Outclassing the Energy Hogs

Energy Hog

The Problem

Once an inefficient "energy hog" appliance is purchased and plugged into the wall, it's already too late.  The said appliance will likely run for ten or more years becoming even less efficient (as nearly all mechanical systems do - part of the second law of thermodynamics in case you were wondering).

Energy inefficiency is expensive and polluting.  Not only does the appliance owner have to shell out more to pay for the utility bills to keep the thing running, but the utility company and the its bill-payers across the entire system have to squeeze out a little more money to add energy supply and delivery infrastructure (e.g. poles, wires, pipes).  And we all know the environmental consequences of having to combust more fossil fuels to produce the energy, but consider - energy used in appliances and equipment account for more than half of current CO2 emissions from the buildings sector in the U.S. (U.S. DOE)

Although more efficient products save consumers over the life of the product, consumers rarely consider the energy savings benefit when choosing a new appliance.  [Alas, however, there will even be "an app. for that" coming soon for certain mobile devices.]  Therefore, we think that "upstream" incentives are needed to ensure consumers take these savings into account. And who better to deliver the good message of energy efficiency than the retailers whom you buy from!  

But, Pierre, you may ask, "Why should the 'Wal-mart's' of the world receive government money?"

The Program Concept

As early as 18-months ago, recognizing the need to re-ignite consumer and business spending for economic recovery, my colleagues in the Center for Market Innovation proposed the Super Efficient Appliances Deployment (SEAD) program as a part NRDC's "Cap [and Trade] 2.0" policy recommendations.  The bulk of the SEAD program was modeled after a program that the New York State Energy Research and Development Authority (NYSERDA) had in place for nearly a decade, called the Energy $mart Products Program

The NYSERDA program rewards retailers who sell a higher proportion of ENERGY STAR-labeled products to non-qualifying high efficiency products.  Retailers can use any variety of creative and innovative aims to get consumers to purchase the more efficient products.  Common retailer sales tactics that have emerged include eye-catching energy and environmental promotional pieces, coupons and price markdowns for the efficient products, consumer education via signs showing product energy savings, and favorable shelf positioning for efficient appliances.  And the program does not discriminate based on store or company size - everything from local "ma and pop" hardware stores to Home Depot, Lowe's, and Best Buy are able to take part and benefit from the program.

Remember the earlier statement I mentioned that "consumers rarely consider the energy savings benefit when choosing a new appliance"?  Here's some statistics to back up my point. Using the cost-benefit test known as the Program Administrator Cost (PAC) test, which measures the energy savings from affected appliance sales against the cost of the program, the NYSERDA program comes out at a ratio of 19:1.  A very good return, especially when you compare that to a PAC test cost-benefit return of 4:1 for typical direct appliance rebate programs that utilities have commonly administered in the past.  This 19:1 versus 4:1 program return shows that even with a $50 or $100 rebate available to the consumer, most of the time, consumers just don't rank (or ever think about) lifetime energy use of a given product they're about to purchase.

The Program Gets [Legislative] Legs

The first Waxman-Markey Energy and Climate discussion draft bill included a provision called the Best-In-Class Appliance Deployment (BICAD) (Section 214) that reflected the general objectives and incentive mechanisms of the SEAD program. 

Other key pieces of the BICAD program now include two additional market transformational programs.  First, is a "Golden Carrot Prize" incentive for manufacturers to develop super-efficient, next-generation appliances and electronic devices (it will be similar program to the refrigerator award program in the early 1990's that you can read about here), and second, an "Old Appliance Bounty" whereby retailers will be rewarded for getting consumers to return old, inefficient (but still functioning) appliances to be retired and recycled.

The latest version of the Waxman-Markey Bill (HR 2454) released to the full House Energy & Commerce Committee for discussion late last week still keeps BICAD intact and includes an appropriation of $300 million per year to be administered through the Department of Energy from 2010-2014.  Here are the benefits we can expect from this program:

  • Save American consumers and businesses over $28.5 billion annually or $95 in energy costs per person. 
  • By the year 2020, the program will save the energy equivalent 4.5 large power plants, and
  • Greenhouse gas reduction equivalent of taking 5.3 million cars off the road.

Now are you convinced that this is a good program?

Although incentives are targeted to upstream market stakeholders, BICAD ultimately benefits consumers and businesses the most by lowering the cost of efficient products, increasing product availability, and lowering energy bills as a result of using of more efficient products.