82 FR 56181 - Energy Conservation Program: Energy Conservation Standards Program Design

DEPARTMENT OF ENERGY

Federal Register Volume 82, Issue 227 (November 28, 2017)

The U.S. Department of Energy (DOE) is evaluating the potential advantages and disadvantages of additional flexibilities in the U.S. Appliance and Equipment Energy Conservation Standards (ECS) program. Flexibilities could include market-based approaches such as those used to set average efficiency standards, feebate programs, or other approaches that may reduce compliance costs and/or increase consumer choice while preserving or enhancing appliance efficiency. This RFI discusses key issues and requests feedback on the possible design of such a program. DOE additionally requests feedback on possible economic efficiency gains, impacts on consumer and manufacturer costs and on energy savings, and suggestions for a pilot product category and/or phase-in of revisions across the ECS program. DOE also requests feedback on any potential challenges associated with designing and implementing any of these flexible program approaches as well as possible solutions.

[Federal Register Volume 82, Number 227 (Tuesday, November 28, 2017)]
[Proposed Rules]
[Pages 56181-56186]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-25663]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 82, No. 227 / Tuesday, November 28, 2017 / 
Proposed Rules

[[Page 56181]]



DEPARTMENT OF ENERGY

10 CFR Part 430

[EERE-2017-BT-STD-0059]
RIN 1904-AE11


Energy Conservation Program: Energy Conservation Standards 
Program Design

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

ACTION: Request for information (RFI).

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SUMMARY: The U.S. Department of Energy (DOE) is evaluating the 
potential advantages and disadvantages of additional flexibilities in 
the U.S. Appliance and Equipment Energy Conservation Standards (ECS) 
program. Flexibilities could include market-based approaches such as 
those used to set average efficiency standards, feebate programs, or 
other approaches that may reduce compliance costs and/or increase 
consumer choice while preserving or enhancing appliance efficiency. 
This RFI discusses key issues and requests feedback on the possible 
design of such a program. DOE additionally requests feedback on 
possible economic efficiency gains, impacts on consumer and 
manufacturer costs and on energy savings, and suggestions for a pilot 
product category and/or phase-in of revisions across the ECS program. 
DOE also requests feedback on any potential challenges associated with 
designing and implementing any of these flexible program approaches as 
well as possible solutions.

DATES: Written comments and information are requested on or before 
February 26, 2018.

ADDRESSES: Any comments submitted must identify the RFI for Energy 
Conservation Standards Program Design, and provide docket number EERE-
2017-BT-STD-0059 and/or regulatory information number (RIN) number 
1904-AE11. Comments may be submitted using any of the following 
methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Email: [email protected]. Include docket 
number EERE-2017-BT-STD-0059 in the subject line of the message. Submit 
electronic comments in WordPerfect, Microsoft Word, PDF, or ASCII file 
format, and avoid the use of special characters or any form of 
encryption.
     Mail: Appliance and Equipment Standards Program, U.S. 
Department of Energy, Building Technologies Office, Mailstop EE-5B, 
1000 Independence Avenue SW., Washington, DC 20585-0121. If possible, 
please submit all items on a compact disc (CD), in which case it is not 
necessary to include printed copies.
     Hand Delivery/Courier: Appliance and Equipment Standards 
Program, U.S. Department of Energy, Building Technologies Office, 950 
L'Enfant Plaza, SW., 6th Floor, Washington, DC 20024. Telephone: (202) 
287-1445. If possible, please submit all items on a CD, in which case 
it is not necessary to include printed copies.
    Instructions: All submissions received must include the agency name 
and docket number and/or RIN. No telefacsimiles (faxes) will be 
accepted.
    Docket: The docket is available for review at http://www.regulations.gov/docket?D=EERE-2017-BT-STD-0059, including Federal 
Register notices, comments, and other supporting documents/materials. 
All documents in the docket are listed in the www.regulations.gov 
index. However, not all documents listed in the index may be publicly 
available, such as information that is exempt from public disclosure.
    A link to the docket Web page can be found at http://www.regulations.gov/docket?D=EERE-2017-BT-STD-0059. This Web page 
contains a link to the docket for this notice at http://www.regulations.gov. The http://www.regulations.gov Web page contains 
simple instructions on how to access all documents, including public 
comments, in the docket.
    For information about how to submit a comment or review other 
public comments in the docket, send an email to 
[email protected].

