The Standard Setting Process

Introduction

The Energy Policy and Conservation Act (EPCA) of 1975 established an energy-conservation program for major household appliances and called for setting efficiency targets. In 1978, the National Energy Conservation and Policy Act (NECPA) authorized the U.S. Department of Energy (DOE) to set mandatory energy-efficiency standards for 13 household appliances and products. In 1987, the NECPA was amended and updated by the National Appliance Energy Conservation Act (NAECA).

NAECA superseded existing state requirements and set the first national efficiency standards for home appliances, as well as a schedule for regular updates, currently specified to 2012. NAECA, its updates, the Energy Policy Acts of 1992 and 2005 (EPAct 1992 and EPAct 2005), and the Energy Independence and Security Act of 2007 (EISA) are major drivers behind energy-efficiency advances in residential and commercial appliances, lighting products, office equipment, plumbing products, distribution transformers, commercial air conditioning and heat pumps, and small electric motors. These Federally-mandated efficiency standards not only benefit consumers and the environment by saving energy, they also can help make American appliance manufacturers more competitive in the global marketplace.

The DOE Building Technologies Program manages the national appliances and commercial equipment standards programs. The DOE website includes a short history of the federal appliance standards program. In 2008, LBNL completed an updated study of the historic and projected impacts of U.S. residential appliance standards. In addition, in 1997, a Special Issue on Appliance Standards of Energy and Buildings, 26 (1), summarized lessons learned to date. For information on labels and standards in other countries, see the Collaborative Labeling and Appliance Standards Project (CLASP).

The Process Rule

In September 1995, DOE announced a formal effort to consider improvements to the process used to develop appliance efficiency standards, calling on manufacturers, energy-efficiency advocates, trade associations, state agencies, utilities, and other interested parties to provide input to DOE. On July 15, 1996, DOE published the Final Rule: Procedures for Consideration of New or Revised Energy Conservation Standards for Consumer Products (hereinafter referred to as the Process Rule). 61 FR 36974. The Process Rule outlines the procedural improvements identified by the participants in the program review. It elaborates on the procedures, interpretations, and policies that will guide the Department in establishing new or revised energy-efficiency standards for consumer products. The process improvement effort included a review of the tools and methodologies DOE uses in the standards process, including:

economic models,
analytical tools,
methodologies, and
non-regulatory approaches.

The Process Rule also sets up a mechanism for prioritization of future standards and test procedures. Current priorities are posted on the DOE Priority-Setting website.

Since the 1996 Process Rule, DOE has issued rules on:

Typical Steps in the Rulemaking Process

The rulemaking process for a given product typically begins with either a statutory or a legislative mandate for DOE to set mandatory energy-efficiency standards for that product or to do a Determination Analysis to determine if such standards would be technologically feasible and economically justified. If a determination analysis is needed, a Notice of Determination for the product is published in the Federal Register. This is followed by a comment period, the first of several in the rulemaking process in which the public (including manufacturers, retailers, consumers, efficiency/environmental advocates, states, and utilities) is invited to provide input to DOE.

Once DOE determines that a rulemaking will be undertaken, the first of four analytical phases in the rulemaking takes place. The Department and its contractors prepare and publish a Framework Document to describe DOE's plans for the rulemaking analyses. DOE posts a Notice of Availability for this and related documents and announcements on its website. The Department again requests and considers comments and data. The Department also holds a public meeting to create a forum for public participation. DOE and its contractors then perform engineering, market, and cost/benefit analyses.

The Department publishes the results of this second analytical phase in an Advance Notice of Proposed Rulemaking (ANOPR) in the Federal Register. At this point DOE also produces a draft Technical Support Document (TSD) for the product and makes it available on its website. Another comment period follows the publication of the ANOPR, along with another public meeting. During this period, DOE also may offer online information sessions (webcasts) to interested parties to familiarize them with the data assumptions and analytical tools used during the ANOPR stage.

