BOARD MEETING DATE: January 9, 2004
AGENDA NO. 11

Interim Progress Report from Natural Gas-fired Water Heater Manufacturers to Meet the Final Emission Limit for Rule 1121

SYNOPSIS:

Rule 1121 – Control of Nitrogen Oxides from Residential Type, Natural Gas-fired Water Heaters was amended in December 1999 to lower the emission limits for water heaters. Manufacturers recently submitted an interim report relative to their progress in meeting the final emission limit. Staff will provide a summary of this information and recommendations.

COMMITTEE:

Stationary Source, October 24, 2003, Reviewed

RECOMMENDED ACTION:

1. Receive and file the report.
    
2. Direct staff to proceed with rule development.

Barry R. Wallerstein, D. Env.
Executive Officer

Introduction

Rule 1121 – Control of Nitrogen Oxides from Residential Type, Natural Gas-Fired Water Heaters, was amended in December 1999 to lower the nitrogen oxide (NO_x) emission limits in the rule. The amendment reduced the NO_x limit in two steps from 40 ng/J to 20 ng/J on July 1, 2002 and 10 ng/J on January 1, 2005. All four subject manufacturers used an option in the rule to pay a mitigation fee in lieu of meeting the July 1, 2002 interim limit. All of the manufacturers are privately held companies and collectively, about six percent of their national sales are in the South Coast Basin.

The rule also required manufacturers to provide a report by July 1, 2003 on their progress toward meeting the final emission limit in the rule. Staff has received and reviewed these reports and had meetings with representatives of water heater manufacturers and the Gas Appliances Manufacturers Association (GAMA). Industry has requested both a delay in the compliance date for the final rule limit and an exemption for some water heaters.

Manufacturers' Progress Reports

Rule 1121 requires manufacturers of water heaters to provide specific information, which must include:

• A description of the technology used to meet the final rule emission limit;
   
• Emission test results of the technology used to meet the emission limit;
   
• Identification of issues that need to be addressed prior to commercialization of the new technology, the approach that will be taken to resolve these issues and efforts made to reach commercialization; and
   
• The estimated manufacturing date of water heaters meeting the final rule limit.

The information in the progress reports submitted by manufacturers is consistent. They report that progress has been and is being made in meeting the final rule limit; however more time is needed, primarily because of several national standards that were not yet finalized when Rule 1121 was amended in 1999.

Manufacturers have spent most of their developmental efforts on non-vented water heaters with atmospheric burners. This type is the most common type of gas-fired water heater sold for residential applications in Southern California. Other types of units sold include vented units with atmospheric burners and those with power burners. Vented units draw air from outside the space where the water heater is installed, typically through a combination (coaxial) exhaust and ventilation duct to the outside of the building and may require a fan to provide sufficient air for combustion. Power vented units have longer ducts and draw air into the combustion chamber by use of an auxiliary fan.

Technology

The information submitted by water heater manufacturers indicates that radiant burners made of ceramic or metal fiber materials are the most promising technologies for water heaters with atmospheric burners. Staff has also been in contact with burner manufacturers that are developing radiant burners for meeting the final rule limit. This type of technology was one of many under development at the time of rule adoption, which indicated that the final rule limit was achievable.

A summary of emission test results has been provided by some manufacturers. A variety of technologies have been tested. The test results and other information available to staff indicate that the final rule limit of 10 ng/J is achievable with radiant burners. The water heater manufacturers have not provided information on how units with power burners may meet the final limit and have not provided test results for these types of units. A review of water heater models available from manufacturers indicates that most products with power burners are rated higher than the upper limit of Rule 1121 and are subject to District Rule 1146.2 – Emissions of Oxides of Nitrogen from Large Water Heaters and Small Boilers.

Challenges in Meeting Final Limit by January 1, 2005

Issues raised by the manufacturers and GAMA focus on the need to meet two new standards for flammable vapor ignition resistance (FVIR) and energy efficiency and the amount of time and resources that effort requires. Moreover, implementation of these standards has been delayed from the original proposed dates and must be met at about the same time as Rule 1121's final emission limit. The implementation dates for the Rule 1121 emission standards were set in part based on the expectation of earlier implementation dates for the FVIR and energy efficiency standards. The FVIR standard was phased-in starting in July 2003 with non-vented atmospheric units 50 gallons or less. The new federal energy efficiency standard must be met in January 2004.