FOR FURTHER INFORMATION CONTACT: Appliance and Equipment Standards 
Program Staff, U.S. Department of Energy, Office of Energy Efficiency 
and Renewable Energy, Building Technologies Program, EE-5B, 1000 
Independence Avenue SW., Washington, DC 20585-0121. Telephone: (202) 
287-1445. Email: [email protected].
    For further information on how to submit a comment, review other 
public comments and the docket, contact the Appliance and Equipment 
Standards Program staff at (202) 287-1445 or by email: 
[email protected].

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction
    A. Background
    B. Background on Market-Based Mechanisms in the Context of 
Environment Regulation
II. Key Issues
    A. Translation to Energy Conservation Standards
    B. Scope of Standards
    C. Normalizing Across Energy Sources
    D. Distributional Impacts Across Consumers and Manufacturers
    E. Enforcement
    F. Potential Challenges
    G. Potential Pilot Program and Assessment
III. Public Participation

I. Introduction

A. Background

    The purpose of this Request for Information (RFI) is to outline and 
request feedback on the design, value, and solutions to potential 
challenges of revising the U.S. Appliance and Equipment Energy 
Conservation Standards (ECS) program to include additional compliance 
flexibilities, with the goal of reducing compliance costs, enhancing 
consumer choice and maintaining or increasing energy savings. Of 
particular interest are designs that would use market-based policy 
mechanisms such as averaging, credit trading, or feebates. Market-based 
policy mechanisms are potentially less burdensome alternatives as they 
use markets, price, and other economic variables to provide incentives 
for regulated entities to reduce or eliminate negative environmental 
externalities in the least cost way. These policy mechanisms recognize 
that compliance

[[Page 56182]]