The Department reviews all of the comments gathered from this process and addresses them in the third phase of analysis, which results in the publication of a Notice of Proposed Rulemaking (NOPR) in the Federal Register. DOE again considers comments and recommendations it receives pertaining to data and standard levels in its analysis, and may conduct a fourth analytical phase, if needed. The publication of the Final Rule in the Federal Register completes the process. The Final Rule announces the energy-efficiency standards and their effective date(s), typically a few years after the publication date.

The Role of LBNL's Energy Efficiency Standards Group

The Energy Efficiency Standards Group (EES), in Lawrence Berkeley National Laboratory's Energy Analysis Department, has been a prime contractor for engineering and economic analyses of appliance and lighting standards since 1979. EES's role is to provide technical and economic analyses of alternative standards levels in support of DOE, which selects the levels that ultimately become law.

The 1978 NECPA legislation specified that, before prescribing a new or amended standard, DOE "shall determine whether the benefits of the standard exceed its burdens by, to the greatest extent practicable, considering" the following seven criteria:

The economic impact of the standard on the manufacturers and on the consumers of the products of such standards;
The savings in operating costs throughout the estimated average life of the affected products in the appliance type (or class), compared to any increase in the price of, or in the initial charges for, or maintenance expense of, the affected products that are likely to result from the imposition of the standards;
The total projected amount of energy savings likely to result from the imposition of the standards;
Any lessening of the utility or the performance of the covered products likely to result from the imposition of the standard;
The impact of any lessening of competition likely to result from the imposition of the standard as determined in writing by the Attorney General;
The need for the Nation to conserve energy, and
Any other factors the Secretary considers relevant.

In addition, the 1987 NAECA legislation directs the Department to set standards at levels that achieve the maximum improvement in energy efficiency that is technologically feasible and economically justified.

EES participates in the following analyses that address these legislative requirements:

Engineering analysis. Which design changes could save energy, and to what degree?
Life-cycle cost (LCC) and payback period (PBP) analyses. What are the economic impacts of potential energy-efficiency standards at the level of the consumer or end-user? Carrying out these analyses requires gathering technical product data from manufacturers and other researchers, estimating future product prices, developing or modifying the LCC and PBP calculation models, and calculating energy savings and equipment costs, including installation and maintenance costs.
Uncertainty and variability analyses. What is the distribution of probable values for the major data inputs? Which inputs have the most impact on the LCC or PBP results? How much impact does the variability of these key inputs have on the results?
National impact analysis (national energy savings and net present value). What are the energy and economic impacts at the national level? These analyses include using forecasting models for U.S. residential and commercial energy use.
Subpopulation analysis. Do the impacts on consumers vary by region, demographics, or income? Will any subgroups of consumers be disproportionately affected by a standard?
Utility analysis. What are the impacts of potential standards on the Nation's electricity and gas suppliers? This analysis includes estimates of reduced energy sales, peak load, and deferred power plant construction.
Environmental assessment. What reductions in emissions of CO₂, SO₂, and NO_x will occur as a result of energy savings from potential standards?

The engineering analysis addresses the legislative criterion that an energy-efficiency standard on a product must be technologically feasible. The LCC analysis, along with the uncertainty/variability and subpopulation analyses, forms part of the basis for the Department to determine whether the standard meets the criterion of being economically justified. Based on the results of the LCC analysis, DOE selects candidate standard levels for a more detailed analysis. The range of candidate standard levels typically includes: (1) the most energy-efficient level or most energy-efficient combination of design options; (2) the combination of design options or efficiency level with the minimum LCC; and (3) the efficiency level or combination of design options with a PBP of not more than three years. Additionally, candidate standard levels that incorporate noteworthy technologies or fill in large gaps between efficiency levels of other candidate standards levels may be selected.

