Energy Efficiency Standards for Appliances: Are They Needed?

The Energy Policy and Conservation Act (EPCA! (P.L. 94-163), as amended by the National Energy Conservation Policy Act (NEPCA) (P.L. 95-619) , requires that energy efficiency standards be established for each of 13 classes of appliances that are major consumers of energy. NEPCA stipulates that such standards "be designed to achieve the maximum improvement in energy efficiency which the Secretary [of Energ'y] determines is technologically feasible and economically justified." The Department of Energy ' announced proposed standards for 8 of the 13 classes of appliances in June 1980 and initiated public hearings on them prior to final promulgation. In January 1981, the DOE suspended this process; after re-studying the proposed standards, it announced in April 1982 a finding that no standards are economically justified.

AUTHOR: Langdon Crane S c i e n c e Policy Research Division T H E LIBRARY OF CONGRESS CONGRESSIONAL RESEARCH SERVICE MAJOR ISSUES SYSTEM D A T E ORIGINATED 06/14/82 D A T E UPDATED 12/12/83 CRS- 1 ISSUE DEFINITION T h e Energy Policy and Conservation Act (EPCA! (P.L. 94-163), a s amended by the National Energy Conservation Policy Act (NEPCA) (P.L. 95-619) , requires that energy efficiency standards be established f o r each of 1 3 classes of appliances that are major consumers of energy. NEPCA stipulates that such standards "be designed to achieve the maximum improvement in energy efficiency which the Secretary [ o f Energ'y] determines is technologically feasible and economically justified." The Department of Energy announced proposed standards for 8 of the 13 classes of appliances in J u n e 1 9 8 0 a n d initiated public hearings on them prior to f i n a l promulgation. In January 1 9 8 1 , the D O E suspended this process; after re-studying the proposed standards, it announced in April 1 9 8 2 a finding that n o standards a r e economically justified. GAO has criticized this finding o n t h e grounds that the basic assumptions of the analysis are questionable. Others a r e concerned that the D O E ' S adoption of "no standards" may preclude individual States f r o m adopting their own sets of standards for appliance efficiencies because of specific prohibitions under EPCA. ' BACKGROUND C o n g r e s s , in its f i r s t major legislation directed at energy conservation, the Energy Policy a n d Conservation Act, adopted several measures to i m p r o v e the energy efficiencies of major energy-consuming appliances. One was the mandated labeling of appliances offered for s a l e to show their estimated annual operating c o s t s , a s well a s the range of annual operating costs of comparable appliance u n i t s , to provide essential information about t h e relative efficiency of each appliance offered for sale. Another measure required energy efficiency targets for major energy-consuming a p p l i a n c e s , targets that were to "be designed to achieve the maximum improvement i n energy efficiency which the Administrator [ o f the Energy Research a n d Development Administration] determines is economically a n d technologically feasible t o attain f o r each such type [ o f a p p l i a n c e ] manufactured in calendar y,ear 1980." All targets were to result i n increases i n energy efficiency o f a t least 20% over the average efficiency levels found 'in 1972. T h e Act a l s o provided that the Administrator (now the Secretary of Energy) should imposemandatory energy efficiency standards for new appliances in those cases where it appeared that the energy efficiency targets might not be met by 1980. The following classes of appliances were specifically provisions of EPCA: Refrigerators a n d refrigerator-freezers Freezers Dishwashers Clothes dryers Waterheaters Room. a i r conditioners covered under the CRS- 2 H o m e heating equipment, not including furnaces Television sets Kitchen r a n g e s and ovens Clothes washers Humidifiers a n d dehumidifiers Central air conditioners Furnaces P l u s , any other appropriate for t o consume more equivalent, per appliances that the Administrator deems the purposes of the Act which a r e likely than 1 0 0 kilowatt-hours of energy, o r its household per year. Effect on State and Other Laws To simplify and regularize the imposition of .energy efficiency standards a n d to preclude the imposition of a s many BS 5 0 d i f f e r e n t , and possibly incompatible, State standards EPCA provided that 1) the standards, 2) the 3) the information testing procedures underlying those standards, and required of manufacturers to establish a n d maintain those standards, a s adopted for the Federal Government by the D O E according to the provisions of the A c t , would supersede any State or local regulation f o r the same purposes. H o w e v e r , EPCA did provide that a State or local government could obtain an exception to this provision if it could demonstrate to the