costs may vary significantly across the regulated sector and allows 
individual parties to choose the most cost effective compliance option.
    An example, discussed further below, of a market-based regulatory 
program that uses averaging, banking, and trading of credits is the 
Corporate Average Fuel Economy (CAFE) standards program for light-duty 
vehicles. The CAFE standards program specifies a fleet-based average 
fuel efficiency standard that allows manufacturers to trade credits 
across vehicle classes and manufacturers. This is only one example of 
how a regulatory program can include some market-based mechanism 
allowing for more flexibility in compliance. Other examples of market-
based mechanisms used in a number of other U.S. energy and 
environmental programs include standards to which gasoline refineries 
were subject during the leaded gasoline phase-down,\1\ the use of 
credits, or RINs (Renewable Fuel Identification Numbers) in the U.S. 
EPA Renewable Fuel Standards program,\2\ fuel efficiency standards for 
heavy duty engines and vehicles, various versions of state-level 
Renewable Portfolio Standard programs, including those allowing for the 
use of Tradable Renewable Certificates (TRCs),\3\ and several power 
plant emissions control programs including California's Cap and Trade 
program.\4\
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    \1\ Newell, R.G., & Rogers, K. (2003). The U.S. experience with 
the phasedown of lead in gasoline. Resources for the Future, 
Washington, DC, 2.
    \2\ https://www.epa.gov/renewable-fuel-standard-program/overview-renewable-fuel-standard.
    \3\ Wiser, R., Porter, K., & Grace, R. (2005). Evaluating 
experience with renewables portfolio standards in the United States. 
Mitigation and Adaptation Strategies for Global Change, 10(2), 237-
263.
    \4\ https://www.arb.ca.gov/cc/capandtrade/capandtrade.htm.
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    DOE requests feedback on possible revisions to the ECS to adopt 
some type of market-based approach and/or other program flexibilities. 
DOE additionally requests feedback on possible impacts on consumer and 
manufacturer costs, estimated benefits of the program such as energy 
savings, design and implementation of such a program, and suggestions 
for a pilot product category and/or phase-in of revisions across ECS. 
DOE encourages the public to provide input on measures DOE could take 
to lower the cost of its regulations consistent with the requirements 
of EPCA.
    Economic theory suggests that the introduction of credit trading 
into a mandatory regulatory program such as ECS would likely improve 
economic efficiency (see Coase (1960),\5\ Crocker (1966),\6\ Dales 
(1968a, 1968b),\7\ and Montgomery (1972) \8\) and subsequent 
discussions such as Ellerman (2005) \9\). Credit trading, for example, 
either within a single manufacturer or between manufacturers, would 
allow a level of flexibility for compliance, and could thereby reduce 
compliance costs associated with production, and establish a market 
mechanism to reveal the ``shadow value'' \10\ of the efficiency 
standard through the value of credits on the credit trading market. In 
principle, the same aggregate level of energy savings could be obtained 
with reduced compliance cost, because manufacturers with a lower 
marginal cost of providing efficiency improvements could increase the 
efficiency of the products they sell even more, and sell credits from 
their over-compliance to manufacturers with a higher marginal cost of 
providing efficiency, thereby allowing them to produce products with 
efficiency levels below the standard. This could reduce the overall 
manufacturer cost associated with producing the same aggregate level of 
energy savings. Such a program would allow a degree of flexibility that 
could accommodate increased consumer choice as well. For example, if 
there is a small market segment of consumers with a very high 
willingness to pay for a product that, for whatever reason, cannot be 
produced to meet a given energy conservation standard level, under a 
mandatory standard they could not obtain this product. However, under a 
trading, averaging, or other market-based scheme a manufacturer could 
choose to produce that product by purchasing credits in the credit 
market. Furthermore, market-based standards further incentivize even 
the makers of the most efficient appliances to continue to innovate and 
improve efficiency, gains once the minimum standard is met.\11\ DOE 
requests comment on which flexible compliance or market-based program 
scheme might incentivize the most cost-effective improvements in energy 
efficiency.
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    \5\ Coase, R.H. (1960). The problem of social cost. The Journal 
of Law and Economics, 3, 1-44. [republished as Coase, R.H. (2013). 
The problem of social cost. The journal of Law and Economics, 56(4), 
837-877.]
    \6\ Crocker T.D.W.H. (1966). The structuring of atmospheric 
pollution control systems. The economics of air pollution: A 
symposium, New York, W.W. Horton, pg. 61-86.
    \7\ Dales J.H. (1968a) Land, water, and ownership. Canadian 
Journal of Economics/Revue Canadienne d'Economique, 1(4), 791-804. 
Dales, J.H. (1968b). Pollution, property and prices. Toronto, 
University of Toronto Press.
    \8\ Montgomery, W.D. (1972). Markets in licenses and efficient 
pollution control programs. Journal of Economic Theory. 5(3), 395-
418.
    \9\ Ellerman, A.D. (2005). A note on tradeable permits. 
Environmental and Resource Economics, 31(2), 123-131.
    \10\ Shadow price or shadow value is a term in economics. It 
refers to the marginal value of a constraint, or the value of 
relaxing a given constraint by one unit. In the case of a standard 
with trading, theoretically the price of credits in the credit 
market would reveal the shadow value of the constraint imposed by 
the standard.
    \11\ Note that the voluntary ENERGY STAR program currently 
provides a separate incentive for increasing efficiency beyond the 
minimum standards, in a different way than mandatory market-based 
standards. ENERGY STAR criteria are set above minimum standards to 
provide a separate incentive to produce products above the minimum.
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    Increased flexibility, reduced economic costs, and increased 
incentives for manufacturers to innovate and improve efficiency across 
a spectrum of products (i.e., both high efficiency products and 
products that just meet the standard level) are all possible benefits 
from introducing average standards and/or market-based approaches, or 
other compliance flexibilities. These market-based program options will 
differ from the current DOE compliance structure creating some 
uncertainty about implementation, interaction with voluntary programs 
such as ENERGY STAR, certification, and enforcement for both 
manufacturers and DOE. The scope of a tradable standards program could 
range from allowing averaging only across each company's appliances 
within a product category (that is, no trading across product 
categories or between companies). For example, considering the consumer 
refrigerator and freezer product category,\12\ a company could average 
the energy efficiency of their products across all of the product 
classes of equipment that they produce or just average across some of 
the various residential refrigerator products in different product 
classes that they produce, but different companies would not be able to 
average their energy efficiencies between companies. Another program 
design could allow companies to trade credits across product categories 
and/or between companies. A feebate program could similarly vary in 
scope but would have different implementation and administrative 
requirements and costs. As there are many program design possibilities 
and potential program flexibilities, DOE requests comment on any 
potential benefits or costs that may arise with the implementation of 
these types of policy changes and any

