AGA Unveils Significant Flaws in Research Supporting DOE Furnace Rule
Inaccurate Economic Modeling Has Resulted in Incorrect and Irrational Outcomes
Washington, D.C. – In a meeting today with key environmental and industry stakeholders to discuss in the U.S. Department of Energy’s Notice of Proposed Rulemaking on Energy Conservation Standards for Residential Furnaces, AGA unveiled a significant flaw in the economic model used to test the rule, which has led to faulty outcomes and an inaccurate depiction of what will occur if this rule is put in place.
The DOE model began with 10,000 sample homes and used a “Monte Carlo” method to determine which households are “affected” by the rule and which ones are not, by assigning furnaces to homes in a random fashion irrespective of economics. The determination whether or not the family would have an 80 percent energy efficient natural gas furnace or a 92 percent efficient natural gas furnace was assigned randomly, removing the rational, economic decision making process that takes place both with homeowners and builders.
A significant number of the 10,000 cases exhibit this irrational economic behavior. Here are a few examples:
#7067 is a new single family home in New York. The DOE model determined that they would not install a 92 percent efficient natural gas furnace despite savings of $1,656 in installation costs and $76 annually.
#1886 is a single family home in New York that is looking to replace their natural gas furnace. They would save $690 in installation costs and $360 a year by installing a 92 percent efficient unit, yet the DOE model determined that they would not choose to do so.
#8042 would save $876 upfront and $155 each year by installing a 92 percent efficient natural gas furnace in their new single family home in Tennessee. Yet, the DOE model determined that they would not make that choice.
#287 is a single family home in the north region (IA, MN, ND, SD) looking to replace their natural gas furnace. The model indicates they would choose a 92 percent energy efficient furnace despite $1,055 in installation costs and an annual savings of $1 per year, with a payback period of 1,323 years.
#6487 would have to pay $4,620 to replace the existing furnace in their multifamily home in Illinois with a 92 percent efficient natural gas furnace. They would realize a savings of $23 each year according to the DOE model and a payback period of 201 years.
#8377 would pay $3,287 to replace their furnace with a 92 percent efficient natural furnace in their multifamily home in California. Their annual savings would be $27 with a payback period of 90 years.
As it stands, DOE’s model indicates significant overall economic benefits if the rule is put in place, but without taking consumer choice into account during the process of purchasing a new furnace which significantly skews the results.
“While random selections do work well in some models, randomizing in this scenario does not make sense,” said Kathryn Clay, vice president of policy analysis at AGA. “The savings that the Department of Energy told us about when they proposed this rule were based on a false premise.
As seen in these egregious examples, the DOE model does not take into account the likelihood that consumers will make rational economic decisions. We do not know why this was omitted, but this data must be incorporated in order to see accurate results and determine if this rule is good for consumers and for our nation.”
On March 12, DOE proposed a national mandate that all non-weatherized natural gas furnaces operate at 92 percent annual fuel utilization efficiency (AFUE) regardless of the physical structure in which they operate and the economic circumstances of the customer. While the rule might appear to be a positive step toward achieving greater energy efficiency, a closer examination reveals numerous unintended consequences including an unreasonable economic burden on consumers, wasted energy and higher greenhouse gas emissions. Even according to the Department’s faulty analysis, 66 percent of affected households would see no benefit – or bear higher net costs –under the proposed rule.
Clay continued: “We are working with key stakeholders to determine a workable solution to this flawed rule. We look forward to putting something in place that will truly move the needle on natural gas efficiency for our nation.”
The American Gas Association, founded in 1918, represents more than 200 local energy companies that deliver clean natural gas throughout the United States. There are more than 72 million residential, commercial and industrial natural gas customers in the U.S., of which 94 percent — over 68 million customers — receive their gas from AGA members. Today, natural gas meets more than one-fourth of the United States' energy needs.