o)(2)(B)(i)) DOE must make
this determination after receiving comments on the proposed standard,
and by considering, to the greatest extent practicable, the following
seven statutory factors:
(1) The economic impact of the standard on manufacturers and
consumers of the products subject to the standard;
(2) The savings in operating costs throughout the estimated average
life of the covered products in the type (or class) compared to any
increase in the price, initial charges, or maintenance expenses for the
covered products that are likely to result from the standard;
(3) The total projected amount of energy (or as applicable, water)
savings likely to result directly from the standard;
(4) Any lessening of the utility or the performance of the covered
products likely to result from the standard;
(5) The impact of any lessening of competition, as determined in
writing by the Attorney General, that is likely to result from the
standard;
(6) The need for national energy and water conservation; and
(7) Other factors the Secretary considers relevant.
(42 U.S.C. 6295(o)(2)(B)(i)(I)-(VII))
Further, EPCA, as codified, establishes a rebuttable presumption
that a standard is economically justified if the Secretary finds that
the additional cost to the consumer of purchasing a product complying
with an energy conservation standard level will be less than three
times the value of the energy savings during the first year that the
consumer will receive as a result of the standard, as calculated under
the applicable test procedure. (42 U.S.C. 6295(o)(2)(B)(iii))
EPCA, as codified, also contains what is known as an ``anti-
backsliding''

[[Page 105195]]

provision, which prevents the Secretary from prescribing any amended
standard that either increases the maximum allowable energy use or
decreases the minimum required energy efficiency of a covered product.
(42 U.S.C. 6295(o)(1)) Also, the Secretary may not prescribe an amended
or new standard if interested persons have established by a
preponderance of the evidence that the standard is likely to result in
the unavailability in the United States in any covered product type (or
class) of performance characteristics (including reliability),
features, sizes, capacities, and volumes that are substantially the
same as those generally available in the United States. (42 U.S.C.
6295(o)(4))
Additionally, EPCA specifies requirements when promulgating an
energy conservation standard for a covered product that has two or more
subcategories. A rule prescribing an energy conservation standard for a
type (or class) of product must specify a different standard level for
a type or class of products that has the same function or intended use
if DOE determines that products within such group (A) consume a
different kind of energy from that consumed by other covered products
within such type (or class); or (B) have a capacity or other
performance-related feature which other products within such type (or
class) do not have and such feature justifies a higher or lower
standard. (42 U.S.C. 6295(q)(1)) In determining whether a performance-
related feature justifies a different standard for a group of products,
DOE considers such factors as the utility to the consumer of such a
feature and other factors DOE deems appropriate. Id. Any rule
prescribing such a standard must include an explanation of the basis on
which such higher or lower level was established. (42 U.S.C.
6295(q)(2))
Finally, pursuant to the amendments to EPCA contained in the Energy
Independence and Security Act of 2007, Public Law 110-140, any final
rule for new or amended energy conservation standards promulgated after
July 1, 2010, is required to address standby mode and off mode energy
use. (42 U.S.C. 6295(gg)(3)) Specifically, when DOE adopts a standard
for a covered product after that date, it must, if justified by the
criteria for adoption of standards under EPCA (42 U.S.C. 6295(o)),
incorporate standby mode and off mode energy use into a single
standard, or, if that is not feasible, adopt a separate standard for
such energy use for that product. (42 U.S.C. 6295(gg)(3)(A)-(B))
DOE is publishing this final rule pursuant to the six-year-lookback
review requirement in EPCA described herein for gas-fired instantaneous
water heaters with less than 2 gallons of effective storage volume and
rated inputs greater than 50,000 Btu/h. (42 U.S.C. 6295(m)) DOE is also
publishing this final rule pursuant to its authority to establish
uniform efficiency descriptors for covered water heaters (42 U.S.C.
6295(e)(5))

B. Background

1. Current Standards
As directed by EPCA (42 U.S.C. 6295(e)(4)), DOE conducted two
cycles of rulemakings to determine whether to amend the statutory
standards for consumer water heaters found in 42 U.S.C. 6295(e)(1). The
most recent rulemaking from April 2010 resulted in amended standards
using the EF metric originally prescribed by EPCA with a requirement
for compliance starting on April 16, 2015. 75 FR 20112 (Apr. 16, 2010)
(the ``April 2010 Final Rule''). Later amendments to EPCA directed DOE
to establish a uniform efficiency metric for consumer water heaters
(see 42 U.S.C. 6295(e)(5)(B)).\17\ The Federal test procedure was
revised to use a new metric, UEF, in a final rule published on July 11,
2014 (the ``July 2014 UEF TP Final Rule''). 79 FR 40542. In a final
rule published in the Federal Register on December 29, 2016, the
existing EF-based energy conservation standards were then translated
from EF to UEF using a ``conversion factor'' method for water heater
basic models that were in existence at the time. 81 FR 96204
(``December 2016 Conversion Factor Final Rule'').
---------------------------------------------------------------------------

\17\ The requirement for a consumer water heater test procedure
using UEF as a metric, as well as the requirement for DOE to
undertake a conversion factor rulemaking to translate existing
consumer water heater standards denominated in terms of EF to ones
denominated in terms of UEF, were part of the amendments to EPCA
contained in the American Energy Manufacturing Technical Corrections
Act (``AEMTCA''), Public Law 112-210 (Dec. 18, 2012).
---------------------------------------------------------------------------

The resulting standards for gas-fired instantaneous water heaters
set forth in DOE's regulations at 10 CFR 430.32(d)(1) are shown in
table II.1.

Table II.1--Federal Energy Efficiency Standards for Gas-Fired Instantaneous Water Heaters
----------------------------------------------------------------------------------------------------------------
Rated storage volume and Uniform energy
Product class input rating Draw pattern * factor
----------------------------------------------------------------------------------------------------------------
Instantaneous Gas-fired Water Heater.. <2 gal and >50,000 Btu/h. Very Small................... 0.80
Low.......................... 0.81
Medium....................... 0.81
High......................... 0.81
----------------------------------------------------------------------------------------------------------------
* The draw pattern dictates the frequency and duration of hot water draws during the 24-hour simulated use test,
and is an indicator of delivery capacity of the water heater. Draw patterns are assigned based on the first
hour rating (``FHR''), for non-flow-activated water heaters, or maximum GPM rating (``Max GPM''), for flow-
activated water heaters. For the specific FHR and Max GPM ranges which correspond to each draw pattern, see
section 5.4.1 of appendix E to subpart B of 10 CFR part 430.

In the December 2016 Conversion Factor Final Rule, DOE declined to
develop conversion factors and UEF-based standards for consumer water
heaters of certain sizes (by rated storage volume or input rating) and
of certain types (i.e., oil-fired instantaneous water heaters) where
models did not exist on the market at the time to inform the analysis
of the standards conversion. 81 FR 96204, 96210-96211. For consumer
water heaters that did not receive converted UEF-based standards, DOE
provided its interpretation that the original statutory standards--
found at 42 U.S.C. 6295(e)(1) and expressed in terms of the EF metric--
still applied; however, DOE would not enforce those statutorily-
prescribed standards until such a time that conversion factors are
developed for these products and they can be converted to UEF. Id.
Thus, the EF-based standards specified by EPCA apply to any consumer
water heaters which do not have UEF-based standards found at 10 CFR
430.32(d). The EF-based standards for gas-fired instantaneous water
heaters which do not have UEF-based standards are set

[[Page 105196]]

forth at 42 U.S.C. 6295(e)(1) and are repeated in table II.2.

Table II.2--EF-Based Federal Energy Conservation Standards for Gas-Fired
Consumer Water Heaters
------------------------------------------------------------------------
Product class Energy factor *
------------------------------------------------------------------------
Gas water heaters................ 0.62-(0.0019 x Vr)
------------------------------------------------------------------------
* Vr is the rated storage volume (in gallons), as determined pursuant to
10 CFR 429.17.

2. History of Standards Rulemaking for Gas-Fired Instantaneous Water
Heaters
On May 21, 2020, DOE initiated the most recent rulemaking for
consumer water heaters, including gas-fired instantaneous water
heaters, by publishing in the Federal Register a request for
information (``May 2020 RFI''), soliciting public comment on various
aspects of DOE's planned analyses to help DOE determine whether to
amend energy conservation standards for consumer water heaters. 85 FR
30853 (May 21, 2020). DOE subsequently published a notice requesting
feedback on its preliminary analysis and technical support document
(``preliminary TSD'') on March 1, 2022 (the ``March 2022 Preliminary
Analysis'') with a 60-day comment period. 87 FR 11327 (Mar. 1, 2022).
The comment period was extended by 14 days in a notice published on May
4, 2022. 87 FR 26303.
On October 21, 2022, DOE received a set of recommendations on
amended energy conservation standards for consumer water heaters from a
coalition of seven public- and private-sector organizations, including
two water heater manufacturers, three energy efficiency organizations,
one environmental group, and one consumer organization--collectively
the Joint Stakeholders--which, in part, addressed standards for gas-
fired instantaneous water heaters. This coalition's submission has been
referred to as the ``Joint Stakeholder Recommendation.'' (See Document
No. 49 in Docket No. EERE-2017-BT-STD-0019.)
On July 28, 2023, DOE published in the Federal Register a notice of
proposed rulemaking (``July 2023 NOPR'') and technical support document
(``NOPR TSD'') with a 60-day comment period that proposed new and
amended standards for consumer water heaters, including gas-fired
instantaneous water heaters. 88 FR 49058 (Jul. 28, 2023). On September
13, 2023, DOE presented the proposed standards and accompanying
analysis at a public meeting. The submissions DOE received in response
to the July 2023 NOPR pertaining to gas-fired instantaneous water
heaters are listed in table II.3.

Table II.3--List of Commenters With Written Submissions Specific to Gas-Fired Instantaneous Water Heaters in
Response to the July 2023 NOPR
----------------------------------------------------------------------------------------------------------------
Comment number in the
Commenter(s) Abbreviation docket Commenter type
----------------------------------------------------------------------------------------------------------------
Individual......................... Hardy....................... 0185.................... Individual.
NPGA, APGA, AGA, and Rinnai........ NPGA, APGA, AGA, and Rinnai. 0441.................... Trade Associations
and Manufacturer.
Carolinas Natural Gas Coalition.... CNGC........................ 0648.................... Trade Association.
Jackson Energy Authority........... JEA......................... 0865.................... Utility.
Watertown Municipal Utilities...... WMU......................... 0872.................... Utility.
Philadelphia Gas Works............. PGW......................... 0886.................... Utility.
Southeast Gas...................... Southeast Gas............... 0887.................... Utility.
Consumer Energy Alliance........... CEA......................... 0914.................... Consumer Advocate.
American Society of Gas Engineers.. ASGE........................ 0976.................... Trade Association.
Chesapeake Utilities Corporation... CHPK........................ 1008.................... Utility.
Georgia Office of the Attorney Attorney General of GA...... 1026.................... State Official/
General. Agency.
Advanced Water Heating Initiative.. AWHI........................ 1036.................... Efficiency
Organization.
Tennessee Attorney General's Office Attorney General of TN...... 1149.................... State Official/
Agency.
American Pipeline Contractors APCA........................ 1152.................... Trade Association.
Association.
Texas Public Policy Foundation..... TPPF........................ 1153.................... Academic Institute.
Midwest Energy Efficiency Alliance, Joint Regional Advocacy 1154.................... Efficiency
Northeast Energy Efficiency Groups. Organizations.
Partnerships, Northwest Energy
Efficiency Alliance, South-central
Partnership for Energy Efficiency
as a Resource, Southeast Energy
Efficiency Alliance, Southwest
Energy Efficiency Project.
American Council for an Energy- Joint Stakeholders.......... 1156.................... Coalition.
Efficient Economy, Natural
Resources Defense Council,
Appliance Standards Awareness
Project, Northwest Energy
Efficiency Alliance, Consumer
Federation of America, Rheem
Manufacturing.
Office of Governor Brian P. Kemp... Governor of GA.............. 1157.................... State Official/
Agency.
Bradford White Corporation......... BWC......................... 1164.................... Manufacturer.
Air-Conditioning, Heating, and AHRI........................ 1167.................... Trade Association.
Refrigeration Institute.
California Energy Commission....... CEC......................... 1173.................... State Official/
Agency.
Pacific Gas and Electric Company; CA IOUs..................... 1175.................... Utilities.
Southern California Edison; and
San Diego Gas & Electric Company;
collectively, the California
Investor-owned Utilities.
Huntsville Utilities............... Huntsville Utilities........ 1176.................... Utility
Association.
Rheem Manufacturing Company........ Rheem....................... 1177.................... Manufacturer.
AGA, APGA, NPGA, Spire............. Gas Association Commenters.. 1181.................... Utility
Association.
A.O. Smith Corporation............. A.O. Smith.................. 1182.................... Manufacturer.
Rinnai America Corporation......... Rinnai...................... 1186.................... Manufacturer.
Northwest Energy Efficiency NEEA........................ 1199.................... Efficiency
Alliance. Organization.
ONE Gas, Inc....................... ONE Gas..................... 1200.................... Utility.
Noritz America Corporation......... Noritz...................... 1202.................... Efficiency
Organization.