[[Page 56183]]

recommendations for how the program could be successfully implemented.
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    \12\ DOE's current energy efficiency standards for the consumer 
refrigerators, refrigerator-freezers, and freezers product category 
are subdivided into forty-two different product classes most of 
which have unique energy efficiency standards. 76 FR 57516 
(September 15, 2011).
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B. Background on Market-Based Mechanisms in the Context of Environment 
Regulation

    There are many examples of market-based mechanisms incorporated 
into environmental regulation. Broadly, prominent examples in the 
United States include emissions trading systems (ETS, or cap and 
trade); and performance-based standards with a market-based mechanism 
or similar allowance for some element of flexibility in compliance. In 
the case of an ETS, a particular cap, or limit, is placed on the level 
of emissions. That cap would generally be structured in the form of 
emissions credits (e.g., a single ton of emissions) allocated to each 
entity subject to the policy. Several allocation mechanisms are 
possible, including grandfathering, lottery, or auctioning. There are 
numerous other examples of ETS policies at the state and federal levels 
in the United States and across the world.\13\
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    \13\ E.T.S. China (2016). ``Carbon Pricing Watch 2016,'' World 
Bank Group. http://www.ecofys.com/en/publications/carbon-pricing-watch-2016/.
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    A successful example of an ETS is EPA's Acid Rain Program, where 
fossil fuel-fired electric power plant emissions of sulfur dioxide were 
capped nationwide and power plant owners could either install emissions 
control technologies to reduce their sulfur dioxide emissions allowing 
the owner to earn credits for each ton of emissions reduced or the 
owner could purchase credits to offset their emissions. The Acid Rain 
Program also included an emissions averaging component for nitrous 
oxide (NOX) emissions that allowed owners to use company-
wide averaging to meet the emissions standard.
    An example of flexible performance standards include the various 
implementations of vehicle fuel economy standards across the world. 
Many of these vehicle fuel economy programs incorporate some variation 
of an average target, allowing flexibility in compliance by enabling 
manufacturers to sell models that are less efficient than the target as 
long as they balance it out with sales of models that are more 
efficient.\14\ China is one of the exceptions as they set minimum 
standards that each vehicle model must achieve. In addition, some 
programs have also incorporated some degree of flexible compliance or 
coordination in compliance across manufacturers. A program already 
implemented in the U.S., is the Department of Transportation's 
Corporate Average Fuel Economy (CAFE) standards and EPA's greenhouse 
gas (GHG) standards for passenger vehicles. CAFE standards were first 
enacted by Congress in 1975. Starting in 1978, each vehicle 
manufacturer was required to meet a fleet-wide, average fuel economy 
standard: One for passenger cars and another for light trucks. The 
Department of Transportation's National Highway Traffic and Safety 
Administration (NHTSA) administers the CAFE standards, while the 
Environmental Protection Agency (EPA) administers the greenhouse gas 
emissions (GHG) standards for passenger cars and light-duty trucks 
under section 202(a) of the Clean Air Act (42 U.S.C. 7521(a)). The two 
agencies work together, with the California Air Resources Board, to set 
CAFE and GHG standards for passenger vehicles in part to harmonize 
their standards to reduce compliance burdens on manufacturers so 
manufacturers can produce the same vehicle model across the nation. The 
current CAFE standards cover light-duty passenger vehicles for model 
years out to 2021 while EPA's GHG standards go out to 2025 (77 FR 
62623).
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    \14\ An, F., & Sauer, A. (2004). Comparison of passenger vehicle 
fuel economy and greenhouse gas emission standards around the world. 
Pew Center on Global Climate Change, 25.
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    For all U.S. sales in a given model year, the CAFE standards 
require each manufacturer's U.S. sales meet a production-weighted 
harmonic mean fuel economy/emissions target based on vehicle footprint 
(the vehicle wheelbase times its track width, or the area between its 
tires). Thus, CAFE is a fleet-based standard, which allows each 
manufacturer to trade off fuel economy between its own models by 
altering its product mix (i.e., ``internal trading''). The standards 
are applied fleetwide for a company so that domestically produced 
vehicles \15\ and imported vehicles, are treated the same for 
compliance purposes.
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    \15\ Vehicles produced with more than 75 percent U.S., Canadian, 
or post-NAFTA Mexican content.
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    Beginning with the standards issued in 2009 for model year 2011 
vehicles, the CAFE program allows for trading of credits across 
manufacturers (74 FR 14195). Manufacturers who fail to meet their 
fleet-level target may buy credits from manufacturers who achieved 
greater-than-required fleet-level fuel economy; alternatively, 
manufacturers failing to meet their fleet-level target may pay a fine. 
Credits may also be used within a manufacturer's own product mix, 
trading from passenger cars to light trucks, or from domestic to 
foreign production. Credits earned by exceeding the fuel economy 
standard may be banked and used up to five years in the future.
    The CAFE calculation incorporates many different complexities and 
allowances for vehicle design features (e.g., flex-fuel capability, air 
conditioning, off-cycling technologies, solar panels, engine start/
stop, active aerodynamics, etc.), which may or may not have logical 
analogs in products covered by ECS. It is important when designing a 
credit program that there is sufficient heterogeneity in the affected 
product category to leverage the advantages of a market-based approach. 
For analysis of the impact and effectiveness of credit trading within 
CAFE, see, e.g., Leard and McConnell (2015) \16\ and Greenstone et al. 
(2017).\17\
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    \16\ Leard, B. and V. McConnell (2015). ``New Markets for 
Pollution and Energy Efficiency: Credit Trading under Automobile 
Greenhouse Gas and Fuel Economy Standards,'' Resources for the 
Future, RFF DP 15-16.
    \17\ Greenstone, M. et al. (2017). ``The Next Generation of 
Transportation Policy,'' The Hamilton Project, Policy Proposal 2017-
02.
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    Other passenger vehicle fuel economy standards programs around the 
world also provide some examples for variations on this concept. For 
example, Japan follows a similar model to the United States, in that 
their vehicle standards are mandatory and their fuel economy targets 
are also based on average vehicle fuel economy, where the target is 
specific to weight classes. Starting in 2001 the regulation was revised 
to allow manufacturers to transfer credits across weight classes (see 
An & Sauer 2004).\18\
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    \18\ An, F., & Sauer, A. (2004). Comparison of passenger vehicle 
fuel economy and greenhouse gas emission standards around the world. 
Pew Center on Global Climate Change, 25.
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    The European Union (E.U.) program differs significantly from that 
used in the United States. In the E.U. program the average passenger 
vehicle fuel economy across the entire industry is to meet a certain 
target by the compliance date (i.e., there are no manufacturer-specific 
targets). It is a voluntary standard established through an agreement 
between manufacturers and the European Commission. Because the target 
is not specific to each manufacturer, manufacturers can presumably 
coordinate to enable the entire passenger vehicle fleet to meet the 
target (An & Sauer 2004).
    Another example of a performance standard incorporating a level of 
flexibility in compliance is a feebate. Examples include the Swedish 
program to incentivize power plant operators to reduce nitrous oxide 
emissions, as well as vehicle fuel economy programs in