The national impact analysis addresses the legislative criteria that a standard must provide the Nation with significant energy savings and be economically justified. A forecast of national energy savings each year resulting from a potential standard starts with an estimate of the national sales (shipments) of the appliance or product and their efficiencies. For some product analyses, these quantities are outputs of a detailed shipments model specific to the product. This analysis results in an estimate of the average efficiency of the shipments, which forms the basis for a base case forecast that projects the shipments and their efficiencies. For each candidate standard level identified in the LCC analysis, a national energy savings (NES) model, designed for the product being analyzed, calculates the difference between the base case and the standards level case efficiency and forecasts the effects on the energy consumption (energy savings). The NES model also calculates the incremental equipment cost difference (including equipment, labor, and maintenance costs) between the base case and the standards case. The model calculates the total source energy savings and net present value (NPV) of each candidate standard level, uses energy price forecasts to calculate the energy cost savings for each year of the analysis period, and reports annual and cumulative results. NPV is the sum of the annual discounted differences between total operating cost savings and total equipment cost increases.

Benefits and Costs of Efficiency Standards

For products under existing standards, the cumulative primary energy savings from 1988 (when the first U.S. standards were introduced) through 2030 are projected to include:

54 quads (quadrillion (10¹⁵ Btu) for residential appliances under standards created through NAECA and its updates, equivalent to 2.6 years of current U.S. residential energy use, and
2.4 quads for commercial and industrial fluorescent lamp ballasts under NAECA (standards taking effect in 2005 and 2010).¹

In 2005 alone, national energy savings from existing standards are expected to total 1.0 quad.¹

The economic impact of standards on consumers typically includes an initial increase in equipment costs, offset over time by a decrease in operating costs due to savings on their energy bills.

For residential appliances meeting minimum energy-efficiency standards, the following economic impacts are projected from 1988 through 2030.

Increased equipment costs are estimated at $98 billion.¹
Operating cost (energy and maintenance) savings to consumers are estimated at $222 billion.¹
Thus, consumer benefits for this period exceed costs by, on average, 2.3 to 1.
The cumulative net present value is therefore estimated at $124 billion through 2030 (in $2003, discounted to 2003 at 7% real).

Consumer benefits for this period exceed costs by, on average, 2.3 to 1.

For residential appliances, the cumulative net present value (the net gains to consumers after subtracting the increased equipment costs from operating cost savings) is estimated at $124 billion through 2030 (in $2003, discounted to 2003 at 7% real).¹
For fluorescent lamp ballasts, the net present value is estimated to be $4.5 billion from 2005 through 2030 (in $2003, discounted to 2003 at 7% real).¹

For fluorescent lamp ballasts, the net present value is estimated to be $4.5 billion from 2005 through 2030 (in $2003, discounted to 2003 at 7% real)¹

Taxpayer funds expended in support of DOE's residential appliance standards program since its inception are estimated to range from US$200 to US$250 million (nominal).²

Finally, appliance and lighting standards reap environmental benefits:

Residential appliance standards will avert emissions of 5.3 million tons of NO_x and 860 million tons of carbon (MtC) from 1988 through 2030. These carbon emissions are equivalent to those produced by 24 million automobiles over the same period.¹
Fluorescent ballast standards will avert emissions of 60 thousand tons of NO_x and 19 MtC from 2005 to 2020. These carbon emissions are equivalent to those produced by 1 million automobiles over the same period.1

Sources

¹LBNL spreadsheets developed to provide data inputs for Meyers et al 2005 and Meyers et al 2003 (see below).

²Meyers, S., McMahon, J.E., McNeil, M., Liu, X., Realized and Prospective Impacts of U.S. Energy Efficiency Standards for Residential Appliances: 2004 Update, Lawrence Berkeley National Laboratory, Report No. LBNL-56417, 2005 (forthcoming).

Meyers, S., McMahon, J.E., McNeil, M., Liu, X., Impacts of US Federal Energy Efficiency Standards For Residential Appliances, Energy, Volume 28, Issue 8, June 2003, pp. 755-767.

Energy Efficiency Standards