[[Page 105197]]

Robert Bosch LLC................... Bosch....................... 1204.................... Manufacturer.
U.S. House of Representatives (Nine U.S. House of 1205.................... Government Official/
members, all from Georgia). Representatives. Agency.
----------------------------------------------------------------------------------------------------------------

Subsequent to the July 2023 NOPR, DOE determined it would continue
to consider comments prior to finalizing standards for gas-fired
instantaneous water heaters, although standards for all other consumer
water heaters were finalized in a rule published on May 6, 2024 (``May
2024 Final Rule''). 89 FR 37778. Most recently, DOE published a notice
of data availability in the Federal Register on July 23, 2024 (``July
2024 NODA''). 89 FR 59692. The purpose of the July 2024 NODA was to
make publicly available a full set of analytical results specific to
gas-fired instantaneous water heaters, including updates as compared to
the analysis conducted for the July 2023 NOPR after considering the
comments received. DOE received comments in response to the July 2024
NODA from the interested parties listed in table II.4.
In response to the July 2024 NODA, a larger coalition of
stakeholders co-signed a joint comment recommending standards for gas-
fired instantaneous water heaters. This coalition--consisting of AHRI
(a trade association representing the views of multiple manufacturers),
three energy efficiency organizations, one environmental group, and one
consumer organization--submitted the previous Joint Stakeholder
Recommendation for renewed consideration by DOE. Hence the submission
by this larger, more recent coalition is still referred to as the Joint
Stakeholder Recommendation throughout this final rule.

Table II.4--List of Commenters With Written Submissions in Response to the July 2024 NODA
----------------------------------------------------------------------------------------------------------------
Comment number in the
Commenter(s) Abbreviation docket Commenter type
----------------------------------------------------------------------------------------------------------------
Sophie Charlotte DuBard-Weis....... DuBard-Weis........... 1430....................... Individual.
Lucy Anderson...................... Anderson.............. 1431....................... Individual.
Anonymous.......................... Anonymous............. 1432....................... Individual.
American Gas Association (AGA), Joint Requesters...... 1433....................... Utility Associations;
American Public Gas Association Manufacturer.
(APGA), National Propane Gas
Association (NPGA), and Rinnai
America Corporation.
Northwest Energy Efficiency NEEA.................. 1434....................... Efficiency
Alliance. Organization.
Rinnai America Corporation......... Rinnai................ 1435, 1443................. Manufacturer.
Rheem Manufacturing Company........ Rheem................. 1436....................... Manufacturer.
Air-Conditioning, Heating, and AHRI.................. 1437....................... Trade Association.
Refrigeration Institute.
AHRI, ACEEE, ASAP, CFA, NRDC, and AHRI and the Joint 1438....................... Trade Association.
NEEA. Stakeholders.
American Gas Association (AGA), AGA et al............. 1439....................... Utility Association.
American Public Gas Association
(APGA), and National Propane Gas
Association (NPGA).
A.O. Smith Corporation............. A.O. Smith............ 1440....................... Manufacturer.
Bradford White Corporation......... BWC................... 1441....................... Manufacturer.
Pacific Gas and Electric Company; CA IOUs............... 1442....................... Utility.
Southern California Edison; and
San Diego Gas & Electric Company;
collectively, the California
Investor-owned Utilities.
ASAP, ACEEE, CFA, NCLC, NRDC, NBI, Joint Advocates....... 1444....................... Efficiency
and NEEA. Organization.
U.S. House of Representatives U.S. House of 1445....................... Government Official/
(Three members, all from Georgia). Representatives. Agency.
----------------------------------------------------------------------------------------------------------------

A parenthetical reference at the end of a comment quotation or
paraphrase provides the location of the item in the public record.\18\
To the extent that interested parties have provided written comments
that are substantively consistent with any oral comments provided
during the September 13, 2023, public meeting, DOE cites the written
comments throughout this final rule. DOE did not identify any oral
comments provided during the September 13, 2023, public meeting that
are not substantively addressed by written comments.
---------------------------------------------------------------------------

\18\ The parenthetical reference provides a reference for
information located in the docket of DOE's rulemaking to develop
energy conservation standards for consumer water heaters. (Docket
No. EERE-2017-BT-STD-0019, which is maintained at:
<a href="http://www.regulations.gov">www.regulations.gov</a>). The references are arranged as follows:
(commenter name, comment docket ID number at page of that document).
---------------------------------------------------------------------------

III. General Discussion

DOE developed this final rule after a review of the market for the
subject gas-fired instantaneous water heaters. DOE also considered
comments, data, and information from interested parties that represent
a variety of interests. This final rule addresses issues raised by
these commenters.

A. General Comments

This section summarizes general comments received from interested
parties regarding rulemaking timing and process.
In response to the July 2024 NODA, the Joint Requesters recommended
that DOE provide stakeholders with an additional 30 days (i.e., for a
total of 60 days) to comment. The Joint Requesters stated that the 30
days provided by DOE does not allow stakeholders to sufficiently
analyze the NODA and the related documents, which appear to incorporate
new data, use new methodologies, and reach different results from the
July 2023 NOPR. The Joint Requesters further commented that their
organizations had limited staff availability during the comment period.
(Joint Requesters, No. 1433 at pp. 2-3)
DOE notes the limited scope of the NODA and reiterates that the
July 2024 NODA updated only specific aspects of DOE's analysis of
potential amended energy conservation standards for gas-fired
instantaneous water heaters. The analysis from the July 2023 NOPR was
updated to reflect the latest available versions of the data sources
used. Overall, the cost-benefit analysis

[[Page 105198]]

methodology remains largely unchanged between the July 2024 NODA and
the July 2023 NOPR (see 89 FR 59692, 59693). Furthermore, this analysis
has been subject to extensive stakeholder input and feedback throughout
the course of this rulemaking. Commenters were provided a full 60-day
comment period to review the July 2023 NOPR analysis, and the July 2024
NODA described in depth the specific areas where DOE's analysis was
updated while providing the rationale for each update. As such, DOE
believes a 30-day comment period was appropriate for stakeholders to
review a limited set of revisions to a previously published analysis
and provide meaningful comments on the notice. (See Document No. 1446
in Docket No. EERE-2017-BT-STD-0019.)
AGA et al. stated that due to the use of data designed for other
natural gas appliances and not gas-fired instantaneous water heaters
specifically, DOE should restart the rulemaking process for gas-fired
instantaneous water heaters, or at a minimum issue a supplemental
notice. (AGA et al., No. 1439 at p. 1)
In response, DOE notes that it published the July 2024 NODA to
inform stakeholders of newly available data and results with respect to
potential amended standards for gas-fired instantaneous water heaters,
a limited update to the July 2023 NOPR analysis.
1. General Support
In response to the July 2023 NOPR, DOE received 2,880 \19\ general
comments (those which provided general remarks on the impact of the
rulemaking) \20\ with a significant number of commenters expressing
support of the proposed standards--including those proposed for gas-
fired instantaneous water heaters--and acknowledging the significant
energy savings that would result from the adoption of the proposed
standards.\21\
---------------------------------------------------------------------------

\19\ The number of comments reflects the number of individual
party submissions. Specifically, form letters with multiple
submissions count each submission individually.
\20\ Commenters who are directly referenced in this final rule
and appear in table II.3 are not counted in these statistics because
these submitters typically expressed detailed views that could not
be generalized as either clear support or clear opposition for all
aspects of the proposal.
\21\ One comment in support of the proposed standards, including
the proposal for gas-fired instantaneous water heaters, had 8,357
signatories.
---------------------------------------------------------------------------

AWHI expressed support for more stringent standards for gas-fired
instantaneous water heaters. (AWHI, No. 1036 at pp. 3-4) The Joint
Stakeholders stated that the proposed standards for gas-fired
instantaneous water heaters are consistent with their recommendations.
(Joint Stakeholders, No. 1156 at p. 2) NEEA, the Joint Regional
Advocacy Groups (citing the estimated FFC and monetary savings), and
Bosch supported the proposed standards for gas-fired instantaneous
water heaters. (NEEA, No. 1199 at p. 9; Joint Regional Advocacy Groups,
No. 1154 at p. 1; Bosch, No. 1204 at p. 2) Bosch commented that
condensing gas-fired instantaneous water heaters are readily available
and widely accepted in the market, and can create significant energy
savings and emissions reductions. Bosch stated that nearly every gas-
fired instantaneous water heater manufacturer sells a condensing-level
product and, therefore, the required technology is well-understood and
minimal research and development efforts would be required to achieve
the proposed efficiency levels. (Bosch, No. 1204 at p. 2)
CEC and A.O. Smith also supported DOE's proposed standards for gas-
fired instantaneous water heaters because they would result in
significant savings, lower monthly energy bills for homeowners, and
also provide emissions benefits. CEC urged DOE to finalize the proposed
standards as soon as possible. (CEC, No. 1173 at p. 12; A.O. Smith, No.
1182 at p. 14)
Two individual commenters expressed support for the proposed
rulemaking on the basis that clean energy is necessary for securing a
peaceful and prosperous future and for the economic benefits that will
result from the proposed rulemaking. (DuBard-Weis, No. 1430 at p. 1;
Anderson, No. 1431 at p. 1) An anonymous commenter also expressed
support for the proposed rulemaking on the basis of reducing emissions
related to water heaters for the benefit of the planet. (Anonymous, No.
1432 at p. 2)
2. Support for Updated Analysis and Standards at EL 2
In response to the July 2024 NODA, DOE received the following
comments in support of the updated analytical results and potential
amended standards at efficiency level (``EL'') 2.
NEEA, AHRI, AHRI and the Joint Stakeholders, the Joint Advocates,
Rheem, and BWC expressed support for the standards proposed at EL 2 for
gas-fired instantaneous water heaters in the July 2023 NOPR, with NEEA,
AHRI, AHRI and the Joint Stakeholders, the Joint Advocates, and BWC
noting the significant national energy savings and LCC savings for
consumers. NEEA, The Joint Advocates, and BWC stated that the proposed
standard aligns with the Joint Stakeholder Recommendations made in
2022. AHRI and the Joint Stakeholders expressed concern that DOE had
not yet adopted these standards and commented that the proposed levels
would, enable a broad set of consumer options while meeting EPCA's
directives of achieving significant national energy savings as well as
cost effectiveness and technological feasibility for consumers who
install these products. The Joint Advocates supported DOE's proposal to
adopt EL 2 for gas-fired instantaneous water heaters because EL 2
represents an intermediate condensing level and reflects the Joint
Stakeholder recommendations. The Joint Advocates further commented that
DOE's updated analysis in the NODA reinforces the economic and energy
benefits of adopting EL 2 for gas-fired instantaneous water heaters
and, while similar to those in the July 2023 NOPR, the updates in the
July 2024 NODA improve the analysis. (NEEA, No. 1434 at p. 1; Rheem,
No. 1436 at p. 1; AHRI, No. 1437 at p. 2; AHRI and the Joint
Stakeholders, No. 1438 at p. 1; BWC, No. 1441 at p. 1; Joint Advocates,
No. 1444, at pp. 1-2)
NEEA commented that the July 2024 NODA effectively updates the
analysis for gas-fired instantaneous water heaters to thoroughly
represent the market and better account for manufacturer impacts of
updating standards for gas-fired instantaneous water heaters by
updating from Energy Information Administration's Residential Energy
Consumption Survey (``RECS'') 2015 to RECS 2020 data, accounting for
the use of concentric pipe venting for both condensing and non-
condensing gas-fired instantaneous water heaters, and updating the
analysis to include outdoor installations of gas-fired instantaneous
water heaters that don't require venting or that require short through-
the-wall vents. NEEA commented that according to DOE's analysis,
impacts on manufacturers from a condensing-level standard would be
modest and potentially beneficial to domestic production. NEEA
recommended that DOE quickly issue a final rule for gas-fired
instantaneous water heaters, as NEEA agreed with DOE that condensing-
level standards at EL 2 would be cost effective and deliver significant
energy savings while having minimal negative impacts. (NEEA, No. 1434
at pp. 1-3)
Rheem recommended that DOE amend standards for gas-fired
instantaneous water heaters to EL 2, stating that DOE's analysis
remains justified. (Rheem, No. 1436 at p. 1) BWC urged DOE to establish
minimum energy

[[Page 105199]]

conservation standards for gas-fired instantaneous water heaters at EL
2 as originally proposed in the July 2023 NOPR and in accordance with
the Joint Stakeholder Recommendation. BWC stated that establishing
standards consistent with the Joint Stakeholder Recommendation would
result in national energy savings of 0.8 quads and provide individual
consumers average savings of $31 per year.\22\ (BWC, No. 1441 at p. 1)
---------------------------------------------------------------------------

\22\ BWC cited analytical results provided in the original Joint
Stakeholder Recommendation (Document No. 49 in this docket), which
relied on DOE's results from the March 2022 Preliminary Analysis
(see Joint Stakeholder, No. 49 at p. 5). DOE's most up-to-date
analysis provided in this final rule indicates a potential for 0.58
quads of national energy savings, with an average consumer LCC
savings of $112.
---------------------------------------------------------------------------

3. General Opposition
In response to the July 2023 NOPR, DOE received comments from
several stakeholders raising concern over the impact of the proposed
standards.
An individual commenter requested careful consideration of the
impacts of the proposed levels for gas-fired instantaneous water
heaters on the economy. The individual commenter noted that they work
at a propane company whose installation and servicing of tankless \23\
water heaters is a large part of its income, asserting that the
proposals, if adopted, could be detrimental to the economy. (Hardy, No.
185 at p. 1)
---------------------------------------------------------------------------

\23\ ``Tankless'' models are instantaneous water heaters with
very little storage volume. These designs comprise the majority of
consumer gas-fired instantaneous water heaters on the market today.
---------------------------------------------------------------------------