[[Page 56184]]

several countries.\19\ \20\ Under a feebate program, an efficiency 
``pivot-point'' is set, below which manufacturers pay a fee and above 
which manufacturers receive a payment from the regulating body or 
government entity. The fee or payment is based on the efficiency of 
products sold relative to the pivot point. So, for example, the highest 
efficiency products generate higher payments than products also above 
the pivot point but that are lower efficiency (see for example 
Gillingham 2013 \21\). Feebates may be easier to administer than 
tradable standards because tracking of permits is not required and 
credit market liquidity is not a concern, though other implementation 
challenges may arise.\22\
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    \19\ Johnson, K.C. (2006). Feebates: An effective regulatory 
instrument for cost-constrained environmental policy. Energy policy, 
34(18), 3965-3976.
    \20\ German, J. and Dan Meszler (2010). Best practices for 
feebate program design and implementation. International Council on 
Clean Transportation. http://www.theicct.org/sites/default/files/publications/ICCT_feebates_may2010.pdf.
    \21\ Gillingham, K. (2013). The Economics of Fuel Economy 
Standards versus Feebates. National Energy Policy Institute (NEPI) 
Working Paper. http://www.ourenergypolicy.org/wp-content/uploads/2013/07/Gillingham-CAFE-Standards-vs-Feebates-Apr-20131.pdf.
    \22\ For example feebate programs may require tax and subsidy 
authority and are not guaranteed to be revenue neutral.
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    Regardless of the specific program design, the general concept with 
existing programs is to establish a target level, and allow 
manufacturers to have the flexibility to meet that target in the least 
cost way. That flexibility can include a penalty or payment based on if 
a manufacturer under- or over-performs relative to the target (i.e., 
feebate), a credit market (e.g., CAFE), or allowing for other forms of 
collaboration in compliance (e.g., E.U. vehicle standard program). DOE 
seeks feedback on what type of approach would best serve the ECS 
program. In the remainder of this document CAFE is used as an example 
to discuss some of the specific points on which DOE seeks feedback, 
although DOE is interested in feedback regarding any other potential 
policy approaches.

