Residential Furnaces

Furnaces are the most common type of residential central heating equipment in the nation. EISA Authorizes DOE to Set Regional Standards

The Energy Independence and Security Act of 2007 (EISA, P.L. This provision marked the first time that Congress authorized DOE to set regional efficiency standards—in order to account for geographic differences in heating or cooling needs . (emphasis added) Thus, Section 306 authorized DOE to make a technical standard for manufacturers (the base national "minimum standard") and a higher regional "installation standard." All other previous DOE energy efficiency standards for consumer products—whether set by statute or by regulation—only created national technical standards for manufacturers. In another departure from past practice, Section 308 of the law specified that DOE could employ a "direct final rule" process to implement new regional standards. That process differed from the traditional notice-and-comment rulemaking process that had been used for all previous DOE rulemakings for efficiency standards. In late 2009—after months of negotiations—the two groups signed a consensus agreement to set new standards for residential furnaces and other EISA-identified products. The discussion in this section, and in those that follow, focuses mainly on efficiency standards policy design and issues for natural gas furnaces, but much of the discussion would also apply to issues for the other equipment. Estimated Energy Savings

The DFR specified that:
Pursuant to EPCA, any new or amended energy conservation standard that DOE prescribes for certain products, such as the residential furnaces (furnaces) and residential central air conditioners and central air conditioning heat pumps (air conditioners and heat pumps) that are the subject of this rulemaking, shall be designed to 'achieve the maximum improvement in energy efficiency ... which the Secretary determines is technologically feasible and economically justified.' Also, the new focus on the point of installation had the effect of moving the standard down the equipment distribution supply chain. This, in turn, accelerated the timing of the effect of a regional standard on distributors and installers (contractors) relative to a standard that only affects manufacturers:
Regional standards also differ from a base national standard with respect to the compliance date of the standard for a particular product. By the time DOE confirmed the direct final rule at the end of October 2011, the lead time for compliance with the furnace standards had been further compressed to 18 months . Three main industry issues were raised through this public comment process. In January 2013, DOE and the APGA reached agreement on a settlement and filed a joint motion asking the court to vacate the portion of the DFR that established regional efficiency standards for residential natural gas furnaces and remand the dispute to DOE for a traditional notice and comment period prior to issuance of a final rule. The new unaddressed complexity ultimately led to court challenges and additional time delays. Further, DOE may not adopt a standard that would not result in "significant conservation of energy." For furnace distributors and contractors, DOE anticipated that the regional standards would present two new challenges:
Based on the ... interviews and its own preliminary market assessment, DOE believes there are two main ways in which regional standards could impact furnace distributors and contractors. Key Issues for Public Comment
The RAP noted that DOE wanted to receive public comment on a variety of key issues, including: 
The consensus agreement; The combining of multiple equipment standards into a single rulemaking that covered residential central air conditioners, heat pumps, residential furnaces, and furnace fans; DOE's proposed definitions of regions, for the analysis of regional standards; and The viability of the regional standard enforcement mechanisms presented in the RAP , other mechanisms DOE should consider, and the extent to which these mechanisms would result in additional financial burdens to consumers, manufacturers, contractors, distributors, dealers, and installers.
This report reviews the background, regulatory framework, and policy issues that have shaped the debate over regional energy efficiency standards for residential natural gas furnaces. Those furnaces are the most common type of home heating appliance. While the scope of the report is limited to that one type of furnace, much of the discussion also applies to standards for other furnaces and to standards for residential central air conditioners and heat pumps.
A 1987 statutory congressional directive set gas furnace standards for 1992 and directed the Department of Energy (DOE) to consider raising the standards in 1994 and 2007. DOE's responses were challenged in court twice (2005, 2007). The Energy Independence and Security Act (EISA) authorized DOE to set new standards for residential natural gas furnaces and certain other equipment. EISA Section 306 empowered DOE to set both a "technical" standard for manufacturers (a base national standard) and a regional "installation" standard for distributors and contractors. The regional standard concept aims to address geographic differences in heating needs. This law marked the first time that Congress authorized DOE to set regional standards.
All other previous DOE energy efficiency standards for consumer products—whether set by law or by DOE rule—had only created a national technical standard for manufacturers. In that case, the compliance date served as a deadline only for manufacturers to have retooled their production lines, so that new equipment would comply with the new energy efficiency criteria. As the inventory of "old" equipment became exhausted, the "new" equipment from manufacturers would gradually replace it in the supply chain. Ultimately, the equipment distributors and residential installers at the end of the supply chain would have only the new equipment available to them.
In contrast, the DOE-proposed regional gas furnace standard would have set the same compliance date for both manufacturers and installers. This would effectively move the scheduled implementation date down the supply chain from manufacturers, and thereby accelerate the change-over requirement date and shorten the "sell-through" adjustment period for furnace distributors and contractors.
In another departure from past practice, EISA Section 308 specified that DOE could employ a direct final rule (DFR) process to implement the new regional standards. This is another policy innovation that had not been used previously in the appliance standard-making process. The DFR process—which relies upon a preliminary consensus agreement among industry and energy efficiency groups—differs from the "traditional" notice-and-comment process that had been used in all previous DOE rulemakings for consumer product energy efficiency standards.
The two innovations—regional standards and the DFR process—led to new uncertainties and implementation design issues which, in late 2011, prompted an industry court challenge. In April 2014, the court adopted a negotiated settlement that directs DOE to reformulate the gas furnace rulemaking and directs that standards for air conditioners and heat pumps begin in 2015 and 2016. The final rule for gas furnaces had been set for May 2013—but the new, revised rule is not expected to take effect before 2021 or 2022. In October 2014, gas industry groups raised the issue of separating gas furnace product classes in the revised rulemaking. One report suggests that the court-adopted settlement which directs DOE to "reformulate" the residential gas furnace standard could influence the development of several other energy efficiency standards processes that are underway.