Commenters from the U.S. House of Representatives indicated that
the popularity of non-condensing gas-fired instantaneous water heaters
among homeowners and small business owners across the United States
reflects the efficiency and affordability of the products.
Additionally, the Commenters from the U.S. House of Representatives
stated that restricting consumer access to gas-fired instantaneous
water heaters by adopting higher standards would reduce consumer choice
and increase product prices. (U.S. House of Representatives, No. 1205
at p. 1) Then, in response to the July 2024 NODA, the Commenters from
the U.S. House of Representatives stated that gas-fired instantaneous
water heaters are projected to reach 11 percent of the U.S. market by
2028 and that sales of non-condensing tankless water heaters from 2005
to 2022 have saved 339 million MMBtus (0.34 quads) and 37.7 billion
pounds (17 million metric tons) of carbon emissions. Commenters from
the U.S. House of Representatives also stated that the July 2023 NOPR
would eliminate the non-condensing gas-fired instantaneous water
heaters while leaving costlier or higher emission profile products on
the market. (U.S. House of Representatives, No. 1445 at p. 1)
Regarding stakeholders' comments that the standards proposed in the
July 2023 NOPR would discourage adoption of gas-fired instantaneous
water heaters, DOE notes that it expects the share of gas-fired
instantaneous water heaters to continue to increase as a percentage of
the overall U.S. market in both the no-new-standards case and standards
cases. See section IV.F.10 for a discussion regarding why adoption of
other types of water heaters in response to amended standards for gas-
fired instantaneous water heaters is highly unlikely. Additionally, DOE
notes that only one-third of gas-fired instantaneous water heaters
shipped in 2024 were non-condensing models, with a market share that is
projected to decrease even in the absence of amended standards. See
section IV.G of this document and chapter 9 of the final rule TSD for
additional information on DOE's shipments analysis.
In addition to emphasizing several of the points it made in
response to the July 2023 NOPR, Rinnai claimed that, although the July
2024 NODA appears to make some adjustments for data provided by Rinnai
as well as other inputs, methods and approaches, it does not
sufficiently account for historic market data and trends, consumer
decision making, product and installation costs, and concerns with
modeling and methodology, nor does it suffice to meet statutory
requirements relating to economic justification, significant energy
savings, or product unavailability. Rinnai stated that the analysis in
the July 2024 NODA does not change its conclusion that the proposed
rule would limit the affordable, efficient options available to
consumers, would impede a market-driven shift toward more efficient
storage-type water heaters,\24\ and would likely result in a net
reduction in energy savings and an increase in carbon emissions. Rinnai
therefore requested that DOE correct its claimed deficiencies and flaws
in the July 2024 NODA, issue a supplemental notice of proposed
rulemaking to address these changes and allow thorough stakeholder
input, and reconsider the July 2023 NOPR's proposed rule. Rinnai
suggested that DOE should either maintain the existing standard for
gas-fired instantaneous water heaters, or alternatively promulgate
separate standards for condensing and non-condensing gas-fired
instantaneous water heaters. (Rinnai, No. 1443 at pp. 2-3)
---------------------------------------------------------------------------

\24\ The commenter used the phrase ``tank water heaters'' but
did not clarify how amended standards for gas-fired instantaneous
water heaters would impede a market transition towards more
efficient types of storage water heaters; however, they later
reiterate the concern regarding a shift towards gas-fired storage
water heaters, which, in general, tend to have lower UEF ratings
today compared to gas-fired instantaneous water heaters.
---------------------------------------------------------------------------

Rinnai raised concern with the condensing-level standards supported
by the Joint Stakeholders, asserting that such standards would not
adequately consider the gas-fired instantaneous water heater market and
industry as a whole. Specifically, Rinnai expressed that it does not
believe that non-condensing gas-fired instantaneous water heaters are
``on the way out'' of the market. According to Rinnai, the July 2024
NODA showed a projected 30 percent of gas-fired instantaneous water
heater sales in 2030 would be non-condensing models, consistent with
current trends. Rinnai stated that it would suffer the direct impacts
of this rule, being not only one of the leading manufacturers of gas-
fired instantaneous water heaters in general but also the market leader
in sales of non-condensing models, producing approximately 60 percent
of the market share of non-condensing models. (Rinnai, No. 1443 at pp.
23-24) Rinnai argued that DOE's consumer water heater rulemaking, and
in particular its actions with regard to gas-fired instantaneous water
heaters, depend heavily on DOE's interpretation of several statutory
provisions in EPCA. According to Rinnai, DOE's interpretations of
statutory provisions are not entitled to deference--for example, DOE's
interpretation of the unavailability provision, section 6295(o)(4), the
``significant conservation of energy'' provision, section 6295(o)(3),
the economic justification provision, section 6295(o)(2)(B), and the
separate standards provision, section 6295(q). Rinnai expressed its
concern that DOE's consumer water heater rulemaking, in conjunction
with its rulemaking proceedings on furnaces and boilers, represent a
significant overhaul of the appliance manufacturing industry. Rinnai
commented that, in line with the outcome of West Virginia v. EPA,\25\

[[Page 105200]]

EPCA was not intended to allow DOE to favor one fuel or type of
appliance over another or to reshape the appliance industry. (Rinnai,
No. 1443 at pp. 23-24)
---------------------------------------------------------------------------

\25\ In West Virginia v. EPA, 597 U.S. 697 (2022), the Court
expounded on the major questions doctrine, and held that agencies
could not adopt rules with, as Rinnai put it, ``significant
economic, industry and consumer choice impacts'' without having
clear congressional authorization to do so. (Rinnai, No. 1443 at p.
24)
---------------------------------------------------------------------------

DOE's rulemaking to amend energy conservation standards for gas-
fired instantaneous water heaters does not disallow the production,
import, or sale of water heaters using any specific fuel type.
Moreover, gas-fired instantaneous water heaters will not be made
unavailable as a result of this rulemaking. Stakeholders have not
indicated that raising standards for gas-fired instantaneous water
heaters would push consumers towards electric or oil-fired water
heaters--and such a case would be highly improbable based on DOE's own
analysis of consumer purchasing decisions. Instead, stakeholders such
as Rinnai and the Gas Association Commenters appear to indicate that
more-stringent standards for gas-fired instantaneous water heaters may
impact shipments of other gas-fired water heaters, and these comments
are discussed further in section IV.F.10 of this document. As such,
there is no evidence to support Rinnai's suggestion that DOE's action
``favors'' one fuel type over another. Furthermore, since the statutory
consumer water heater standards were established by EPCA at 42 U.S.C.
6295(e)(1), DOE has maintained separate product classes (i.e., separate
standards) for gas-fired, oil-fired, and electric water heaters. See 10
CFR 430.32(d)(1)-(2). These separate product classes are consistent
with the statutory provisions at 42 U.S.C. 6295(q).
DOE has statutory authority to routinely evaluate and address
minimum efficiency levels for gas-fired instantaneous water heaters
(and all other consumer water heaters). See section II.A of this
document. As a general matter, energy conservation standards save
energy by removing the least-efficient technologies and designs from
the market. Discussed further in section IV.A.1 of this document, non-
condensing gas-fired instantaneous water heaters use only one heat
exchanger that operates at a higher temperature, whereas condensing
gas-fired instantaneous water heaters make use of corrosion-resistant
condensing heat exchangers that can extract far more energy from the
flue gases exhausted by combustion--causing the exhaust flue gases to
condense into liquid (hence, the term ``condensing''). Because of this,
condensing gas-fired instantaneous water heaters are a step up in
efficiency from non-condensing products. The energy-saving purposes of
EPCA would be frustrated if DOE were required to set standards that
maintain less-energy-efficient covered products and equipment in the
market based simply on the fact that they use a specific type of less-
efficient design.
DOE has evaluated the statutory criteria--technological
feasibility, significant energy savings, and economic justification--
and considered the application of the statutory ``unavailability
provision'' (see 42 U.S.C. 6295(o)(4)) to determine the product class
structure for gas-fired instantaneous water heaters; see section IV.A.1
of this document for further details. DOE has not sought to ``reshape
the appliance industry,'' but rather to set standards in accordance
with the statutory requirements of EPCA. Analytical results from
multiple rulemakings indicate that certain segments of the space and
water heating industries have made significant progress in
transitioning the market towards more-efficient condensing products,
and the analysis herein for gas-fired instantaneous water heaters also
reflects this trend. As such, DOE is not setting condensing-level
standards simply to increase the usage of condensing technology.
Rather, DOE has found that condensing-level standards are justified for
gas-fired instantaneous water heaters based on extensive analysis and
review.
4. Comments on Higher Standards Than Proposed in the NOPR
EL 3 corresponds to the efficiency that would meet the current
ENERGY STAR Specification version 5.0, and as such is an efficiency
level that many manufacturers currently target. In the July 2023 NOPR,
DOE tentatively determined that the additional benefits and savings
from amended standards at EL 3 could be considered significant, but
there was uncertainty as to whether manufacturing capacity of EL 3
models could be scaled up to meet national demand for gas-fired
instantaneous water heaters. 88 FR 49058, 49161. While the July 2023
NOPR proposed standards at EL 2, DOE requested additional information
on the benefits and burdens of a potential amended standard for gas-
fired instantaneous water heaters at EL 3, especially with respect to
manufacturers being able to scale their entire production to EL 3 in
the compliance time frame being considered by this rulemaking. Id.
In response, Bosch stated that EL 3 would be significantly more
difficult to reach compared to EL 2, adding that though EL 3 is
feasible with current technology, the technology comes with increased
complexity. Specifically, Bosch stated that the most significant
challenge in raising the efficiency of a gas-fired instantaneous water
heater from a UEF of 0.93 to 0.95 for the high draw pattern is the need
for significant burner modulation. Bosch recommended DOE retain the EL
2 proposal for gas-fired instantaneous water heaters. (Bosch, No. 1204
at pp. 4-5) Noritz stated that EL 3 is significantly more difficult to
reach than EL 2, due to complexity related to the software, controls,
fan, and gas valve, as well as higher material costs due to increased
heat exchanger surface area. (Noritz, No. 1202 at p. 3) BWC recommended
against adopting standards for gas-fired instantaneous water heaters at
EL 3 because this would be inconsistent with the Joint Stakeholder
Recommendation, and the proposed standards at EL 2 already amount to
substantial increase in efficiency. (BWC, No. 1164 at p. 16) Rheem
stated that it does not support EL 3 for gas-fired instantaneous water
heaters as the costs to the manufacturer outweigh the benefit of the
slight increase in UEF. Rheem further stated that EL 3 requires
completely different condensing technology than EL 2 and will have
significantly more impact on existing manufacturing facilities. (Rheem,
No. 1177 at p. 13)
AHRI stated that gas-fired instantaneous water heaters would
experience more difficulty achieving EL 3 compared to EL 2 due to
increasing complexity, driven by designs incorporating full burner
modulation. AHRI further stated that this would require substantial
research and development and more expensive components. (AHRI, No. 1167
at pp. 12-13)
CEC stated that if DOE received data in response to the request for
information in the July 2023 NOPR, DOE should consider finalizing a
standard consistent with EL 3 for gas-fired instantaneous water
heaters. (CEC, No. 1173 at p. 12)
In response to the July 2023 NOPR, the CA IOUs encouraged DOE to
set more stringent standards for gas-fired instantaneous water heaters,
recommending that DOE establish the standards proposed at TSL 6 in the
July 2023 NOPR, equivalent to max-tech (i.e., EL 4). According to the
CA IOUs, more stringent standards for all gas-fired consumer water
heater sub-classes, specifically at condensing efficiencies, would
result in significant savings of natural gas in California and across
the United States. Regarding statements from some stakeholders that
significant installation barriers are associated with gas condensing
water heaters, the CA IOUs referred DOE to a report docketed

[[Page 105201]]

in 2019 titled ``Investigation of Installation Barriers and Costs for
Condensing Gas Appliances.'' \26\ Key findings from this report
indicate that these challenges impact less than 5 percent of condensing
gas retrofit installations for residential and commercial applications,
and that condensate management and chimney relining were minor concerns
for installing gas condensing products. (CA IOUs, No. 1175 at p. 2) In
response to the July 2024 NODA, the CA IOUs reiterated that more-
stringent efficiency standards for gas-fired instantaneous water
heaters would conserve natural gas, reduce emissions, and lower utility
payments for Californians. The CA IOUs stated that while a standard
based on EL 2 would generate between $0.13 billion ($2022, at a 7-
percent discount rate) and $0.47 billion ($2022, at a 3-percent
discount rate) in consumer benefits for all Californians over 30 years,
a standard based on EL 3 would generate between $0.21 billion ($2022,
at a 7-percent discount rate) and $0.75 billion ($2022, at a 3-percent
discount rate) in consumer benefits for all Californians over the same
time period. The CA IOUs stated that adoption of EL 3 would increase
consumer benefits by 60 percent relative to EL 2 and reiterated that EL
3 has the shortest simple payback period of any gas-fired instantaneous
water heater efficiency level. The CA IOUs urged DOE to adopt a
standard for gas-fired instantaneous water heaters based on EL 3. (CA
IOUs, No. 1442 at pp. 1-2)
---------------------------------------------------------------------------