II. Key Issues

A. Translation to Energy Conservation Standards

    The markets for consumer products and commercial equipment covered 
by the ECS program will inform the way a market mechanism or allowance 
for compliance flexibility could possibly be established for ECS's 
consumer products and commercial equipment.
    First, the scope of the ECS program covers a broad range of 
consumer products and commercial equipment. The ECS program currently 
covers more than 60 types of products, each of which have a number of 
product classes. For this full scope of products, there are a large 
number of manufacturers controlling hundreds of brands across a wide 
range of sectors and industries that may facilitate averaging or 
trading amongst manufacturers. The EPCA definition of manufacturer 
applies not only to original equipment manufacturers, but also 
retailers, distributors, installers, or importers, some of which 
rebrand products manufactured by other distributors. All of these 
regulated entities would have to submit sales data on covered models in 
order to track compliance with such a program. The current program of 
mandatory energy conservation standards for each model currently 
requires that manufacturers certify and report to DOE the efficiency 
level of all covered models. Production or sales data are not 
collected.
    Careful consideration should be given to the scope of additional 
program flexibilities, for example the range of product categories 
across which trading under a tradable standard could occur. One 
potential approach could be to maintain a single standard level as is 
currently the case for covered appliances and commercial equipment. The 
standard level would still be set separately for each product category 
and each class within that product category. Trading could be allowed 
within a single product class or across all product classes within a 
particular product category both for a given manufacturer (they could 
sell some models exceeding the standard as long as they also have 
sufficient sales below the standard to offset that difference) and 
across manufacturers so that those with excess credits could bank them 
or sell them to those with a deficit for a given year. As is the case 
for CAFE standards, such a system incentivizes manufacturers already 
producing efficient models to continue improving efficiency \23\ 
Another potential approach could be requiring both a minimum efficiency 
level and an average standard above the minimum efficiency level that 
can be met through a more flexible approach, although that approach may 
reduce the potential cost savings.\24\
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    \23\ It should be noted that programs such as ENERGY STAR and 
product rebates by utilities and other program administrators 
incentivize efficiency in consumer products and industrial equipment 
outside of the ECS program. The interaction of additional program 
flexibilities with other programs such as ENERGY STAR is an 
important consideration.
    \24\ Retaining a minimum standard could be one way to comply 
with the anti-backsliding provision in current law.
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    While maintaining the same sets of product classes would likely be 
desirable in most cases, the introduction of trading could allow a 
degree of freedom and flexibility that could potentially allow for 
simplification in other dimensions of the program. For example, some 
product classes could be consolidated, or volume-based standards, such 
as are established for refrigerators currently, might be simplified to 
no longer depend on volume. Product classes were defined in order to 
ensure preservation of consumer choice and product utility/
functionality, effectively mandating a degree of flexibility to the 
program. If the trading introduced a market-driven allowance for 
flexibility, some of the mandated features may be redundant, and 
further simplification might be beneficial. This would have to be 
carefully assessed.

B. Scope of Standards

    As discussed above, defining the products across which credit 
trading would be allowed or a single feebate set must be carefully 
considered. In the case of a tradable standard, trading could be 
allowed across product categories using the same type of fuel. For 
example, a manufacturer could trade credits for room air conditioners 
with electric clothes dryers, with the common metric being kilowatt 
hours saved over a product's expected lifetime. Alternatively, trading 
could be allowed only across product classes for a particular product 
category (e.g., across all room air conditioner product classes), 
product classes could be consolidated or eliminated for a single 
product (e.g., a single standard for all room air conditioners), or 
trading could be allowed across product categories using similar 
technologies (room air conditioners and commercial air conditioners, 
and perhaps consumer refrigerators as well). One of the key program 
design elements would be ensuring a standardized definition of credits 
across product classes to the extent trading was allowed across 
products with differing fuel sources, requiring a normalization of 
energy savings, though most covered products use electricity. Program 
administration and compliance costs, potential efficiency gains, credit 
market liquidity, and potential impacts on competition in product 
markets are important

[[Page 56185]]

considerations in setting the scope of the program.
    As a final note, for one product currently covered under the ECS 
program (central air conditioners), the standard level for this product 
varies regionally. If this feature were present for a product category 
included in the scope of trading, trading would have to reflect region-
specific product sales as well.