The new federal energy efficiency standard requires an increase in the net efficiency of water heaters by about nine percent. A water heater's efficiency is affected by the combustion process, transfer of heat into the water heater and heat loss from the body of the water heater. Most of the increase in energy efficiency is being met by using thicker insulation on the body of the water heater so that standby losses are lower. Energy use is also affected by the temperature of the air where the water heater is located. Colder air, in a garage in winter or in an air conditioned building, will both increase heat loss from a water heater and require more energy to heat up the colder air. Warmer air, in a garage in summer or a building without air conditioning, will decrease standby losses and energy use. In the moderate climate of Southern California, air temperature differences have a small effect on energy use by water heaters.

Manufacturers have stated that it has taken longer than anticipated to find and develop technologies that will both meet the final rule limit and the above-mentioned standards. A wide variety of burners have been evaluated. In addition, it is more difficult to meet the final rule emission limit with the addition of a lint, dust, and oil test to the FVIR standard. Radiant burners are more easily impacted by an accumulation of lint, dust or oil. Also, the need to phase out ozone depleting compounds (ODC) used in the insulation materials of water heaters has taken resources and time to complete. The manufacturers have found some difficulties in attaining suitable replacements for insulation materials that do not contain ODCs, while maintaining the necessary insulation properties to achieve the higher energy efficiency requirements.

The manufacturers have indicated that it will require additional technology development for application in units greater than 50 gallons and vented and power vented units and have requested an exemption, because these units account only for about six percent of sales in the South Coast District. Staff has not been provided any technical data that indicates these sizes and types of water heaters cannot meet the final rule limit. As many larger residences in Southern California may install water heaters with greater than 50 gallon capacity, an exemption for these units, and vented and power vented units, could result in an increase in emissions of up to 0.1 ton per day when compared to the existing rule.

Estimates of Manufacturing Date

All of the manufacturers and GAMA have asked for a delay in the implementation of the final rule limit. They have requested a one year delay for atmospheric non-vented units 30 to 50 gallons and an exemption for all other types of water heaters subject to Rule 1121. They have also proposed extending the mitigation fee program to address the time delay and have proposed to base fees on the number of water heaters sold rather than emissions, and increase the mitigation fee by about 50%.

Mitigation Fee Program

When the District submitted Rule 1121 for the state implementation plan (SIP), no credit was taken for water heaters produced to meet the interim standard of 20 ng/J. At the time of the SIP submittal, it was not known which companies would produce water heaters meeting this standard and which would pay mitigation fees to offset emissions.

Manufacturers have elected not to produce water heaters that meet the interim standard and all are using the mitigation fee program to offset their emissions. The District received approximately $570,000 in fees over the first 12 months of the mitigation fee program. The District is currently soliciting proposals and projects will be funded by mitigation fees to reduce primarily emissions of NO_x and possibly other pollutants.

Impact of Delaying Final Standard

Staff has done a preliminary analysis of the impacts of a delay in implementation of the final rule standard. When emission reductions due to the new efficiency requirement for water heaters are incorporated, a one year delay of the final rule limit results in emission reductions equivalent to the current rule projected in years 2006 and 2010. In the year 2007, a one year delay for the less than 50 gallon units would result in 0.1 ton per day of emissions reductions delayed. An additional one-year delay until 2007 for vented, power vented and greater than 50 gallon units would result in about 0.05 ton per day of emissions reductions delayed. However, the mitigation fee program, if amended, would offset these emissions with equivalent reductions.

Conclusion and Staff Recommendation

Manufacturers of water heaters have made progress towards achieving the final NO_x emissions limit for Rule 1121. However, due to several other regulatory requirements affecting national sales, they are requesting additional time for development and manufacture of water heaters that meet the final rule limit. Although a one year delay of the final rule limit could result in less emission reductions, these emissions will be offset by reductions achieved through the new efficiency standard that will become effective January 2004 and by the mitigation fee program.

Staff proposes to begin rule amendment development to further evaluate the water heater manufacturers' proposal and alternatives. The rule amendment would be brought to the Governing Board in mid-2004 for their consideration. Initial staff recommendations include a one year delay of the final rule limit until January 1, 2006 for units less than 50 gallons and an additional year for vented and power vented units and those greater than 50 gallons. In addition, staff initially proposes to extend the mitigation fee program and increase the fees to better reflect control costs associated with emission reduction strategies and necessary administrative costs. These concepts would be refined and offered for formal public comment as the rulemaking process proceeds.

/ / /