\26\ EERE-2018-BT-ST-0018-0062. February 28, 2019. Available at:
<a href="http://www.regulations.gov/comment/EERE-2018-BT-STD-0018-0062">www.regulations.gov/comment/EERE-2018-BT-STD-0018-0062</a> (last
accessed: Oct. 1, 2024).
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In this final rule analysis, DOE finds that although EL 3 would
present many consumer benefits, the average estimated simple payback
period for EL 3 is 8.3 years, whereas for EL 2 it is 8.9 years, which
is not strikingly different in the context of the product's lifespan,
which is estimated to be about 20 years. DOE acknowledges that setting
standards at EL 3 for gas-fired instantaneous water heaters would
require notably higher levels of investment compared to EL 2 for gas-
fired instantaneous water heaters. In this final rule, DOE is adopting
TSL 2, which corresponds to EL 2 for gas-fired instantaneous water
heaters. DOE notes that industry would need to significantly scale up
production of models that meet EL 3 given the lower quantity of
shipments of these models today. Approximately 60 percent of gas-fired
instantaneous water heater shipments currently meet the adopted level
(i.e., EL 2).\27\ However, only 15 percent of gas-fired instantaneous
water heater shipments currently meet EL 3. To meet EL 3, DOE expects
manufacturers would implement a more efficient heat exchanger design
(e.g., replacing a tube condensing heat exchanger with a flat plate
condensing heat exchanger) and increase the condensing heat exchanger
area relative to EL 2. DOE understands that implementing the larger,
improved condensing heat exchanger technology could increase the
complexity of the manufacturing process compared to the tube design
condensing heat exchanger technology analyzed at EL 1 and EL 2. Given
the low shipments volumes and increased complexity of EL 3 models, DOE
expects most manufacturers would need to add new production lines to
maintain existing capacity at TSL 3. DOE does not expect most
manufacturers would need to add new production lines or incur notable
capital investments to meet TSL 2. DOE estimates that industry
conversion costs at EL 2 would reach approximately $20 million whereas
industry conversion costs would triple at EL 3 (approximately $60
million). See section V.B.2.a of this document for the estimated
industry conversion costs at each TSL. See section V.C.1 of this
document for the benefits and burdens of the TSLs considered in this
rulemaking.
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\27\ The term ``current shipments'' refers to no-new-standards
shipments estimated to occur in 2024 (the reference year).
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B. Scope of Coverage

Gas-fired instantaneous water heaters are a subset of consumer
water heaters. Generally, DOE defines a ``water heater,'' consistent
with EPCA's definition at 42 U.S.C. 6291(27) and codified at 10 CFR
430.2, as a product which utilizes oil, gas, or electricity to heat
potable water for use outside the heater upon demand. An instantaneous-
type water heater is one that heats water but contains no more than one
gallon of water per 4,000 Btu per hour of input, and consumer gas-fired
instantaneous water heaters are additionally defined as having an input
rating less than 200,000 Btu per hour. 10 CFR 430.2; (42 U.S.C.
6291(27)).
This rulemaking does not cover gas-fired circulating water heaters,
which must be used in combination with recirculation pump and a storage
tank or recirculation loop, and therefore constitute storage-type water
heaters. 10 CFR 430.2.
As stated in section I of this document, EPCA prescribed energy
conservation standards for all consumer water heaters (i.e., those that
meet the definition of ``water heater'' above). For the purposes of
this final rule, DOE is solely considering ``gas-fired instantaneous
water heaters,'' including those for which there are no current UEF-
based standards codified at 10 CFR 430.32(d)(1).
See section IV.A.1 of this document for discussion of the product
classes analyzed in this final rule.

C. Test Procedure

EPCA sets forth generally applicable criteria and procedures for
DOE's adoption and amendment of test procedures. (42 U.S.C. 6293)
Manufacturers of covered products must use these test procedures as the
basis for certifying to DOE that their product complies with the
applicable energy conservation standards and as the basis for any
representations regarding the energy use or energy efficiency of the
product. (42 U.S.C. 6295(s) and 42 U.S.C. 6293(c)). Similarly, DOE must
use these test procedures to evaluate whether a basic model complies
with the applicable energy conservation standard(s). 10 CFR 429.110(e).
The current test procedure for consumer and residential-duty commercial
water heaters is codified at 10 CFR part 430, subpart B, appendix E.
Appendix E includes provisions for determining UEF, the metric on which
current standards are based. 10 CFR 430.32(d)(1).
DOE most recently amended the test procedure for these products at
appendix E in the consumer and residential-duty commercial water heater
test procedure final rule published on June 21, 2023 (``June 2023 TP
Final Rule'') pursuant to the 7-year review requirement as specified by
EPCA. (42 U.S.C. 6293(b)(1)(A) and 42 U.S.C. 6314(a)(1)(A)) In that
final rule, DOE established effective storage volume
(``V<INF>eff</INF>'') as a metric to address how much hot water could
be immediately delivered by the system, taking into account the
temperature of the stored water and, in the case of circulating water
heaters, the volume of the paired storage tank. 88 FR 40406. The
amended test procedure established by the June 2023 TP Final Rule is
mandatory for gas-fired instantaneous water heater testing starting
December 18, 2023, 180 days after publication. Id.
In response to the July 2023 NOPR, BWC reiterated its comments in
response to the March 2022 Preliminary Analysis asserting that there is
evidence to suggest that gas-fired instantaneous water heaters may gain
an unfair advantage in the current test procedure

[[Page 105202]]

as compared to gas-fired storage water heaters. The commenter provided
DOE with a study published by the Davis Energy Group, Inc. and
requested that DOE elaborate on its disagreement with the outcome of
that study. In particular, BWC pointed out that while gas-fired
instantaneous water heaters are not subjected to standby losses like
their storage-type counterparts, the number, timing, and frequency of
draws required for these products causes the heat exchanger to be
raised to temperature for each draw; and this, according to Davis
Energy Group, Inc., can cause a bias toward higher efficiency ratings
for gas-fired instantaneous water heaters. BWC requested further
discussion on this topic to ensure that both types of gas-fired
products are treated fairly. (BWC, No. 1164 at pp. 9-10)
In response, DOE notes that the current test procedure for consumer
water heaters is designed to represent generally how consumer water
heaters are used in-field. As such, if one type of water heater
generally receives higher efficiency ratings than another, it would be
the result of that water heater type having a more efficient design for
actual consumer usage patterns than the other. This difference would
therefore not be a bias, but a reflection of actual differences in
operating efficiency being captured by the test result. The Davis
Energy Group, Inc. study cited by BWC shows the efficiency of the gas-
fired instantaneous water heater that was tested was more affected by
the time between water draws than that of the gas-fired storage water
heater that was tested. That is, the efficiency of the gas-fired
instantaneous water heater degraded more when the time between water
draws increased than did the gas-fired storage water heater. However,
for these findings to have any significance, DOE would also need
evidence to show that the water draw sequencing of the current test
procedure at appendix E is unrepresentative. The draw sequence was
developed as a representative test method in the 2014 test procedure
rulemaking that established the UEF test method, and it considered
factors such as standby loss periods, test stand capabilities, and
water heater recovery rates (see 79 FR 40542). In the absence of
sufficient data provided by BWC or the Davis Energy Group, Inc. report
demonstrating that the current test procedure is unrepresentative, DOE
cannot conclude that the prescribed test method results in an unfair
advantage for gas-fired instantaneous water heaters over gas-fired
storage water heaters. In this standards analysis, DOE has relied on an
efficiency-level approach to identify potential standards based on UEF
ratings that are demonstrated (certified) for gas-fired instantaneous
water heaters on the basis of testing under the DOE test procedure.
Therefore, hypothetically, even if these products do benefit from
factors in the test procedure that allow them to have higher UEF
ratings, all gas-fired instantaneous water heaters would benefit
equally, and the increase in UEF is reflected in product ratings and
the efficiency levels selected for the analysis. By basing its analysis
around commercially available products and their certified ratings in
the product classes separately, DOE is ensuring that the standards it
is setting for gas-fired instantaneous water heaters are reflective of
these products' performance under the appendix E test procedure. DOE
used a similar approach for all other types of consumer water heaters
(e.g., gas-fired storage water heaters) when it finalized amended
standards in a May 6, 2024 final rule pertaining to those products. 89
FR 37778.

D. Technological Feasibility

1. General
As discussed, any new or amended energy conservation standard must
be designed to achieve the maximum improvement in energy efficiency
that DOE determines is technologically feasible and economically
justified. (42 U.S.C. 6295(o)(2)(A))
To determine whether potential amended standards would be
technologically feasible, DOE first develops a list of all known
technologies and design options that could improve the efficiency of
the products or equipment that are the subject of the rulemaking. DOE
considers technologies incorporated in commercially available products
or in working prototypes to be ``technologically feasible.'' 10 CFR
part 430, subpart C, appendix A, sections 6(a)(3)(iii)(A) and 7(b)(1).
Section IV.A.2 of this document discusses the technology options
identified by DOE for this analysis. For further details on the
technology assessment conducted for this final rule, see chapter 3 of
the final rule technical support document (``TSD'').
After DOE has determined which, if any, technologies and design
options are technologically feasible, it further evaluates each
technology and design option in light of the following additional
screening criteria: (1) practicability to manufacture, install, and
service; (2) adverse impacts on product utility or availability; (3)
adverse impacts on health or safety; and (4) unique-pathway proprietary
technologies. 10 CFR part 430, subpart C, appendix A, sections
6(a)(3)(iii)(B) through (E) and 7(b)(2) through (5). Those technology
options that are ``screened out'' based on these criteria are not
considered further. Those technology and design options that are not
screened out are considered as the basis for higher efficiency levels
that DOE could consider for potential amended standards. Section IV.B
of this document discusses the results of this screening analysis
conducted for this final rule. For further details on the screening
analysis conducted for this final rule, see chapter 4 of the final rule
TSD.
2. Maximum Technologically Feasible Levels
EPCA requires that for any proposed rule that prescribes an amended
or new energy conservation standard, or prescribes no amendment or no
new standard for a type (or class) of covered product, DOE must
determine the maximum improvement in energy efficiency or maximum
reduction in energy use that is technologically feasible for each type
(or class) of covered products. (42 U.S.C. 6295(p)(1)) Accordingly, in
the engineering analysis, DOE identifies the maximum efficiency level
currently available on the market. DOE also defines a ``max-tech''
efficiency level, representing the maximum theoretical efficiency that
can be achieved through the application of all available technology
options retained from the screening analysis.\28\ In many cases, the
max-tech efficiency level is not commercially available because it is
not currently economically feasible.
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\28\ In applying these design options, DOE would only include
those that are compatible with each other that when combined, would
represent the theoretical maximum possible efficiency.
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The max-tech levels that DOE determined for this analysis are
described in section IV.C.1.a of this document and in chapter 5 of the
final rule TSD.

E. Energy Savings

1. Determination of Savings
For each TSL, DOE projected energy savings from application of the
TSL to gas-fired instantaneous water heaters purchased during the 30-
year period that begins in the first year of compliance with the
amended standards (2030-2059).\29\ The savings are measured over the
entire lifetime of products purchased during the 30-year

[[Page 105203]]

analysis period. DOE quantified the energy savings attributable to each
TSL as the difference in energy consumption between each standards case
and the no-new-standards case. The no-new-standards case represents a
projection of energy consumption that reflects how the market for a
product would likely evolve in the absence of amended energy
conservation standards.
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\29\ DOE also presents a sensitivity analysis that considers
impacts for products shipped in a 9-year period.
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DOE used its national impact analysis (``NIA'') spreadsheet models
to estimate NES from potential amended standards for gas-fired
instantaneous water heaters. The NIA spreadsheet model (described in
section IV.H of this document) calculates energy savings in terms of
site energy, which is the energy directly consumed by products at the
locations where they are used. For electricity, DOE reports NES in
terms of primary energy savings, which is the savings in the energy
that is used to generate and transmit the site electricity. For natural
gas, the primary energy savings are considered to be equal to the site
energy savings. DOE also calculates NES in terms of FFC energy savings.
The FFC metric includes the energy consumed in extracting, processing,
and transporting primary fuels (i.e., coal, natural gas, petroleum
fuels), and thus presents a more complete picture of the impacts of
energy conservation standards.\30\ DOE's approach is based on the
calculation of an FFC multiplier for each of the energy types used by
covered products or equipment. For more information on FFC energy
savings, see section IV.H.2 of this document.
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\30\ The FFC metric is discussed in DOE's statement of policy
and notice of policy amendment. 76 FR 51282 (Aug. 18, 2011), as
amended at 77 FR 49701 (Aug. 17, 2012).
---------------------------------------------------------------------------

2. Significance of Savings
To adopt any new or amended standards for a covered product, DOE
must determine that such action would result in significant energy
savings. (42 U.S.C. 6295(o)(3)(B))
The significance of energy savings offered by a new or amended
energy conservation standard cannot be determined without knowledge of
the specific circumstances surrounding a given rulemaking.\31\ For
example, some covered products and equipment have most of their energy
consumption occur during periods of peak energy demand. The impacts of
these products on the energy infrastructure can be more pronounced than
the impacts of products with relatively constant demand. Accordingly,
DOE evaluates the significance of energy savings on a case-by-case
basis, taking into account the significance of cumulative FFC national
energy savings, the cumulative FFC emissions reductions, and the need
to confront the global climate crisis, among other factors.
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\31\ The numeric threshold for determining the significance of
energy savings established in a final rule published on February 14,
2020 (85 FR 8626, 8670) was subsequently eliminated in a final rule
published on December 13, 2021 (86 FR 70892).
---------------------------------------------------------------------------

As stated, the standard levels adopted in this final rule are
projected to result in NES of 0.58 quad, the equivalent of the primary
annual energy use of about 4 million homes. Based on the amount of FFC
savings, the corresponding reduction in emissions, and the need to
confront the global climate crisis, DOE has determined the energy
savings from the standard levels adopted in this final rule are
``significant'' within the meaning of 42 U.S.C. 6295(o)(3)(B).