C. Normalizing Across Energy Sources

    Credit trading across appliances with different fuel sources (e.g., 
electric versus natural gas dryers) would require normalizing energy 
metrics across fuel types. CAFE currently does this for alternative 
fuel vehicles (including those that run on electricity, natural gas, 
hydrogen and other fuels) by generating energy-equivalent fuel economy 
values. So for instance a natural gas vehicle that travels 30 miles on 
100 cubic feet of natural gas is given a gasoline-fuel-equivalent miles 
per gallon value by multiplying the natural gas fuel economy by an 
energy content conversion factor representing the relative energy 
content of 100 cubic feet of gas and one gallon of gasoline. Appliance 
fuels could similarly be converted into energy-equivalent values, or 
trading could be restricted to appliances of the same fuel type. DOE 
seeks feedback on this point.

D. Distributional Impacts Across Consumers and Manufacturers

    Incorporating elements of a market-based or flexible approach to 
the ECS program in order to enable more flexible compliance could have 
significant benefits for consumer's manufacturers, such as providing 
manufacturers flexibility to comply with the efficiency target in the 
least cost way. However, even if overall costs decline, the 
distribution of costs among regulated firms could change, and some 
firms might face higher costs than under the current program. 
Administrative costs for firms may increase while overall compliance 
costs may be reduced, for instance as a result of reductions in 
production costs or larger profits from better targeting of consumer 
preferences. DOE seeks feedback on the potential for distributional 
asymmetries in costs and benefits that could be relevant. For example, 
would a credit trading mechanism significantly change administrative 
costs associated with complying with the ECS? Would these cost changes 
disproportionately impact some types and sizes of firms relative to 
others (e.g., would some firms potentially have a compliance advantage, 
in that they may be better equipped to establish designated personnel 
to manage participation in the credit market)? How would different 
approaches to program flexibility impact those costs (e.g., credit 
trading versus feebates?). What are the likely net gains to consumers 
and manufacturers of a more flexible approach?

E. Enforcement

    The establishment of credit trading would require additional data 
collection and monitoring to set standards and ensure compliance.\25\ 
As under the current CAFE program, calculating credit holdings would 
depend on accurate sales data for every covered model. In cases where 
standards vary regionally, these data would also need to be broken out 
by region. These data would be necessary to support accurate and 
consistent calculations for the determination of appropriate energy 
conservation standard levels as part of the rulemaking, and would be 
essential for enabling and monitoring the credit market and ensuring 
compliance.
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    \25\ For the current ECS program, DOE has published 
certification, compliance, and enforcement regulations for covered 
products and equipment in the Code of Federal Regulations (CFR) at 
10 CFR part 429. These regulations describe how manufacturers must 
establish certified ratings based on conducting DOE test procedures 
on a sample of units of a given basic model and subsequently apply 
DOE's statistical sampling plans. The regulations also describe how 
manufacturers must submit certification reports to DOE, and how 
manufacturers must maintain records underlying the certification. 
Finally, the regulations describe processes for DOE-initiated 
testing and enforcing compliance with the certification provisions 
and the energy and water conservation standards.
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F. Potential Challenges

