ABSTRACT HEADING The U.S. Department of Energy (DOE) recently completed a rulemaking process in which it amended the existing energy efficiency standards for residential water heaters. A key factor in DOE's consideration of new standards is the economic impacts on consumers. Determining such impacts requires a comparison of the additional first cost of energy efficiency design options with the savings in operating costs. This paper describes the method used to conduct the life-cycle cost (LCC) and payback period analysis for gas and electric storage water heaters. It presents the estimated change in LCC associated with more energy-efficient equipment@ including heat pump electric water heaters and condensing gas water heaters@ for a representative sample of U.S. homes. The study included a detailed accounting of installation costs for the considered design options@ with a focus on approaches for accommodating the larger dimensions of more efficient water heaters. For heat pump water heaters@ the study also considered airflow requirements@ venting issues@ and the impact of these products on the indoor environment. The results indicate that efficiency improvement relative to the baseline design reduces the LCC in the majority of homes for both gas and electric storage water heaters@ and heat pump electric water heaters and condensing gas water heaters provide a lower LCC for homes with large rated volume water heaters.