F. Economic Justification

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

[[Page 105204]]

discussed in further detail in section IV.F of this document.
c. Energy Savings
Although significant conservation of energy is a separate statutory
requirement for adopting an energy conservation standard, EPCA requires
DOE, in determining the economic justification of a standard, to
consider the total projected energy savings that are expected to result
directly from the standard. (42 U.S.C. 6295(o)(2)(B)(i)(III)) As
discussed in section IV.H, DOE uses the NIA spreadsheet models to
project NES.
d. Lessening of Utility or Performance of Products
In establishing product classes, and in evaluating design options
and the impact of potential standard levels, DOE evaluates potential
standards that would not lessen the utility or performance of the
considered products. (42 U.S.C. 6295(o)(2)(B)(i)(IV)) Based on data
available to DOE, the standards adopted in this document would not
reduce the utility or performance of the gas-fired instantaneous water
heaters under consideration in this rulemaking.
e. Impact of Any Lessening of Competition
EPCA directs DOE to consider the impact of any lessening of
competition, as determined in writing by the Attorney General, that is
likely to result from a standard. (42 U.S.C. 6295(o)(2)(B)(i)(V)) It
also directs the Attorney General to determine the impact, if any, of
any lessening of competition likely to result from a standard and to
transmit such determination to the Secretary within 60 days of the
publication of a proposed rule, together with an analysis of the nature
and extent of the impact. (42 U.S.C. 6295(o)(2)(B)(ii)) To assist the
Department of Justice (``DOJ'') in making such a determination, DOE
transmitted copies of its proposed rule and the NOPR TSD to the
Attorney General for review, with a request that the DOJ provide its
determination on this issue. In its assessment letter responding to
DOE, DOJ concluded that the proposed energy conservation standards for
gas-fired instantaneous water heaters are unlikely to substantially
lessen competition. DOE is publishing the Attorney General's assessment
at the end of this final rule.
In response to the July 2023 NOPR, Rinnai asserted that eliminating
non-condensing gas-fired instantaneous water heaters from the market
would create detrimental effects on competition by limiting consumer
choice, raising prices on more efficient products, eliminating
consumers' option to make like-for-like product replacements, all of
which would place Rinnai at a disadvantage as a smaller competitor in a
concentrated water heater market. (Rinnai, No. 1186 at p. 7) In
response to the July 2024 NODA, Rinnai commented that the consumer
water heater market is already a highly concentrated market with three
dominant players, and that moving to a standard for gas-fired
instantaneous water heaters that requires condensing technology would
impede competition. (Rinnai, No. 1443 at p. 22)
DOE recognizes the importance of competition in the marketplace.
For this final rule, DOE reviewed its Compliance Certification
Database,\32\ Air-Conditioning, Heating, and Refrigeration Institute's
Directory of Certified Product Performance,\33\ California Energy
Commission's Modernized Appliance Efficiency Database System,\34\ and
the ENERGY STAR Product Finder dataset \35\ to ensure an up-to-date
assessment of gas-fired instantaneous water heater manufacturers
operating in the United States. Through its review, DOE identified 12
OEMs of gas-fired instantaneous water heaters subject to more stringent
standards under this rulemaking. All 12 OEMs already manufacture
condensing gas-fired instantaneous water heaters. Of these 12
manufacturers, 10 manufacturers, including Rinnai, manufacture products
that meet the standards adopted in this final rule. Collectively, these
10 OEMs offer 71 basic models (accounting for 51 percent of model
listings and 60 percent of shipments in 2024) that meet the adopted
level (TSL 2). Thus, a variety of companies already participate in the
condensing gas-fired instantaneous water heater market. Comparatively,
only eight OEMs currently manufacture non-condensing gas-fired
instantaneous water heaters. See chapter 3 of the final rule TSD for a
complete list of manufacturers of gas-fired instantaneous water
heaters. Based on Rinnai's comments in response to the July 2023 NOPR,
DOE understands that Rinnai's market share of non-condensing gas-fired
instantaneous water heaters is 60 percent and their market share of
condensing gas-fired instantaneous water heater sales is 20 percent.
(Rinnai No. 1186 at p. 1) Given that all 12 manufacturers already offer
condensing gas-fired instantaneous water heater products, DOE does not
anticipate lessening of competition in the gas-fired instantaneous
water heater market; which is estimated to represent 14 percent of the
total consumer water heater market in 2030. As previously discussed,
this conclusion is also supported by the DOJ's assessment letter.
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\32\ U.S. Department of Energy's Compliance Certification
Database is available at <a href="http://regulations.doe.gov/certification-data">regulations.doe.gov/certification-data</a>
(last accessed July 19, 2024).
\33\ Air-Conditioning, Heating and Refrigeration Institute's
Directory of Certified Product Performance is available at <a href="https://ahridirectory.org/search/searchhome?Returnurl=%2f">https://ahridirectory.org/search/searchhome?Returnurl=%2f</a> (last accessed
July 23, 2024).
\34\ California Energy Commission's Modernized Appliance
Efficiency Database System is available at
<a href="http://cacertappliances.energy.ca.gov/Pages/Search/AdvancedSearch.aspx">cacertappliances.energy.ca.gov/Pages/Search/AdvancedSearch.aspx</a>
(last accessed July 19, 2024).
\35\ ENERGY STAR Product Finder is available at
<a href="http://www.energystar.gov/productfinder">www.energystar.gov/productfinder</a> (last accessed July 22, 2024).
---------------------------------------------------------------------------

f. Need for National Energy Conservation
DOE also considers the need for national energy and water
conservation in determining whether a new or amended standard is
economically justified. (42 U.S.C. 6295(o)(2)(B)(i)(VI)) The energy
savings from the adopted standards are likely to provide improvements
to the security and reliability of the Nation's energy system.
Reductions in the demand for electricity also may result in reduced
costs for maintaining the reliability of the Nation's electricity
system. DOE conducts a utility impact analysis to estimate how
standards may affect the Nation's needed power generation capacity, as
discussed in section IV.M of this document.
DOE maintains that environmental and public health benefits
associated with the more efficient use of energy are important to take
into account when considering the need for national energy
conservation. The adopted standards are likely to result in
environmental benefits in the form of reduced emissions of air
pollutants and GHGs associated with energy production and use. DOE
conducts an emissions analysis to estimate how potential standards may
affect these emissions, as discussed in section IV.K of this document;
the estimated emissions impacts are reported in section V.B.6 of this
document. DOE also estimates the economic value of emissions reductions
resulting from the considered TSLs, as discussed in section IV.L of
this document.
g. Other Factors
In determining whether an energy conservation standard is
economically justified, DOE may consider any other factors that the
Secretary deems to be relevant. (42 U.S.C. 6295(o)(2)(B)(i)(VII)) To
the extent DOE identifies any relevant information regarding

[[Page 105205]]

economic justification that does not fit into the other categories
described previously, DOE could consider such information under ``other
factors.''
2. Rebuttable Presumption
As set forth in 42 U.S.C. 6295(o)(2)(B)(iii), EPCA creates a
rebuttable presumption that an energy conservation standard is
economically justified if the additional cost to the consumer of a
product that meets the standard is less than three times the value of
the first year's energy savings resulting from the standard, as
calculated under the applicable DOE test procedure. DOE's LCC and PBP
analyses generate values used to calculate the effect potential amended
energy conservation standards would have on the PBP for consumers.
These analyses include, but are not limited to, the 3-year PBP
contemplated under the rebuttable-presumption test. In addition, DOE
routinely conducts an economic analysis that considers the full range
of impacts to consumers, manufacturers, the Nation, and the
environment, as required under 42 U.S.C. 6295(o)(2)(B)(i). The results
of this analysis serve as the basis for DOE's evaluation of the
economic justification for a potential standard level (thereby
supporting or rebutting the results of any preliminary determination of
economic justification). The rebuttable presumption payback calculation
is discussed in section IV.F of this final rule.

IV. Methodology and Discussion of Related Comments

This section addresses the analyses DOE has performed for this
rulemaking with regard to gas-fired instantaneous water heaters.
Separate subsections address each component of DOE's analyses.
DOE used several analytical tools to estimate the impact of the
standards considered in this document. The first tool is a spreadsheet
that calculates the LCC savings and PBP of potential amended or new
energy conservation standards. The NIA uses a second spreadsheet set
that provides shipments projections and calculates NES and NPV of total
consumer costs and savings expected to result from potential energy
conservation standards. DOE uses the third spreadsheet tool, the
Government Regulatory Impact Model (``GRIM''), to assess manufacturer
impacts of potential standards. These three spreadsheet tools are
available on the DOE website for this rulemaking: <a href="http://www.regulations.gov/docket/EERE-2017-BT-STD-0019">www.regulations.gov/docket/EERE-2017-BT-STD-0019</a>. Additionally, DOE used output from the
latest version of the Energy Information Administration's (``EIA's'')
Annual Energy Outlook (``AEO'') for the emissions and utility impact
analyses.

A. Market and Technology Assessment

DOE develops information in the market and technology assessment
that provides an overall picture of the market for the products
concerned, including the purpose of the products, the industry
structure, manufacturers, market characteristics, and technologies used
in the products. This activity includes both quantitative and
qualitative assessments, based primarily on publicly-available
information. The subjects addressed in the market and technology
assessment for this rulemaking include: (1) a determination of the
scope of the rulemaking and product classes, (2) manufacturers and
industry structure, (3) existing efficiency programs, (4) shipments
information, (5) market and industry trends, and (6) technologies or
design options that could improve the energy efficiency of gas-fired
instantaneous water heaters. The key findings of DOE's market
assessment are summarized in the following sections. See chapter 3 of
the final rule TSD for further discussion of the market and technology
assessment.
1. Product Classes
When evaluating and establishing or amending energy conservation
standards, DOE establishes separate standards for a group of covered
products (i.e., establish a separate product class) based on the type
of energy used, or if DOE determines that a product's capacity or other
performance-related feature justifies a different standard. (42 U.S.C.
6295(q)) In making a determination whether a performance-related
feature justifies a different standard, DOE considers such factors as
the utility of the feature to the consumer and other factors DOE
determines are appropriate. (Id.)
EPCA, as amended by the National Appliance Energy Act (NAECA; Pub.
L. 100-12), established initial energy conservation standards for
consumer water heaters, expressed in EF, that were based on three
product classes differentiated by fuel type: (1) gas-fired, (2) oil-
fired, and (3) electric. (42 U.S.C. 6295(e)(1)) These standards applied
to consumer water heaters manufactured on or after January 1, 1990.
Gas-fired instantaneous water heaters were, at the time, required to
comply with the same EF standards as gas-fired storage water heaters
because the standards were not differentiated by storage versus
instantaneous water heaters.
DOE subsequently amended these EF standards twice, most recently in
the April 2010 Final Rule, with which compliance was required starting
on April 16, 2015. 75 FR 20112. By the April 2010 Final Rule, DOE had
further divided gas-fired consumer water heaters into product classes
based on demand type (storage, instantaneous), storage volume, and
input rate. While the April 2010 Final Rule had separate standards for
gas-fired instantaneous water heaters and gas-fired storage water
heaters, DOE did not adopt standards for gas-fired instantaneous water
heaters with less than 50,000 Btu/h of input because, at that time,
there were no such low-input gas-fired instantaneous water heaters
available on the market. Id. at 75 FR 20127.
Most recently, the December 2016 Conversion Factor Final Rule,
published and effective on December 29, 2016, translated the EF-based
standards to UEF-based standards. 81 FR 96204. In doing so, separate
product classes were created for each of the four draw patterns (very
small, low, medium, and high) in the UEF test procedure. However, due
to concerns that the UEF test procedure would not apply to gas-fired
instantaneous water heaters 2 gallons or larger at the time, DOE
determined that the translated UEF-based standards would apply only to
gas-fired instantaneous water heaters with less than 2 gallons of
storage volume. Id. at 81 FR 96205. As a result, UEF-based standards
were established only for gas-fired instantaneous water heaters with
less than 2 gallons of storage volume and more than 50,000 Btu/h of
input. Id. at 81 FR 96205. As discussed in the December 2016 Conversion
Factor Final Rule, the standards established in EPCA do not define a
minimum fuel input rate or maximum storage volume for gas-fired
instantaneous water heaters; therefore, the original standards
established by EPCA in terms of EF remained applicable to all gas-fired
instantaneous water heaters without UEF-based standards. Id. at 81 FR
96209-96211. The four product classes for which DOE has currently
established UEF-based standards are summarized in table IV.1. The
product classes without UEF-based standards, for which EF-based
standards from EPCA apply, are shown in table IV.2.