    For several product markets, particularly for large appliances, the 
set of manufacturers is relatively small. This level of concentration 
in the product market, if replicated in the credit market, implies 
manufacturers may be able to exercise market power (i.e., the market 
would not be perfectly competitive).\26\ Competitive credit markets are 
an important factor in design of programs that include trading. The 
extent to which market power could be exercised in credit markets, and 
the potential impact on appliance program outcomes and on consumers, 
would need to be carefully considered in design of a program. In 
general, liquid and competitive credit markets would be more likely if 
trading was allowed across many product categories.\27\ Approaches that 
do not involve credit markets, such as a feebate, would not generate 
the same credit trading concerns. More broadly, the interaction of 
standards and market power in product markets is an important 
consideration.\28\ For a discussion of how market power has the 
potential to impact a credit market in an emissions trading context see 
Fowlie, Reguant, and Ryan (2016).\29\
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    \26\ For a summary of recent work on this topic see: Houde, S. 
and C.A. Spurlock (2016). ``Minimum Energy Efficiency Standards for 
Appliances: Old and New Economic Rationales,'' Economics of Energy & 
Environmental Policy, 5(2).
    \27\ For discussion in the context of emissions trading markets, 
see, e.g., Godby, R. (2000). ``Market Power and Emissions Trading: 
Theory and Laboratory Results,'' Pacific Economic Review, 5(3):349-
363.
    \28\ See for example Carolyn Fischer, ``Imperfect Competition, 
Consumer Behavior, and the Provision of Fuel Efficiency in Light-
Duty Vehicles,'' Resources for the Future Discussion Paper 10-60, 
December 2010.
    \29\ Fowlie, M., Reguant, M., & Ryan, S.P. (2016). Market-based 
emissions regulation and industry dynamics. Journal of Political 
Economy, 124(1), 249-302.
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    Second, as with the current appliance program, the impact of 
special provisions on program goals would have to be carefully 
considered. For example, CAFE standards allow a mpg benefit for flex-
fuel vehicles regardless of the actual fuel used by the vehicles.\30\ 
The resulting incentive to produce flex-fuel vehicles that do not for 
the most part actually use alternative fuels results in smaller 
reductions in petroleum fuel use. This provision is being phased out as 
a result.
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    \30\ For discussion of the flex-fuel provision and what its use 
can reveal about manufacturer costs, see, e.g., Anderson, S. and J. 
Sallee (2011). ``Using Loopholes to Reveal the Marginal Cost of 
Regulation: The Case of Fuel-Economy Standards,'' American Economic 
Review, 101: 1375-1409.
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    Third, introduction of efficiency incentives like tradable 
performance standards or feebates into the ECS program would mean that 
manufacturers that specialize in more efficient products may experience 
higher sales, while those that specialize in lower efficiency products 
may have added costs and lower sales. As noted above, the impact on 
small firms must be carefully considered.

G. Potential Pilot Program and Assessment

    DOE requests input on potential scope for a market-based pilot. For 
example, is there a product or equipment type that would be appropriate 
for such a pilot? Is there a particular industry with a structure more 
amenable to a market-based pilot than others? Are any potential policy 
approaches identified in this RFI more suitable to certain industries 
or products than others? Could this pilot be successfully applied to an 
industry voluntary program (e.g., set-top boxes)?

[[Page 56186]]

    DOE also requests feedback on how to assess pilot program results. 
In particular, how could DOE identify the counterfactual or control 
group for comparison with the existing mandatory ECS program? How could 
DOE best conduct a retroactive assessment of costs and benefits to 
manufacturers under the existing ECS program and the market-based 
pilot? How could DOE identify distributional impacts across 
manufacturers? How could DOE determine if a broader or narrower scope 
of trading, if allowed, would have been more beneficial? DOE also 
requests input on what data it would need to collect to properly assess 
pilot program results.

III. Public Participation

    DOE invites all interested parties to submit in writing by February 
26, 2018, comments and information on matters addressed in this RFI and 
on other matters relevant to DOE's evaluation of the potential 
advantages and disadvantages of additional compliance flexibilities in 
energy conservation standards, such as tradable average standards, 
feebates or other market-based approaches. DOE requests feedback on 
program design, possible economic efficiency gains, impacts on consumer 
and manufacturer costs and on energy savings, and potential challenges 
associated with designing and implementing such a program, including 
suggestions for a pilot and/or phase-in of a revised ECS.
    DOE considers public participation to be a very important part of 
the process for developing new and/or amended energy conservation 
standards. DOE actively encourages the participation and interaction of 
the public during the comment period. Interactions with and between 
members of the public provide a balanced discussion of the issues and 
assist DOE. Anyone who wishes to be added to the DOE mailing list to 
receive future notices and information about this RFI should contact 
Appliance and Equipment Standards Program staff at (202) 287-1445 or 
via email at [email protected].

    Issued in Washington, DC, on November 21, 2017.
Daniel R Simmons,
Principal Deputy Assistant Secretary, Energy Efficiency and Renewable 
Energy.
[FR Doc. 2017-25663 Filed 11-27-17; 8:45 am]
 BILLING CODE 6450-01-P