BOARD MEETING DATE: July 9, 2004 AGENDA NO. 21

Rule 1146.2 – Emissions of Oxides of Nitrogen from Large Water Heaters and Small Boilers was adopted on January 9, 1998. Rule 1146.2 establishes NOx emission limits for large water heaters and small boilers ranging from 75,000 Btu per hour up to and including 2 million (MM) Btu per hour. Under Rule 1146.2(i), staff is required to work in cooperation with the public, industry and trade associations to conduct an implementation study 18 months before each compliance date. The study includes the following eight elements.

Consistent with Rule 1146.2(i) and the study intent, the Implementation Study has been conducted in three phases. This report represents Phase III of the Implementation Study, which covers existing units between 0.4 and 1 MM Btu per hour and must be presented to the Governing Board on or before July 2004, eighteen months prior to the January 2006 compliance date. Phase I of the implementation study was completed in July 1999 and covered new units 75,000 to 400,000 Btu per hour. Phase II, which was completed in December 2000, addressed existing units between 1 and 2 MM Btu per hour.

The findings of the Implementation Study are summarized below. Staff recommends initiating rule development to explore replacing the NOx 30 ppm replacement or retrofit standard with a 20 ppm requirement for new equipment and potentially a requirement to replace existing equipment at the end of a 10-year life.

A Working Group, comprised of manufacturers, end-users, utilities, and other interested parties, was convened to provide input and guidance to AQMD staff regarding the development of the Phase III Implementation Study. Beginning in October 2003, the Working Group met two times during the development of the Phase III Study. AQMD staff consulted with the Working Group regarding the study approach, assumptions, and information collected.

A variety of data was used to assess the eight study elements. Data collected and analyzed for the 1998 Rule 1146.2 Staff Report was used as a basis for the study. In addition, surveys have been taken with boiler manufacturers, burner manufacturers, and companies involved with boiler sales and service. Information provided by the Southern California Gas Company (Gas Company) was also used. Manufacturers and service representatives were also contacted for this study.

This phase of the Implementation Study is focused specifically on existing units between 0.4 and 1 MM Btu per hour. Under Rule 1146.2, water heaters or boilers greater than 0.4 MM Btu/hr and less than or equal to 1 MM Btu/hr for which annual fuel usage is greater than or equal to 9,000 therms must meet an emission limit of 30 parts per million (ppm) of NO_x and 400 ppm of CO, both measured at 3 percent oxygen. The lower NOx emission levels are achieved by low-NOx burners in new or retrofit equipment. Compliance dates for emission limits are based on the date of equipment manufacture. For new units, the Rule 1146.2 emission limits are applicable to all units manufactured on or after January 1, 2000 for units greater than 0.4 MM Btu/hr or January 1, 2001 for units 75,000 Btu/hr up to and including 0.4 MM Btu/hr. In-use Phase III units manufactured prior to January 1, 2000 must meet Rule 1146.2 emission limits by January 1, 2006. In-use units may be replaced or modified (retrofitted) to meet rule requirements. In-use units that have an annual fuel usage less than 9,000 therms per year are exempt from the emission limits. AQMD has developed a certification program (Rule 1146.2 Certification Program) through which manufacturers submit documentation, including source reports, to AQMD to demonstrate compliance with Rule 1146.2 emission limits.

Review of Available and Potential of Low-NOx Boilers and Burners. Rule 1146.2 has required low NOx equipment on new water heater or boilers since January 1, 2000 for equipment with a rated heat input greater than 0.4 MM Btu/hr up to and including 2 MM Btu/hr, and January 1, 2001 for equipment with a rated heat input of 75,000 Btu per hour up to and including 0.4 MM Btu per hour. The rule requires the manufacturer to certify new equipment to meet the emission standards, thereby eliminating the need for the end user to independently verify the emission level. For retrofitting equipment, it was anticipated that equipment manufacturers would certify retrofit kits for popular types of units to provide a way to retrofit, rather than replace existing equipment and to use a certified kit to avoid individual source tests.

Since Rule 1146.2 was adopted in January 1998, manufacturers have been producing and certifying compliant new units. For new units greater than 0.4 MM Btu per hour and less than 1 MM Btu per hour, approximately 20 manufacturers have certified over 170 different models. The range of NOx emissions spans from 4 ppm up to 29 ppm with an average of 17 ppm for the units source tested and certified by the District. Two-thirds of the equipment is 20 ppm or below. This is further confirmed by a 2003 survey conducted, where 88 new low-NOx units from 12 manufacturers are capable of meeting Rule 1146.2 emission limits, but have not yet applied for certification with the District.