[[Page 105206]]

Table IV.1--Gas-Fired Instantaneous Water Heater Product Classes With
Current UEF-Based Standards
------------------------------------------------------------------------
Rated storage
Product type volume and input Draw patterns
rating
------------------------------------------------------------------------
Instantaneous Gas-Fired Water <2 gal and >50,000 Very Small.
Heater. Btu/h. Low.
Medium.
High.
------------------------------------------------------------------------

Table IV.2--Gas-Fired Instantaneous Water Heater Product Classes Without
Current UEF-Based Standards
------------------------------------------------------------------------
Rated storage volume and input
Product class rating (if applicable)
------------------------------------------------------------------------
Gas-fired Instantaneous................ <2 gal and <=50,000 Btu/h.
>=2 gal.
------------------------------------------------------------------------

In response to the July 2024 NODA, A.O. Smith noted that the
conversion factor rulemaking did not establish a product class for gas-
fired instantaneous water heaters >=2 gallons and <=200,000 Btu/h. A.O.
Smith noted that, while the intent of the December 2016 Conversion
Factor Final Rule was to satisfy the requirements of AEMTCA, DOE is not
statutorily required under EPCA to establish standards in terms of UEF
for the entirety of this product class because some products meet the
criteria for exclusion on account of being commercial equipment. (A.O.
Smith, No. 1440 at p. 3) A.O. Smith claimed that the hot water delivery
capacity, as a function of input capacity and storage volume, of a
subset of products in the >=2 gallon, <=200,000 Btu/h proposed product
class for gas-fired instantaneous water heaters includes equipment that
would not be used or installed residentially and would only be suitable
for commercial applications. A.O. Smith noted that equipment meeting
the capacity ranges of the proposed product class already exist on the
market and are exclusively used in commercial applications. (A.O.
Smith, No. 1440 at pp. 3-4) A.O. Smith recommended that DOE re-evaluate
the gas-instantaneous water heater product class structure and avoid
prescribing a UEF test metric and standard for these water heaters
where the UEF metric is inappropriate. A.O. Smith noted that EPCA's
definition for commercial gas-fired instantaneous water heaters does
not include a minimum input or volume limit and claimed that it does
not prevent DOE from specifying a reasonable storage volume threshold
for gas-fired instantaneous water heaters above which the product would
be rated to commercial metrics and considered as commercial equipment.
(A.O. Smith, No. 1440 at p. 4)
As stated earlier, in the December 2016 Conversion Factor Final
Rule, DOE determined that the translated UEF-based standards would
apply only to gas-fired instantaneous water heaters with less than 2
gallons of storage volume due to concerns at the time that the UEF test
procedure would not apply to gas-fired instantaneous water heaters 2
gallons or larger. 81 FR 96204, 96205. However, after conducting the
market assessment for this rulemaking, DOE is now aware of multiple
gas-fired instantaneous water heaters with 2 or more gallons of storage
volume presently on the market. These products are specifically
marketed for residential applications in publicly available product
listings and literature.36 37 DOE is not aware of, nor has
A.O. Smith provided, evidence suggesting that products in this product
class are designed or marketed exclusively for commercial applications.
As such, products in this size range have demonstrated residential use
and therefore do not meet the requirement for exclusion from the UEF
descriptor as specified at 42 U.S.C. 6295(e)(5)(F)(i).
---------------------------------------------------------------------------

\36\ American Water Heaters. See the ProLine[supreg] XE
Polaris[supreg] PG10-34-150-2NV 34-gallon ``Commercial-Grade
Residential Gas Water Heater'' with 150,000 Btu input rate.
Information available online at <a href="http://www.americanwaterheater.com/media/28107/nrgss03316.pdf">www.americanwaterheater.com/media/28107/nrgss03316.pdf</a> (Last accessed Aug. 29, 2024).
\37\ HTP. See the ``High Efficiency Crossover Floor Water
Heater,'' with information provided to compare against typical
residential 50-gallon gas-fired storage water heaters and tankless
199,000 Btu/h gas-fired instantaneous water heaters. Information
available online at <a href="http://www.htproducts.com/literature/mktlit-117.pdf">www.htproducts.com/literature/mktlit-117.pdf</a>
(Last accessed Aug. 27, 2024).
---------------------------------------------------------------------------

In response to the July 2023 NOPR, some stakeholders provided
comments specific to the proposed standards for gas-fired instantaneous
water heaters in reference to the ``unavailability provision'' found in
EPCA, 42 U.S.C. 6295(o)(4). DOE indicated that these comments would not
be addressed in the May 2024 Final Rule. 89 FR 37778, 37814. After
further consideration of these comments DOE is addressing them in this
final rule. Relatedly, DOE received a multitude of comments throughout
this rulemaking pertaining to a potential product class structure that
differentiates between non-condensing and condensing products.
Per 42 U.S.C. 6295(o)(4), which outlines certain criteria for
prescribing new or amended standards, the Secretary may not prescribe
an amended or new standard under this section if the Secretary finds
(and publishes such finding) that interested persons have established
by a preponderance of the evidence that the standard is likely to
result in the unavailability in the United States in any covered
product type (or class) of performance characteristics (including
reliability), features, sizes, capacities, and volumes that are
substantially the same as those generally available in the United
States at the time of the Secretary's finding. The failure of some
types (or classes) to meet this criterion shall not affect the
Secretary's determination of whether to prescribe a standard for other
types (or classes).
Briefly, condensing and non-condensing products differ in how
efficiently they make use of flue gas heat. A baseline gas-fired
instantaneous water heater relies on a single heat exchanger, which
extracts heat energy from the flue gases and transfers it to the water
being delivered to the consumer. However, these flue gases contain more
heat energy than the baseline heat exchanger is able to extract and, as
a result, much of the heat in the flue gases is lost as they are
exhausted outdoors. Enhancements to the heat exchanger--including the
use of a secondary heat exchanger--enable high-efficiency gas-fired
instantaneous water heaters to extract much more of the energy
available in the flue gases. When enough energy is extracted by the
heat exchangers, the flue gases cool to the point where they begin to
condense,

[[Page 105207]]

forming liquid condensate. This results in a significant rise in
efficiency. See chapter 3 of the final rule TSD for further discussion
of condensing heat exchangers.
As noted in the comments submitted by NPGA, APGA, AGA, and Rinnai
in response to the July 2023 NOPR, the UEF requirements for gas-fired
instantaneous water heaters as proposed in the July 2023 NOPR would
require condensing technology. (NPGA, APGA, AGA, and Rinnai, No. 441 at
pp. 2-3) Rinnai contended that the proposed rule exceeds DOE's
authority because it is in conflict with statutory provisions in EPCA,
most notably the unavailability provision. Rinnai added that if the
proposed rule were adopted, it would eliminate non-condensing tankless
water heaters, one of its product offerings. (Rinnai, No. 1186 at p. 2)
Rinnai further argued that DOE may not make non-condensing gas-fired
instantaneous water heaters unavailable pursuant to the section
6295(o)(4) of EPCA (the ``unavailability provision''). Rinnai cited to
DOE's interpretation of the unavailability provision in a recent
rulemaking for residential furnaces and commercial water heaters and
suggested that DOE's interpretation of the provision is unduly narrow
and not supported by the provision's plain language.\38\ (Rinnai, No.
1186 at p. 9) Rinnai noted that there is no reference to ``consumer
utility'' in the unavailability provision detailed in section
6295(o)(4) of EPCA. Rinnai stated that, rather than relying on the
plain language of section 6295(o)(4) itself, DOE's interpretation of
the unavailability provision in section 6295(o)(4) of EPCA relies on
reading section 6295(q) as a redundant companion provision to section
6295(o)(4) and suggested there is no basis to do so. Rinnai added that
this misinterpretation constitutes an evasion of the limits placed on
DOE's authority by section 6295(o)(4) of EPCA. (Rinnai, No. 1186 at p.
10)
---------------------------------------------------------------------------

\38\ DOE finds the better reading of the term ``features'' in
the unavailability provision (i.e., those features that cannot be
eliminated by the establishment of a new or amended energy
conservation standard) to be those features that provide a consumer
unique utility during the operation of the appliance in performance
of its major function(s). Stated another way, the ``features''
provision and the related utility of such features pertain to those
aspects of the appliance with which the consumer interacts during
the operation of the product (i.e., when the product is providing
its ``useful output'') and the utility derived from those features
during normal operation. 86 FR 73947, 73955.
---------------------------------------------------------------------------

Rinnai stated that even if DOE's interpretation of the
unavailability provision in section 6295(o)(4) of EPCA is taken as
correct, non-condensing gas-fired instantaneous water heaters still
provide utility because the consumer's operation of, or interaction
with, the appliance necessarily depends on whether or not the appliance
can be installed. Rinnai added that installation costs should be
considered under the unavailability provision in section 6295(o)(4) of
EPCA, not just as part of determining whether or not a standard is
economically justified. (Rinnai, No. 1186 at pp. 10-11) Similarly, ONE
Gas claimed that DOE's proposed standards for gas-fired instantaneous
water heaters violate section 6295(o)(4) of EPCA because the
unavailability provision is not only limited to product classes and
types, but also certain performance characteristics including,
features, reliability, sizes, capacities, and volumes within those
product classes and types. ONE Gas asserted that DOE's association of
customer utility with understanding of, and interaction with, the
covered appliance is incorrect and is an overreach in interpretation of
section 6295 of EPCA. (ONE Gas, No. 1200 at pp. 4-5)
In response to the July 2024 NODA, Rinnai reiterated its position
that non-condensing gas-fired instantaneous water heaters have useful
and valuable features, including the ability to have like-for-like
replacements, compatibility for easier and wider applications of
installations, compatibility with non-condensing venting, smaller space
requirements, and greater efficiency at lower cost than gas-fired
storage water heaters. Rinnai claimed that there is no sound statutory
basis for DOE's refusal to recognize that non-condensing gas-fired
instantaneous water heaters have distinct features and characteristics
from those of condensing gas-fired instantaneous water heaters that
provide utility to consumers. Rinnai stated that DOE could instead
establish separate standards for condensing and non-condensing gas-
fired instantaneous water heaters to recognize the different functions,
capabilities, and installation requirements while preserving consumer
choice, and therefore retain the increased energy efficiency standard
for condensing gas-fired instantaneous water heaters. Rinnai requested
that DOE run an analysis of this proposal with product substitution and
other factors taken properly into account. (Rinnai, No. 1443 at pp. 4-
5)
Regarding Rinnai's request for further analysis on product
substitution, see section IV.F.10 of this document for further details.
Regarding Rinnai's assertion that DOE's interpretation of the
unavailability provision requires a redundant reading of 42 U.S.C.
6295(q) to 42 U.S.C. 6295(o)(4), DOE notes that while these provisions
are related, they are not redundant. EPCA provides DOE authority to
establish product classes with different standard levels under 42
U.S.C. 6295(q). Under this authority, DOE has to determine if a
performance-related feature justifies a different standard, i.e., is
worth preserving in the market, by considering, among other things,
utility to the consumer. In contrast, for the performance
characteristics, features, sizes, capacities, and volumes protected
under the unavailability provision, Congress has already made the
determination that they should be preserved in the market. DOE uses its
authority under the product class provision at 42 U.S.C. 6295(q) to
then ensure that these performance characteristics, features, sizes,
capacities, and volumes are preserved in the market. Without the
product class authority, DOE would have to set one standard for a
covered product that preserves every aspect of a covered product
protected under the unavailability provision. For example, larger
capacity gas-fired storage water heaters are generally less-efficient
than smaller capacity units because standby losses are higher for
larger capacity storage tanks. As a result, the lower efficiency of the
largest capacity models could limit DOE's ability to set standards
under 42 U.S.C. 6295(o)(4). But 42 U.S.C. 6295(q) lets DOE set a more-
stringent standard for smaller capacity gas-fired storage water heaters
that saves more energy and a less-stringent standard for larger
capacity gas-fired storage water heaters that helps preserve their
presence in the market. Finally, it is important to note that the
product class provision is not just limited to implementing the
unavailability provision. As the product class provision contemplates
that the utility of some performance-related features to the consumer
may not justify preservation in the market under a separate product
class, it is clear that Congress intended this provision to apply to a
larger set of performance-related features than would be protected
under the unavailability provision.
As for Rinnai's statement that there is no reference to ``consumer
utility'' in the unavailability provision detailed in section
6295(o)(4) of EPCA, Rinnai's own comment also cited a House of
Representatives report that stated the purpose of the unavailability
provision is to ensure that an amended standard does not deprive
consumers of product choices and characteristics, features, sizes,
etc., and that significant energy savings can be achieved without

[[Page 105208]]

