Changes to the Standards Program: More Harm than Good?
The U.S. Department of Energy (DOE) is attempting to monkey with the highly successful efficiency standards program—and we’re paying close attention. The DOE recently released two separate Requests for Information, one to evaluate advantages and disadvantages of additional flexibility for manufacturers and another to consider changes to the process of setting standards. But are these kinds of changes really necessary? The standards program is a good example of if it ain’t broke, don’t fix it: utility bill savings will be around $2 trillion by 2030 for standards put into place since the program was signed into law by President Reagan. The program has been working well in its current form for many years. The ideas floated by DOE leave us with more questions than answers—and could ultimately do more harm than good to this very effective program.
Meanwhile, DOE officials were also on Capitol Hill this week, testifying on the Regulatory Reform Task Force recommendations. We blogged on this topic a few weeks ago, which can be found here.
Flexibility, but for whom?
In its Request for Information (RFI) on adding flexibility to the program, DOE asks for feedback on program design changes that would give the standards program more of a market-based flavor. The changes could include mechanisms like averaging energy savings across a line of products, rather than a requirement for each individual product to meet a minimum standard. DOE describes this as akin to the Corporate Average Fuel Economy (CAFE) standards for auto manufacturers, where a manufacturer’s fleet of vehicles are averaged together to meet a certain miles-per-gallon standard. Each individual type of car may be more or less efficient than the standard, as long as the fleet average complies.
A CAFE-style standard is not appropriate for the appliance efficiency standards program. Unlike the motor vehicle industry, where there are a small number of sophisticated manufacturers, some types of appliances have hundreds of manufacturers operating at all levels of efficiency expertise. This type of change would add an undue level of complexity to administering the program. Compliance monitoring and enforcement would be particularly difficult for DOE, especially coupled with the budget cuts the agency is already facing. Furthermore, the law requires that efficiency standards be set at the highest level that is technologically feasible and economically justified—not the average! Standards, by law, may not “backslide,” meaning they can’t ever be made less efficient. Any proposals that make the program less effective should not be given consideration.
Other options outlined by DOE include an efficiency credit trading between manufacturers, or “feebates” where manufacturers pay a fee if their products are less efficient than a certain level or get a payment if their products are more efficient. The RFI doesn’t outline specific next steps, and we’ll be digging into the pros and cons of each of these mechanisms before public comments on the RFI are due to DOE at the end of February.
DOE’s ideas are heavily focused on giving manufacturers additional flexibility, but they essentially ignore the impact on consumers: the people who use these products. The trading mechanisms DOE proposed could cause confusion. Right now, the beauty of the efficiency standards program is that consumers can be confident that any product on the shelf meets a minimum level of efficiency and won’t unnecessarily waste energy. Moving to a model where manufacturers can trade efficiency credits with each other or develop products with varying energy consumption adds a level of complexity that hurts the integrity of the program. Two otherwise-identical products could have drastically different energy use. How will consumers know the difference? They won’t be able to tell from looking at the outside of the product, for example.
The standards program generates massive national energy savings, but the program also has a tangible impact on individual consumers. The average American household saves $500 on their utility bills each year thanks to appliance and equipment standards. Changing the efficiency standards program to a market-based mechanism could create real winners and losers among individual consumers and businesses. It’s kind of like opening a cereal box as a kid and not knowing if there will be a toy inside—only the “toy” in this case is hundreds of dollars in energy savings each year.
Process changes on the horizon?
DOE is also requesting feedback on changes to how standards are developed. Some of these changes may seem innocuous on the surface but could have big impacts on the program if they interfere with DOE’s ability to meet their legal deadlines and requirements. We’re still evaluating the exact impact of the potential changes, but it bears repeating that any proposal that makes the program less effective or makes it more difficult to achieve energy savings should be a non-starter.
The energy efficiency standards program in its current form is wildly successful because it is straightforward, transparent, and easy for consumers to understand. Any changes that unnecessarily complicate the program—coupled with potential federal budget cuts for the energy efficiency program and an overall lack of support for efficiency standards—are worrisome.