By Andrew deLaski, Guest Blogger, Energy Efficiency Markets
July 25, 2011
A new report published last week by the anti-regulatory Mercatus Center (an advocacy outfit associated with the Koch brothers) took aim at appliance and vehicle efficiency standards. In the report, the authors argue that standards reduce consumer choice and are not justified because the environmental benefits are small and consumer benefits are non-existent.
Nothing could be further from the truth. Efficiency standards have a long record as a commonsense way to save money for consumers and provide important societal benefits at the same time. The Mercatus report, entitled Overriding Consumer Preferences with Energy Regulations, is by two economists, Ted Gayer and Kip Viscusi. It’s so full of false claims, inaccurate assumptions, and misleading statements that it’s hard to know where to start refuting them. But I thought it would be useful to rebut some of their most egregious claims.
False claim #1: “[C]urrent energy efficiency initiatives do very little to address climate change”
Taking into account all U.S. appliance standards starting with the original round signed into law by Ronald Reagan and including those updated by the Department of Energy (DOE) under two Republican and two Democratic administrations and those added by both Republican- and Democratic-controlled Congresses, U.S. standards reduced greenhouse gas emissions by about 200 million metric tons in 2010, and annual reductions will increase to about 450 million metric tons by 2025. That works out to about 3.5% of actual U.S. 2010 emissions and 8% of projected 2025 emissions. (See Figure 4 in the ACEEE report, The Efficiency Boom.) Vehicle fuel economy and greenhouse gas standards for model years 2012-2016 are projected to reduce greenhouse gas emissions by 307 million metric tons in 2030, lowering car and light truck emissions by 21%. Standards now under consideration for model years 2017-2025 would deliver similar reductions. Undoubtedly, more can and should be done to address climate change, but to suggest that standards “do very little” is absurd.
False claim #2: Efficiency standards restrict consumer choice
Refrigerators are the most regulated appliance in America, having been subject to no fewer than six rounds of improved state and federal efficiency requirements over more than 30 years. Think about it for a moment. Do you have fewer choices in refrigerators than you did 10 years ago? For those who can remember, than 30 years ago? How about for clothes washers? Or for light bulbs?
For each of these products, consumer choices have increased even as standards have eliminated energy-inefficient models from the market. Refrigerators come with a wider array of configurations (the latest rage is French doors—GE just added a second shift at its Louisville, Kentucky plant to keep up with demand), ice and water dispenser options, built-in designs, and other features than have ever existed. Clothes washer buyers have an array of energy- and water-efficient front-loading and top-loading designs covering price points from $400 and up to choose from, many with features like steam cleaning unheard of a decade ago. For light bulbs, manufacturers report that the standards spurred them to introduce a whole new generation of energy-efficient incandescent bulbs so that consumers can now choose among energy-efficient incandescent, compact fluorescent, and newly-introduced LED options. Consumers have more choice than ever.
False claim #3: Consumer savings are non-existent
The crux of the authors’ argument is that consumers and businesses maximize their own welfare in their everyday decision making, so, by definition, any government action that results in different decisions cannot make them better off. However, DOE has identified and assessed a variety of widely-recognized market and behavioral realities that explain why efficiency standards yield benefits for consumers. One such reality is that efficiency-related cost savings is only one of many features that define a product, and that optimizing across multiple attributes is complex, time-consuming, and costly for consumers. Another reality is that there are often transaction costs that get in the way of recovering investments in more efficient products, as in the case of split incentives among landlords and tenants, and for homeowners who are considering selling their property within a product’s lifetime. Energy cost savings for an individual consumer would often not justify the time and cost to gather and assess information, and when appropriate, to compensate for the transaction costs. It is by no means irrational for consumers to apply ”bounded rationality” in making decisions, a concept that explains reasonable consumer behavior in complex environments.