sacrificing the utility of an appliance to a consumer. (Rinnai, No.
1186 at pp. 10). Performance characteristics, features, sizes,
capacities, and volumes all offer some utility or benefit to the
consumer. To the extent that Rinnai is suggesting that the protection
of the unavailability provision in EPCA should be extended to aspects
of a covered product that offer no utility to a consumer during
operation, like the less-efficient heat exchanger design of a non-
condensing gas-fired water heater, or whether the venting material is
plastic or stainless steel, DOE strongly disagrees. Any interpretation
of the unavailability provision not based on the assumption that
Congress was concerned with preserving the utility of covered products,
results in a regulatory framework where DOE is forced to create so many
product classes that achieving any significant amount of energy savings
is all but impossible.
DOE also disagrees with Rinnai's contention that the specific
provisions of the unavailability provision--performance characteristics
(including reliability), features, sizes, capacities, and volumes--
should be read to also include, among other things, ``installation
costs'' and ``greater efficiency at lower cost than gas-fired storage
water heaters.'' Extending the unavailability provision to installation
costs and efficiency is demonstrably an impossibly broad interpretation
of what DOE is expected to preserve in the market under the
unavailability provision. Efficiency is certainly a performance
characteristic of a water heater as it measures how well a water heater
performs its intended function. However, it would be nonsensical for
efficiency to be a performance characteristic under the unavailability
provision as the express purpose of the statute is to improve the
energy efficiency of covered products and equipment, i.e., eliminate
less-efficient products and equipment from the market. Furthermore,
cost is certainly a feature of a product. Arguably, it is one of the
most important features of a product to a consumer. But again, the
energy-saving purposes of EPCA would be frustrated if DOE were required
to set standards under the unavailability provision that maintain less-
energy-efficient covered products based solely on the fact that they
cost less to install. Instead, EPCA expressly contemplates increases in
the installed cost of a covered product or equipment in the economic
justification analysis where DOE is directed to consider, among other
things, the savings in operating costs compared to any increase in the
initial and maintenance costs of a covered product. (42 U.S.C.
6295(o)(2)(B)(i)(II)). At bottom, Rinnai's argument is that DOE may not
eliminate one water-heating option (non-condensing gas instantaneous
water heaters) if that option is cheaper to install than another,
different option (condensing gas-fired instantaneous water heaters).
But, Congress made it clear that kind of comparative assessment is to
be done as part of the economic analysis and has no role under the
unavailability provision. As discussed at length elsewhere in this
document, DOE's economic analysis considers the extent to which its
standards for gas-fired instantaneous water heaters will affect the
market.
Additionally, in determining whether a standard is economically
justified under EPCA, DOE is directed, among other things, to consider
any lessening of the utility or performance of the covered product
likely to result from the standard. Thus, extending the unavailability
provision to preserve any performance characteristic or feature would
frustrate EPCA's purpose and statutory scheme. Simply put, EPCA
requires DOE to adopt standards set at the maximum improvement in
energy efficiency determined to be technologically feasible and
economically justified. EPCA anticipates that new or amended energy
conservation standards will result in the unavailability of certain
inefficient technologies. An overly broad reading of the unavailability
provision to include attributes of the covered product not addressed by
the text of that provision (i.e., efficiency, costs, installation
costs, etc.) would be at odds with the statute's energy-saving
purposes. Similarly, DOE disagrees with reading other qualifiers into
the unavailability provisions, including ``like-for-like replacements,
compatibility for easier and wider applications of installations,
compatibility with non-condensing venting, smaller space
requirements.'' As discussed further below, an existing non-condensing
gas-fired instantaneous water heater can always be replaced with a
condensing gas-fired instantaneous water heater in the same place
(i.e., it is always technically feasible).
As discussed previously, DOE's interpretation of the unavailability
provision does not require a redundant reading of 42 U.S.C. 6295(q).
Instead, DOE interprets these two provisions as complementing one
another. EPCA provides DOE some discretionary authority to establish
product classes with different standard levels under 42 U.S.C. 6295(q).
Under this authority, DOE has to determine if a performance-related
feature justifies a different standard by considering, among other
things, utility to the consumer. And based on DOE's own research as
well as information presented in stakeholder comments, differences in
cost or complexity of installation between different methods of venting
(e.g., a condensing water heater versus a non-condensing water heater)
do not make specific methods of venting a performance-related feature
under 42 U.S.C. 6295(q)(1)(B), so as to justify separating the products
into different product classes. In reaching this determination, DOE
considered Category III venting (for non-condensing designs) and
Category IV venting (for condensing designs), which are associated but
external to the covered product, and concluded that condensing gas-
fired instantaneous water heaters can be installed in the same
locations where non-condensing gas-fired water heaters are currently
installed. As stated throughout this rulemaking, installation costs and
considerations are very relevant to the establishment of energy
conservation standards, and are accounted for in the LCC analysis to
determine the economic justification of standards.
Unlike specific methods of venting, a covered product's capacity is
addressed under the unavailability provision in 42 U.S.C. 6295(o)(4),
and described under the product class provision in 42 U.S.C.
6295(q)(1)(B). DOE notes that a water heater's capacity provides
utility to a consumer during use (unlike the type of venting or
installation costs). For example, water heaters with higher capacities
enable consumers to run multiple applications requiring hot water at
the same time. Further, DOE is required to preserve the utility offered
by larger capacity water heaters in the market under the unavailability
provision in 42 U.S.C. 6295(o)(4). Unlike capacity, a lower
installation cost has no effect on the performance of a water heater
and offers no utility to a consumer during use. In addition to
capacity, DOE has also established product classes for water heaters
based on: volumes (e.g., a division at 2 gallons), input rating (e.g.,
a division at 50,000 Btu/h), delivery capacities (e.g., divisions for
the very small, low, medium, and high usage patterns), and demand type
(e.g., storage versus instantaneous); in addition to distinguishing by
context and applications (e.g., consumer product versus commercial
equipment) as well as fuel types (e.g., gas-fired, oil-fired, or

[[Page 105209]]

electric) as required under 42 U.S.C. 6295(q)(1)(A).
APCA opposed DOE's proposed standards for gas-fired instantaneous
water heaters because these standards would require condensing
operation. (APCA, No. 1152 at p. 1) The Governor of Georgia commented
that the proposed standards would limit consumer choice by reducing the
availability of many non-condensing tankless water heaters currently on
the market, negatively impact consumers through increased product
costs, and contradict EPCA requirements. (Governor of Georgia, No. 1157
at pp. 1-3)
ONE Gas indicated that non-condensing/positive vent pressure gas-
fired instantaneous water heaters peak at approximately 0.82 UEF and
that UEF ratings from 0.89 to 0.93 would be technologically infeasible
for non-condensing products. (ONE Gas, No. 1200 at pp. 2-3) Huntsville
Utilities expressed opposition to the proposed standards for gas-fired
water heaters, adding that it is especially concerned with the proposed
standards for gas-fired instantaneous water heaters that require an
efficiency level over 91 percent, effectively eliminating the non-
condensing option for this product class. (Huntsville Utilities, No.
1176 at p. 1) JEA, WMU, PGW, Southeast Gas, CEA, ASGE and ONE Gas
stated that the proposed standard for gas-fired water heaters would
effectively eliminate the option of a non-condensing instantaneous
water heater and requested that DOE reassess the negative impacts on
public gas utility customers and manufacturers of water heaters that
would result from the proposed standard for gas-fired water heaters.
(JEA, No. 865 at pp. 1-2; WMU, No. 872 at pp. 1-2; PGW, No. 886 at pp.
1-2; Southeast Gas, No. 887 at pp. 1-2; CEA, No. 914 at pp. 1-2; ASGE,
No. 976 at pp. 1-2; ONE Gas, No. 1200 at p. 2)
The Gas Association Commenters expressed that the transition to
condensing-level efficiencies for gas-fired instantaneous water heaters
would result in the unavailability of products with what it considered
to be performance characteristics and features provided by non-
condensing products. This group of commenters cited comments submitted
by Rinnai, stating that non-condensing gas-fired instantaneous water
heaters can be installed and used in cases where condensing products
cannot be (e.g., in high-rise buildings, historically protected
buildings, or any other building with complications to venting
capabilities). According to EPCA, the Gas Association Commenters
stated, DOE should decline to adopt the proposed standard for gas-fired
instantaneous water heaters on the grounds that it would result in the
unavailability of products with ``performance characteristics'' and
``features'' currently available to consumers in the United States.
(Gas Association Commenters, No. 1181 at p. 7)
In response to these comments, DOE acknowledges that the standards
for gas-fired instantaneous water heaters cannot be achieved by non-
condensing designs. Nevertheless, in response to comments from ONE Gas
suggesting that the amended standards are technologically infeasible,
condensing-level standards are still technologically feasible because
condensing designs are widely available on the market. DOE has
determined that non-condensing technology does not provide any inherent
performance benefit to consumers beyond what is provided by condensing
designs. Instead, as discussed previously in this section of this
document, DOE has determined that non-condensing technology does not
constitute a performance-related feature for which a separate product
class must be established under EPCA, nor does non-condensing
technology warrant preservation under the unavailability provision.
Condensing gas-fired instantaneous water heaters can be installed in
the same locations where non-condensing gas-fired water heaters are
currently installed with proper consideration for the venting
requirements of condensing water heaters. As discussed in section
IV.F.2 of this document, the venting requirements of each type of water
heater are considered in the analysis of installation costs. Moreover,
DOE has not identified, nor have commenters provided, any specific
examples of buildings that currently use gas-fired water heaters that
cannot be retrofitted to accommodate a condensing gas-fired water
heater in place of an existing non-condensing gas-fired water heater.
DOE research indicates that historically protected buildings can be
renovated with appropriate permitting from local jurisdictions.\39\ In
the case of buildings preserved under the U.S. General Services
Administration's stewardship program, HVAC renovations have increased
energy and water efficiency.\40\ When a chimney is not used to vent the
flue gases (such as when sidewall venting is used), venting
terminations on the exterior of a building are visually unobtrusive--
far less prominent than outdoor units for air-conditioning systems that
are often installed in privately-owned homes in historic districts.
With respect to high-rise buildings, DOE has found that these buildings
are uncommonly outfitted with consumer gas-fired instantaneous water
heaters at present because these types of buildings more commonly rely
on central domestic hot water production (i.e., commercial water
heaters). This is because if consumer gas-fired instantaneous water
heaters are centrally located in a multi-family building, they could
require multiple long vents for flue gases and for combustion air,
which can be generally prohibitive for both non-condensing and
condensing products alike. However, even if gas-fired instantaneous
water heaters are located in some high-rise buildings, they can be
located near exterior walls, and therefore each unit can have separate
venting. If high-rise buildings rely on non-condensing gas-fired
instantaneous water heaters that are installed in each individual
dwelling rather than in a central location, the building would already
have venting in place (which would need to be modified to accommodate a
condensing product, resulting in added installation cost, just as any
other case). In general, as any gas-fired instantaneous water heater
would already require venting to the outside, the existing non-
condensing venting can always be converted to condensing venting. These
installation costs and considerations have been included in the
quantitative factors of the analysis. See section IV.F.2 for details on
how they are accounted for in the installation cost analysis and the
development of LCC estimates. In summary, DOE has not found any cases
where complications in venting cannot be overcome. As a result, DOE
finds that interested persons have not established by a preponderance
of the evidence that the standard is likely to result in the
unavailability of gas-fired instantaneous water heaters in certain
applications, e.g., high-rise buildings, historically protected
buildings, or any other building with complications to venting
capabilities. So, any argument that non-condensing gas-fired
instantaneous

[[Page 105210]]

water heaters should be preserved in the market under 42 U.S.C.
6295(o)(4) must be based on a performance characteristic (e.g.,
reliability), feature, size, capacity, or volume that is unique to non-
condensing gas-fired instantaneous water heaters.
---------------------------------------------------------------------------

\39\ For example, the Historic Beacon Hill District in Boston,
Massachusetts has an architectural commission to review proposed
alterations to exterior architectural features within the district
that are open to view from a public way. Guidelines for this
district are provided by the City of Boston, available at:
<a href="http://www.cityofboston.gov/images_documents/Beacon%20Hill%20Architectural%20Commission%20Guidelines_tcm3-17489.pdf">www.cityofboston.gov/images_documents/Beacon%20Hill%20Architectural%20Commission%20Guidelines_tcm3-17489.pdf</a> (last accessed August 6, 2024).
\40\ See, for example, the 2023 report by The Center for
Historic Buildings, available at: <a href="http://www.gsa.gov/system/files/Stewardship2023_0.pdf">www.gsa.gov/system/files/Stewardship2023_0.pdf</a> (last accessed August 8, 2024).
---------------------------------------------------------------------------

First, regarding reliability, as discussed in the March 2022
preliminary analysis and the July 2023 NOPR, standards adopted at EL 2
would result in a transition towards condensing technology for gas-
fired instantaneous water heaters (for those with less than 2 gallons
of storage volume and more than 50,000 Btu/h of rated input) but would
not result in the unavailability of reliably-performing products. (See
chapter 2 of the preliminary analysis TSD; 88 FR 49058, 49079).
Condensing gas-fired instantaneous water heaters have been on the
market for many years. DOE has noted clusters of models at condensing
efficiency levels as far back as the April 2010 Final Rule. (See table
IV.11 at 75 FR 20112, 20145, which includes condensing technology at
efficiency level 7). Over time, condensing models have only grown in
popularity. Today, about two-thirds of gas-fired instantaneous water
heater shipments are condensing products. Given this substantial market
penetration, and the fact that a significant portion of these shipments
are installed in replacement applications where the upfront cost is
likely higher than for non-condensing products, and that DOE does not
expect that consumers on a large scale would trade off efficiency for
reliability, DOE concludes that condensing gas-fired instantaneous
water heaters are likely to be just as reliable as non-condensing
models--otherwise, they would not comprise more than half of nationwide
shipments. See chapter 9 of the final rule TSD for more details on
product shipments.
Regarding sizes, capacities and volumes, gas-fired instantaneous
water heaters are typically described in terms of capacity, i.e., Btu/
hr. Based on DOE's market assessment, gas-fired instantaneous water
heaters that meet the adopted EL 2 efficiency are available over the
full range of capacities up to the maximum input that is allowable by
statute (200,000 Btu/h), and models on the market also offer modulating
burners to meet reduced demands. Therefore, no sizes, capacities or
volumes \41\ will be made unavailable as a result of DOE not separating
product classes for non-condensing and condensing gas-fired
instantaneous water heaters in this rule. As a result, DOE finds that
interested persons have not established by a preponderance of the
evidence that the standard is likely to result in the unavailability of
any sizes, capacities, or volumes of gas-fired instantaneous water
heaters that are substantially the same as those generally available in
the market.
---------------------------------------------------------------------------

\41\ Consumer gas-fired instantaneous water heaters often have
little to no storage volume (i.e., can have 0 gallons of rated
storage volume), however. These models are also referred to as
``tankless.'' Hence volume of the gas-fired instantaneous water
heater is not typically a consideration for most consumers, nor does
it substantially affect the model's ability to deliver hot water on-
demand.
---------------------------------------------------------------------------

