The complex task of coming up with a federal rule that achieves meaningful efficiency gains in residential natural gas furnaces while fitting in consumers’ budgets shows how hard it can be to regulate such a ubiquitous household appliance.
The U.S. Department of Energy in March proposed raising the efficiency of furnaces to 92 percent by 2021, the first significant increase since 1992. The rule is slated to be finalized next year, and manufacturers would have a five-year period to comply.
Industry groups strongly denounced the idea during the comment period ending July 10, promising the costs of complying with the rules would be passed on to consumers and disproportionately to low-income families.
The energy department used an “imbalanced and unfair” analysis that “systematically overstates benefits and understates costs” to manufacturers, wrote the Air-Conditioning, Heating and Refrigeration Institute.
Consumer groups shot back, claiming that consumers already have lost billions of dollars due to inefficient furnaces as the energy department has wrestled with how to update its standard. The Consumer Federation of America pointed out the proposal would result in net benefits of $16 billion in energy savings to consumers, almost double manufacturers’ costs for the fuel-saving technologies.
“The industry guys always say the same thing, and they always get it wrong,” said Mark Cooper, director of research at the Washington, D.C., consumer advocacy group. “Regulators tend to overestimate the costs by the factor of two, and the industry tends to overestimate the costs by a factor of four.”
• LOTS OF FURNACES, LOTS OF BUDGETS
The energy department first regulated residential gas furnaces in 1992, when a requirement went into effect that manufacturers meet a 78 percent annual fuel utilization efficiency — the measure of the fuel that’s converted to heat out of the total fuel entering the furnace.
In 2007, the department bumped up the efficiency rating to 80 percent by 2012, an amendment ridiculed by consumer advocates as “so paltry that it was more an insult than an improvement.”
Effectively, the new proposal means manufacturers would have to rely on furnaces with condensing technology. Such technology can achieve at least 90 percent efficiency by reusing heat that normally would have been vented out of the home.
In recent years, roughly half of all furnaces sold in the U.S. have been condensing, while the rest were conventional, which are anywhere from 80 percent to 83 percent efficient.
Though the combustion process in both types of furnaces is similar, condensing furnaces extract additional heat by moving the exhaust through a second heat exchanger, which removes most of the useful heat and cools the exhaust until it condenses.
Older, less efficient furnaces expel exhaust gases after passing them through only one heat exchanger. That is why the exhaust of a conventional furnace can be burning hot, while the exhaust of condensing furnaces is warm.
Sales of condensing furnaces steadily rose from 2005 to 2010 with the help of a federal tax credit. But their share of the market has leveled off since 2010, according to figures from the Air-Conditioning, Heating and Refrigeration Institute.
• PASSING ON COSTS
The added costs of compliance with the proposed new standards would be passed on to consumers, said Frank Stononik, chief technical adviser for the industry group, which represents companies that produce virtually all of the 2 million residential gas furnaces sold and installed annually in the United States.
“We recognize the standard is probably going to be changed — that’s the DOE’s responsibility,” Stononik said. “We certainly are interested and willing to talk about other ways to come up with a standard that makes sense that will save energy and benefits consumers.”
The energy department pegged costs under the proposal for consumers at $6 billion to $12 billion. According to a survey of furnace installers by Stononik’s group, a condensing furnace costs on average $500 to $600 more than a noncondensing furnace and varies widely depending on whether the new unit can be connected to existing duct work.
Condensing furnaces command about 85 percent of the market share in the northern U.S., where cold winters require more heat and, therefore, consumers see more savings from efficiency. In warmer climates, condensing furnaces make up about a third of all furnaces.
Energy department regulators ran into legal roadblocks when they adopted standards in 2011 that required furnaces in 29 states throughout the Northeast, Midwest and Pacific Northwest to meet a 90 percent efficiency threshold and those in all other parts of the country to meet an 80 percent standard.
The regional standards, which were applauded by manufacturers and consumer groups, were challenged by natural gas utilities that feared customers in mild weather states when replacing furnaces would switch from gas to electric to avoid the expense of upgrading.
In a settlement reached in 2014, the Department of Energy agreed to vacate the standards and restart the rule-making process. But opposition from the American Public Gas Association, which represents gas utilities, has only gotten more adamant.
“The market is working,” said David Schryver, executive vice president of the gas association. “People in the North are buying condensing because it makes sense; people in the South are not because it makes sense.”
• WINNERS AND LOSERS
Consumer groups acknowledge some customers would lose out under the proposed efficiency rule.
But the benefits abound, considering a 92 percent efficiency translates to 92 cents out of every dollar spent for energy to heat a home is converted to heat. The Energy Department estimates the median payback period for consumers would be 6 to 7 years, or less than half the life of a typical furnace.
In addition to the direct saving on energy bills, consumers would indirectly receive environmental and public health benefits. By the agency’s estimate, the proposed standard will avoid about 137 million metric tons of carbon dioxide emissions — equivalent to taking 26.9 million automobiles off the road.
“If you have 80 percent winners and 20 percent losers, you ought to do it, while finding ways to reduce the pain for the losers,” Cooper said.
