S. E. Williams

Manufacturers pass millions of dollars in NOx mitigation fees along to unsuspecting homeowners

In September 2014, California adopted Rule 1111, mandating a reduction in Nitrogen Oxide emissions, which are poisonous and directly impact human health. The Rule focused on natural gas-fired, fan-type central furnaces and applied to manufacturers, distributors, sellers and installers of residential and commercial fan-type central furnaces. 

Now, a little-known amendment to Rule 1111 is costing unsuspecting homeowners in the Inland region a $150 fee, in addition to the regular labor and equipment charges they may incur, when replacing an existing natural-gas-fired, fan-type central furnace. The Rule also applies to new developments. 

According to the Environmental Protection Agency (EPA), NOx is the generic term for a group of highly reactive gases, all of which contain nitrogen and oxygen in varying amounts. Many of the oxides are colorless and odorless. One common pollutant, nitrogen dioxide (NO2), along with particles in the air can often be seen as a reddish-brown layer over many urban areas, and forms when fuel is burned at high temperatures. The primary sources of NOx are motor vehicles, electric utilities, and other industrial, commercial and residential sources that burn fuel.

NOx is one of the main ingredients involved in the formation of ground-level ozone which can contribute to serious respiratory problems. It also contributes to the production of “acid rain” and the deterioration of water quality. 

The EPA reported that over the previous 40 plus years, emissions have decreased among five of the six major pollutants including carbon monoxide, lead, particulate matter, sulfur dioxide, and volatile organic compounds. However, in the jurisdiction of the South Coast Air Quality Management District (SCAQMD), there is a need for further reduction of NOx. 

The Rule 1111 Amendment lowered the NOx emission limits from 40 ng/J to 14 ng/J for all gas burning heaters installed in equipment five tons and below. Although residential furnace regulations were previously implemented, weatherized furnace regulations for all residential and commercial packaged Gas/ Electric Units went into effect October 1, 2016. The residential equipment necessary to meet this new requirement is not yet on the market. Therefore, the SCAQMD established a three-year period during which manufacturers may pay a $150 mitigation fee while furnaces that meet the new requirement are developed. 

Local contractor Edward Worley is part-owner of Air Conditioning Parts and manager of Wingate Mechanical. Worley has expressed his concern regarding how the fee is not being paid by manufacturers, but instead is passed along to unsuspecting consumers. Worley explained that the fee is being passed from manufacturers to wholesalers; from wholesalers to contractors; and from contractors to homeowners. 

Worley was also concerned over what he was told by an unidentified manufacturer. According to Worley, “If they [the manufacturers] made a furnace to comply with what California wants, it would be unaffordable.” 

According to SCAQMD Media Relations Manager Sam Atwood was asked about two specific issues: First, why such a measure was implemented when there is no existing way for residential consumers to purchase the compliant equipment, because it is not yet on the market; and second, why homeowners are being forced to pay the $150 mitigation fee. 

“It should be clear that Rule 1111 applies to manufacturers of the furnaces, not consumers,” Atwood stressed and added, “The technology to comply with the rule limits is available. However, each manufacturer chose their own path to compliance given their nationwide market. We recognized their challenges, which is why more time was granted with the use of the mitigation fee.” 

Atwood further explained how Rule 1111 was approved as part of the state implementation plan related to the federal Clean Air Act. “The fees,” he explained, “are intended to be used to fund projects to make up for the emission reductions that would have been achieved otherwise.” In other words, manufacturers pay the fee until they have a compliant product available. 

According to Atwood, a technology assessment was made in 2010 that proved prototype furnaces were able to achieve the 14 ng/J NOx level. In light of these results, the agency determined it was feasible that burner systems could be developed to meet the revised industry safety standards, although information is not yet available regarding the new price points. 

Manufacturers, however, said they needed more time to commercialize compliant products. Therefore, the SCAQMD’s Rule 1111 was amended in September 2014 to delay the compliance date for each furnace type, and the mitigation fee option was added to allow up to three additional years for manufacturers to achieve the standard.

“All the manufacturers are currently opting for the mitigation fee,” he confirmed and added, “The manufacturers chose to pass the fee on to distributors who themselves passed it on to retailers, and then on to consumers,” Atwood said.

When asked whether any manufacturers currently or will soon have compliant equipment on the market for residential use, Atwood replied, “Rheem [Heating, Cooling and Water Heating Products] has the first Rule 1111 certified standard residential furnace. This furnace style represents about 90 percent of all furnaces sold in the South Coast area.” 

Also, according to Atwood, the product is in the field testing phase and the manufacturer is expected to begin commercializing the unit very soon. Other manufacturers are in the process of designing compliant furnaces, but are in different stages of development, he confirmed. 

Mitigation fees paid by manufacturers will later be used to reduce the emissions that would have been reduced had the manufacturers met the original compliance date. 

Atwood shared that, to date, the agency has collected approximately $12 million in mitigation fees from all manufacturers relating to the sale of over 94,000 residential furnaces in the South Coast jurisdiction—many, if not all, of the fees likely paid by unsuspecting customers. “The fees paid were submitted within the last 12 months,” Atwood explained and added, “No mitigation projects have been identified yet for funding.” 

“The fees have been placed into a separate fund specifically for this purpose and all expenditures will be tracked,” Atwood confirmed and continued, “All expenditures and projects will be approved by the SCAQMD Governing Board in a public process.” 

This aspect of the Rule, which reduced NOx emission limits from 40 ng/J to 14 ng/J for all gas burning heaters, is only applicable in two sections of California: the South Coast Air Quality Management District and the San Joaquin Valley Air Pollution Control District (SJAPCD). “These are the only two areas in California that are ‘extreme’ non-attainment for ozone. Every feasible NOx emission reduction is needed,” Atwood stressed. 

Rule 1111 has been amended three times since its 1978 implementation. It is one of many ways California is working to meet the federal Clean Air Act mandates—a comprehensive federal law established in 1970 which regulates air emissions from stationary and mobile sources. Among other things, this law authorized the EPA to establish National Ambient Air Quality Standards to protect public health and welfare and to regulate emissions of hazardous air pollutants. 

With the $150 mitigation fee so easily passed along to homeowners, some may think manufacturers are off the hook, without incentive to comply with the new rules. However, according to Atwood, quite the opposite is true. “The SCAQMD has field inspectors and a laboratory. They check to ensure businesses and manufacturers are complying with regulations,” he explained. “The incentive is that they could face substantial penalties.” 

Manufacturers are also required to retain copies of all reporting forms/submissions and mitigation/emission fee invoicing, and provide copies to the SCAQMD or SJAPCD upon request. 

In conclusion, Atwood stressed the importance of Rule 1111. “We need rules like this, to keep commercializing cleaner and cleaner equipment. To meet clean air goals, we are going to need cleaner and cleaner equipment.” Atwood also called the enhanced NOx requirement a good illustration of how we must go after every source of air pollution in our region to meet our clean air goal and improve public health. 

“It’s not just cars and trucks,” he said. “It is everything that burns fuel, including the items in our home.”

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