When Rule 1146.2 was adopted, it was envisioned that retrofit kits would be widely available. This would provide emission reductions while allowing the useful life of existing equipment to continue. For equipment in Phase III (0.4 MM Btu per hour - 1 MM Btu per hour, compliance date January 1, 2006) as well as Phase II (1 MM Btu per hour - 2MM Btu per hour for units manufactured from 1992 to 1999, compliance date January 1, 2005), the availability of retrofits did not develop as expected. One original equipment manufacturer has retrofitted more than ten of its units greater than 0.4 and less than or equal to 1 MM Btu/hr with low-NO_x burners and has certified low NOx burners for retrofit only in its complete product line. These retrofits have been approved through the Rule 1146.2 Certification Program on a case-by-case basis. Based on information submitted for the 2003 survey, 19 retrofit burners from 12 manufacturers are capable of meeting Rule 1146.2 emission limits; although no applications for certification have yet been received from any other manufacturer, except the one mentioned earlier. The rule requires that the retrofit kits or any new equipment be submitted to the District for certification review at least 120 days prior to the anticipated sale of the equipment.

Cost Differential Between Standard Units and Low-NOx Units. The costs for new low-NOx units and low-NOx retrofit burners were evaluated as part of the Phase III Implementation Study. Based on 2003 survey information, the average cost differential between a standard ($9,200) and a new low-NOx (~$9,800) unit is approximately $630, and the estimated cost to retrofit an existing standard unit to low-NOx operation is $4,000 to $20,200. The average retrofit cost is $8,900, which excludes one data outlier.

Potential Fuel Savings from Low-NOx Units. Fuel savings ranging from 0 to 7 percent have been assumed. This assumption is based on the Phase II Implementation Report where staff reviewed information from equipment and burner manufacturers, end users and installers, and fuel usage data from Ventura County and took a weighted average between forced draft and atmospheric units.

Certification and Related Standards, Including Safety. As described previously, the Rule 1146.2 Certification Program requires that new units and retrofit burners meet rule emission limits before they can be offered for sale. In terms of safety, AQMD relies on other agencies, such as Underwriters Laboratories, to determine appropriate safety standards. The working group did not provide any additional information relating to safety. Staff is not aware of any facts that would warrant changes to the rule related to certification or safety.

Emissions for a Typical Unit. Based on input from the Working Group, baseline NO_x emissions of 110 ppm were assumed for existing units. New units certified under the Rule 1146.2 Certification Program show average NOx emissions of approximately 20 ppm. Ending emission rates of 20 and 30 ppm were used in emissions and cost effectiveness analyses conducted for this study. Emission reductions per unit range from 70 to 210 pounds of NOx per year, a 70 to 80 percent reduction.

Appropriate Fuel Use Exemption. The 9,000 therm per year exemption level was established to exempt low use equipment, such as equipment used seasonally or infrequently. Much of the equipment in the 0.4 to 1 MM Btu per hour size range is expected to be below this level. Staff has not received any comments that this exemption level is too low. AQMD staff recommends no change to the therm exemption level at this time, but will evaluate this issue further during the rule development process.

Timing of the Proposed Retrofit Requirements. There is very limited availability of retrofit units that can meet rule emission limits and their costs is close to the equipment replacement costs. Equipment subject to the January 1, 2005 and January 1, 2006 compliance dates would require replacements, rather than retrofits. Staff recommends initiating rule development to explore replacing the NOx 30 ppm replacement or retrofit standard with a 20 ppm requirement for new equipment and potentially a requirement to replace existing equipment at the end of a 10-year life.

Cost-Effectiveness and Cost Impacts on Selected Industries and Small Businesses. Based on cost estimates summarized for Cost Differential Between Standard Units and Low-NOx Units, the cost-effectiveness for replacement units is expected to range from a savings of $3,600 to a cost of $5,400 per ton and for retrofits is expected to range between $1,000 and $23,900 per ton of NOx reduced, for units of 0.4 to 1 MM Btu per hour. The smaller units have higher associated cost. Many of these are expected to operate below the therm limit and would not be required to meet the 30 ppm limit because the emission limit does not apply to exempt equipment.

Despite extensive outreach to the public, industry, and local agencies, many facilities are not aware of the AQMD requirements for large water heaters and small boilers. It is estimated that greater than 20,000 pieces of equipment located at apartment buildings, condominium complexes, hotels and motels, office buildings and a variety of industries, such as small pharmaceutics, plastics, medical facilities, etc. are being used. This equipment is difficult to identify due to the nature of these industries, and because only equipment greater than or equal to 1 MM Btu/hr and less than or equal to 2 MM Btu/hr are required to be registered with the District. Permits are not required for units equal to or below 2 MM Btu/hr. In order to ensure high compliance with this rule, significant staff resources are needed to seek out equipment, inform owners and operators of the rule requirements, and to make sure that equipment complies with the emission limits.

Based on the findings of the Implementation Study, staff recommends initiating rule development to explore replacing the NOx 30 ppm replacement or retrofit standard with a 20 ppm requirement for new equipment and potentially a requirement to replace existing equipment at the end of a 10-year life. The preliminary estimate of NOx emission impacts are listed below:

	Yr 2005	Yr 2006	Yr 2007	Yr 2008	Yr 2009
Emission Forgone	0.7 TPD	0.8 TPD	0.5 TPD	0.2 TPD	0