DOE has found no sound statutory basis for interpreting ``size'' to
refer to the physical dimensions or total installation footprint of a
covered product. As technology advances, many products get smaller.
Computers used to be the size of rooms and now they can fit in a
pocket. Similarly, televisions, which are covered products under 42
U.S.C. 6292(a)(12) and are typically referred to by screen size, have
undergone significant technological advances over the past two decades
as the market has shifted from cathode-ray-tube (CRT) televisions and
rear-projection televisions to liquid-crystal-display (LCD)
televisions. LCD televisions are a fraction of the physical size of a
CRT television or rear-projection television for the same screen size.
It would make little sense for the unavailability provision to require
DOE to preserve CRT and rear-projection televisions in the market
because they take up more space than an LCD television with the same
screen size. As such, DOE views size, capacities, and volumes as
product-specific terms that all refer to the same aspect of a covered
product.
Nonetheless, even if a smaller installation footprint is considered
a performance characteristic or feature, interested persons have not
established by a preponderance of the evidence that the standard is
likely to result in the unavailability of gas-fired instantaneous water
heaters with smaller installation footprints. Gas-fired instantaneous
water heaters that only just meet the current standards (``baseline''
models) are designed with a combustion blower to help exhaust the flue
gases and improve heat exchange. These designs use ``category III''
\42\ venting, which is a type of vent made for pressurized flue gases
(such as those generated by a baseline gas-fired instantaneous water
heater with a combustion blower). While category III venting is for
non-condensing appliances, it is similar to category IV venting (used
for condensing appliances) because both types handle pressurized flue
gases from appliances with blowers. Condensing gas-fired instantaneous
water heaters also use combustion blowers. The primary difference in
the venting for these designs is the material that the vent is made of:
category III vents handle higher temperatures and are therefore made of
metal, whereas category IV vents have to be able to withstand corrosion
from condensate but can be made of less expensive plastics due to the
lower temperatures produced by condensing appliances (condensing
appliances do not exhaust as much heat as non-condensing appliances do
because condensing appliances are more effective at transferring the
heat to the water). In a replacement scenario, the existing category
III venting must be removed and replaced with category IV venting,
however the new venting can utilize the existing vent run because both
venting types operate with positive static pressure and can be
configured horizontally or vertically. As a result, the installation
footprint can be maintained when switching from a non-condensing to a
condensing gas-fired instantaneous water heater. As discussed
previously, the replacement of the venting will incur additional labor
and material costs, but it is technically feasible. See section IV.F.2
for further details on installation costs. See chapter 3 of the TSD for
more details on venting types and baseline components and operation.
---------------------------------------------------------------------------

\42\ In 2021, the National Fire Protection Association (NFPA)
and American National Standards Institute (ANSI) published the NFPA
54/ANSI Z223.1, ``National Fuel Gas Code.'' (NFPA 54-2021). Chapter
3 of NFPA 54-2021 divides the ``vented appliance'' definition into
four categories according to whether the appliance operates with
positive or nonpositive static pressure in the vent and whether
there is excessive condensate formation in the vent. NFPA 54-2021
can be found online at: <a href="http://www.nfpa.org/codes-and-standards/nfpa-54-standard-development/54">www.nfpa.org/codes-and-standards/nfpa-54-standard-development/54</a>. (Last accessed December 4, 2024).
---------------------------------------------------------------------------

For these reasons, DOE has concluded that interested persons have
not established by a preponderance of the evidence that the standard is
likely to result in the unavailability in the United States of gas-
fired instantaneous water heaters with performance characteristics
(including reliability), features, sizes, capacities, and volumes that
are substantially the same as those generally available in the United
States. Additionally, DOE has determined that separate product classes
for inefficient non-condensing technology and designs are not justified
under 42 U.S.C. 6295(q)(1)(B).
Lastly, DOE notes that the condensing-level standards adopted by
this final rule do not apply to all gas-

[[Page 105211]]

fired instantaneous water heaters, but only those with less than 2
gallons of storage volume and more than 50,000 Btu/h of rated input.
While these products comprise the vast majority of gas-fired
instantaneous water heaters, it is not the entirety. Further discussion
of condensing standards for other gas-fired instantaneous water heaters
is presented in section IV.C.2.b of this document.
2. Technology Options
In the July 2023 NOPR market analysis and technology assessment,
DOE identified several technology options initially determined to
improve the efficiency of gas-fired instantaneous water heaters, as
measured by the DOE test procedure. The technology options DOE
identified are listed in table IV.3. These technology options pertain
to gas-fired instantaneous water heaters with less than 2 gallons of
stored volume and over 50,000 Btu/h of rated input. Technology options
for other types of gas-fired instantaneous water heaters are largely
similar; however, additional options may be used to complement the
applications of those products. For example, gas-fired instantaneous
water heaters with substantial storage volume may employ thicker
insulation to improve UEF ratings by reducing standby losses. As
discussed in section IV.C of this document, the engineering analysis
for products with 2 or more gallons of storage volume and for products
with less than 50,000 Btu/h of rated input consists of a ``crosswalk,''
i.e., a translation of existing standards from one metric (EF) to
another (UEF). Because a crosswalk maintains the same stringency of
standards, DOE has not completed an assessment of the market for
technology options used to improve UEF in models subject to the
translated standards. DOE will continue to monitor the market and
assess the designs of these models as more information pertaining to
UEF ratings becomes available.

Table IV.3--Potential Technologies for Increasing Gas-Fired
Instantaneous Water Heater Efficiency
------------------------------------------------------------------------

------------------------------------------------------------------------
Technology option
------------------------------------------------------------------------
Electronic ignition........... Intermittent pilot ignition.
Intermittent direct ignition.
Hot surface ignition.
Improved burners.............. Condensing pulse combustion.
Power burner.
Reduced burner size (burner derating).
-----------------------------------------
Modulating burners.... Step modulating
burners.
Fully modulating
burners.
-----------------------------------------
Heat exchanger improvements... Increased heat exchanger surface area.
Flue baffle.
Condensing technology.
Improved venting.............. Direct venting.
Concentric direct venting.
Improved controls............. Modulating controls.
------------------------------------------------------------------------

B. Screening Analysis

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

10 CFR part 430, subpart C, appendix A, sections 6(a)(3)(iii) and 7(b).
In sum, if DOE determines that a technology, or a combination of
technologies, fails to meet one or more of the listed five criteria, it
will be excluded from further consideration in the engineering
analysis. The reasons for eliminating any technology are discussed in
the following sections.
The subsequent sections include DOE's evaluation of each technology
option against the screening analysis criteria, and whether DOE
determined that a technology option should be excluded (``screened
out'') based on the screening criteria.
1. Screened-Out Technologies
In the July 2023 NOPR, DOE screened out the following technology
options pertaining to gas-fired instantaneous water heaters based on
the previously described criteria: condensing pulse combustion and
reduced burner size. 88 FR 49058, 49083. DOE did not modify its
screening analysis in the July 2024 NODA or in this final rule
analysis.
Regarding condensing pulse combustion, DOE has determined it is not
technologically feasible for the broader market and not likely to be
practicable to manufacture, install, and service this technology on the
scale necessary to serve the relevant market at the time of the
effective date of this standard. Although condensing pulse

[[Page 105212]]

combustion technology shows promising results in increasing efficiency,
it has not yet been demonstrated in any commercially-available consumer
gas-fired instantaneous water heaters. Similar efficiencies are
achievable with other technologies that have already been introduced on
the market such that it is unlikely for manufacturing with condensing
pulse combustion technology to be scaled up in the future. DOE screened
out reduced burner size due to adverse impacts to consumer utility
(because reducing the burner size reduces the amount of heat the water
heater can provide). Further details of the screening analysis are
provided in chapter 4 of the final rule TSD.
2. Remaining Technologies
Through a review of each technology, DOE tentatively concludes that
all of the other identified technologies listed in section IV.B.2 met
all five screening criteria to be examined further as design options in
DOE's final rule analysis. In summary, DOE did not screen out the
following technology options:

Table IV.4--Remaining Technology Options
------------------------------------------------------------------------

------------------------------------------------------------------------
Technology option
------------------------------------------------------------------------
Electronic ignition........... Intermittent pilot ignition.
Intermittent direct ignition.
Hot surface ignition.
Burner improvements........... Power burner.
-----------------------------------------
Modulating burners.... Step modulating
burners.
Fully modulating
burners.
-----------------------------------------
Heat exchanger improvements... Increased heat exchanger surface area.
Flue baffle.
Condensing technology.
Improved venting.............. Direct venting.
Concentric direct venting.
Improved controls............. Modulating controls.
------------------------------------------------------------------------

DOE determined that these technology options are technologically
feasible because they are being used or have previously been used in
commercially available products or working prototypes. DOE also finds
that all of the remaining technology options meet the other screening
criteria (i.e., practicable to manufacture, install, and service; do
not result in adverse impacts on consumer utility, product
availability, health, or safety; and do not utilize unique-pathway
proprietary technologies). For additional details, see chapter 4 of the
final rule TSD.

C. Engineering Analysis

The purpose of the engineering analysis is to establish the
relationship between the efficiency and cost of the product. There are
two elements to consider in the engineering analysis: the selection of
efficiency levels to analyze (i.e., the ``efficiency analysis''), and
the determination of product cost at each efficiency level (i.e., the
``cost analysis''). In determining the performance of higher-efficiency
products, DOE considers technologies and design option combinations not
eliminated by the screening analysis. For each product class, DOE
estimates the baseline cost, as well as the incremental cost for the
product/equipment at efficiency levels above the baseline. The output
of the engineering analysis is a set of cost-efficiency ``curves'' that
are used in downstream analyses (i.e., the LCC and PBP analyses and the
NIA).
As discussed in section IV.A.1 of this document, certain classes of
gas-fired instantaneous water heaters currently have UEF-based
standards, while for others EPCA's EF-based standards apply. For this
rulemaking, DOE analyzed amended UEF standards for the product classes
that currently have standards in terms of UEF. For the product classes
with EF-based standards, DOE developed translated standards in terms of
UEF for use in the analysis but did not analyze higher efficiency
levels because, as discussed in section IV.C.2.b of this document, DOE
does not currently have sufficient information to determine which
higher efficiencies may be economically justified and result in
significant national energy savings.
DOE has analyzed standards with respect to the effective storage
volume metric (as proposed in the July 2023 NOPR) to allow consistency
between standards in different product classes. As outlined in the July
2023 NOPR, there are two types of water heaters that can cause the
system to store more energy than would be otherwise determined by the
rated storage volume: (1) water heaters capable of operating with an
elevated tank temperature, and (2) circulating water heaters.\43\ 88 FR
49058, 49086. For water heaters that are not capable of storing water
at elevated tank temperatures, including ``tankless'' models (e.g.,
products with current UEF-based standards), the effective storage
volume is equivalent to the rated storage volume. However, some gas-
fired instantaneous water heaters can include smaller tanks (i.e., the
product class for models with at least 2 gallons of storage volume),
therefore the effective storage volume metric was determined to be
useful for gas-fired instantaneous water heaters as well.
---------------------------------------------------------------------------

\43\ As discussed in section III.B of this document, circulating
gas-fired water heaters are storage-type water heaters that are
outside the scope of this final rule.
---------------------------------------------------------------------------

The product classes analyzed in this final rule and the respective
analytical approaches utilized are listed in table IV.5.

[[Page 105213]]

Table IV.5--Analysis Approach by Product Class
------------------------------------------------------------------------
Distinguishing
characteristics
Product category analyzed in (effective storage Analysis
this final rule volume and input
rating)
------------------------------------------------------------------------
Gas-fired Instantaneous Water <2 gal and Converting EF-
Heater. <=50,000 Btu/h. based standards
to UEF-based
standards.
<2 gal and >50,000 Amending UEF-based
Btu/h; All Draw standards.
Patterns.
>=2 gal and Converting EF-
<=200,000 Btu/h. based standards
to UEF-based
standards.
------------------------------------------------------------------------

1. Products With Current UEF-Based Standards
DOE typically uses one of two approaches to develop energy
efficiency levels for the engineering analysis: (1) relying on observed
efficiency levels in the market (i.e., the efficiency-level approach),
or (2) determining the incremental efficiency improvements associated
with incorporating specific design options to a baseline model (i.e.,
the design-option approach). Using the efficiency-level approach, the
efficiency levels established for the analysis are determined based on
the market distribution of existing products (in other words, based on
the range of efficiencies and efficiency level ``clusters'' that
already exist on the market). Using the design option approach, the
efficiency levels established for the analysis are determined through
detailed engineering calculations and/or computer simulations of the
efficiency improvements from implementing specific design options that
have been identified in the technology assessment. DOE may also rely on
a combination of these two approaches. For example, the efficiency-
level approach (based on actual products on the market) may be extended
using the design option approach to interpolate to define ``gap fill''
levels (to bridge large gaps between other identified efficiency
levels) and/or to extrapolate to the ``max-tech'' level (particularly
in cases where the ``max-tech'' level exceeds the maximum efficiency
level currently available on the market).
In the July 2023 NOPR, DOE developed efficiency levels with a
combination of the efficiency-level and design-option approaches. DOE
conducted a market analysis of currently available models listed in
DOE's Compliance Certification Database to determine which efficiency
levels were most representative of the current distribution of gas-
fired instantaneous water heaters available on the market. DOE also
completed physical teardowns of commercially available units to
determine which design options manufacturers may use to achieve certain
efficiency levels. DOE requested comments from stakeholders concerning
these efficiency levels, which, in this final rule, are consistent with
those analyzed in the July 2024 NODA.
a. Efficiency Levels
For each product class, DOE generally selects a baseline model as a
reference point for each class, and measures anticipated changes
resulting from potential energy conservation standards against the
baseline model. The baseline model in each product class represents the
characteristics of a product typical of that class (e.g., capacity,
physical size). Generally, a baseline model is one that just meets
current energy conservation standards, or, if no standards are in
place, the baseline is typically the most common or least efficient
unit on the market. The maximum available efficiency level is the
highest efficiency unit currently available on the market. DOE also
defines a ``max-tech'' efficiency level to represent the maximum
possible efficiency for a given product.
In this final rule, DOE has analyzed the same efficiency levels as
were considered in the July 2023 NOPR and the July 2024 NODA. These
efficiency levels are presented in table IV.6. For each draw pattern,
EL 2 corresponded with the levels proposed in the Joint Stakeholder
Recommendation (``JSR'') as discussed in section II.B.2 of th

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