Energy Efficiency Standards Could Save Up to $1,000 on Energy Bills

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Improved energy efficiency could save American consumers approximately $1,000 on their annual energy bill, according to estimates in a new report from the Consumer Federation of America. This is because our appliances, electronics, vehicles, and buildings use far more energy than they need to, which leads to more harmful air pollution and unnecessary expense for consumers.

And, as the report documents, the best way to deliver these savings to consumers is through energy efficiency standards – required minimum efficiency standards for vehicles and household products like refrigerators, clothes washers and air conditioners that reduce energy use while maintaining the same high level of service.  Efficiency standards already in place for household appliances alone will save consumers nearly $500 per year by 2020 – but as this report shows, there are tremendous savings still to be captured.

At NRDC, we have long advocated for efficiency standards because they reduce energy waste in our homes and businesses, which means power plants don’t need to generate as much electricity – or the pollution that can come with it. Reducing energy needs with standards is one of the most cost-effective ways to reduce pollution from power plants. Consumer advocates like the Consumer Federation of America are natural allies and partners in this work, because reduced energy waste means lower energy bills for consumers and clean air for all of us. NRDC is proud to have worked for many years with the Consumer Federation, the National Consumer Law Center, Consumers Union and many other consumer groups to push for cost-effective energy efficiency standards nationally and in the states.

The Consumer Federation’s report explains – and thoroughly documents – how it is that so many billions of dollars in savings could remain untapped by the market in the absence of standards. In other words, if consumers could reduce their bills by $1,000, why aren’t people taking advantage of this windfall? 

It is not, as the report explains, that consumers are “irrational” or that they prefer products that consume more energy, as some have suggested. Based on hundreds of empirical studies, the report instead identifies a host of factors that create this “efficiency gap” – the difference between the level of energy efficiency the market achieves on its own and the potential savings.

What are the hurdles?

The hurdles exist on both sides of the market – producers and consumers. For example, manufacturers are frequently hesitant about incorporating energy saving technologies into their products because of uncertainty about consumers’ reaction and about how much those additions will increase the cost of the product. And of course, if manufacturers don’t create the next generation of more efficient products, consumers can’t buy them.

But there are also plenty of factors – too many to catalogue here – that keep consumers from taking full advantage of energy efficiency. A couple struck close to home.  Like the problem of split-incentives. My wife and I rent our home. This means that we pay the electricity bills but our landlord buys the appliances. So, when our landlord decides which refrigerator or water heater to buy, he doesn’t directly factor in the savings in energy costs that a more efficient model will deliver to us. By setting efficiency standards for such products, we can be sure more of these savings are captured, to the benefit of both the environment and consumers.

Standards are a good deal

Energy efficiency standards generally turn out to be an even better deal for consumers than predicted. This is because the costs of complying with energy efficiency regulations are consistently overestimated.

Compiling the results of five different studies, the report shows that, for appliance standards, the projected costs have generally been overestimated by more than 100%, and the cost of vehicle standards by about 50%. In other words, once an efficiency standard is set and our engineers set their mind to the task of making more efficient products, their ingenuity consistently outstrips the estimates made when setting standards. This means that the new products end up costing less and saving consumers more than expected. And as our colleagues at ACEEE have found, more efficient products performed just as well as the old ones -- and often included additional features.

The Department of Energy is now working to carry out the president’s objective of reaching 3 billion tons of carbon reductions from energy efficiency and federal building energy standards as part of his strategy to combat climate change. To do this, the Department will have to set new energy efficiency standards for a suite of additional products like furnace fans, lamps, and walk-in coolers.

Meanwhile, the California Energy Commission is expected to announce soon whether it will propose new or updated energy-savings standards for 15 products in the categories of consumer electronics, lighting, water appliances, and “miscellaneous” (such as commercial clothes dryers). In California, alone, making all 15 products more energy efficient could save a whopping $1.2 billion on Californians’ annual utility bills by slashing enough electricity to power every household in Los Angeles; 50 billion gallons of water; and 60 million therms of natural gas.   

As the Consumer Federation rightly points out, these efforts to set and strengthen energy efficiency standards gives us all much to cheer about.