satisfaction of the Administrator (of E R D A , whose authority i s now held by the Secretary of Energy) that there is a substantial State o r local need sufficient to justify a special regulation requiring greater efficiency than the Federal r e g u l a t i o n , and that such a special regulation would not unduly burden interstate commerce. -- -- Amendments to EPCA Under NECPA T h e National Energy Conservation Policy Act amended EPCA in a number of important respects. NECPA discarded the concept of energy t a r g e t s , and instead required that energy efficiency standards be adopted for e.ach of the 20% minimum 13 classes of appliances stipulated i n EPCA. The concept of a efficiency improvement was dropped i n favor of a requirement that "...energy standards for each type (or class) of covered produ'cts shall be designed to a c h i e v e the maximum improvement i n energy efficiency which the Secretary [of E n e r g y ] determines is technologically f e a s i b l e and economically justified.I1 ... - In a d d i t i o n , i n response to complaints from a number of industrial spokesmen about the financial and other burdens t h a t efficiency standards would i m p o s e , NECPA required a thorough analysis of t h e c o s t s and benefits of such regulation prior to the imposition of standards. "Before determining the S e c r e t a r y , after receiving whether a standard is economically justified any views and comments furnished with respect to the proposed standard...shall determine that the' benefits of the standard exceed its of the burdens, based to the greatest extent practicable, on a weighing ... CRS- 3 following factors: (1) the economic impact of the standard o n the manufacturers and on the consumers of the products subject to such standard, (2) the savings i n operating costs throughout the estimated average life of the covered products in the type (or class), compared to any increase i n the price o f , or in the initial charges f o r , o r maintenance expenses o f , the covered products which a r e likely to result from the imposition of the standard, (3) the total projected amount of energy savings likely to result directly from the imposition of the standard, ( 4 ) any lessening of the utility or the performance of the covered products likely to r e s u l t from the imposition of the standard, ( 5 ) the impact of any lessening of competition determined in writing by the Attorney General that is likely to result from the imposition of the s t a n d a r d , ( 6 ) the need of the Nation to conserve energy a n d ( 7 ) any other factors the Secretary considers relevant." D O E P r o p o s e s Standards f o r 8 Classes of Appliances in 1 9 8 0 The Federal Register of June 3 0 , 1 9 8 0 (Vol. 4 5 , No. 127) set forth D O E 1 s conclusions on efficiency standards f o r 8 of the 1 3 classes of appliances stipulated i n EPCA. After extensive analysis according to the guidelines set forth in N E C P A , energy efficiency standards were proposed for 1) refrigerators and refrigerator-freezers, 2) f r e e z e r s , 3) clothes d r y e r s , 4) Water heaters, 5) room air conditioners, 6) kitchen ranges a n d o v e n s , 7) central a i r conditioners, and 8) furnaces. Each of the standards was claimed to produce more 'than a - 2 0 % improvement i n efficiency over 1 9 7 2 l e v e l s , i n accord with the original provisions o f EPCA. T h e DOE-determined costs and benefits of these standards to the Nation a s a whole a r e set f o r t h i n . TABLE 1. Though these figures have been superseded by later D O E a n a l y s e s , they continue to be quoted by proponents of standards a n d a r e provided here for comparison. CRS- 4 MB82233 UPDATE-12/12/83 TABLE 1. The Original D O E Calculations of Energy Savings to Result from Appliance Standards. 1'982-2005 Cumulative Energy Savings (Quads) class Net Present Value of the Regulation (Billion $s 1 9 7 8 dollars) Refrigerators and refrigerator-freezers 3.6-7.6 Freezers 0.8-1.4 1.0-1.4 Clothes dryers 0.3-0.6 0.3-0.4 Water heaters 3.9-5.9 5.4-6.0 Room air conditioners 0.2-0.6 0.2-0.4 Kitchen ranges and ovens 0.3-0.8 0.3-0.7 Central air conditioners 2.6-3.7 0.4-0.8 Furnaces 2.0-4.3 2.5-3.4 Sour.ce: Federal Register, Vol. 4 5 , No. 127. TABLE 2. The 1 9 8 1 Revision of D O E ' S Original Energy Savings Calculations Class Refrigerators and refrigerator-freezers Freezers Clothes dryers Water heaters Room air conditioners Kitchen ranges and ovens Central air conditioners Furnaces 1982-2005 Cumulative Energy Savings (Quads) CRS- 5 In every c a s e , the life cycle cost of the appliance to the a v e r a g e consumer was calculated by D O E to be lower than the l i f e cycle cost of current appliances. H o w e v e r , D O E ' S analysis of the ability of manufacturers to r a i s e the necessary capital to comply with the standards indicated possible hardships. While it was expected that 98-99% of the manufacturers o f refrigerators and refrigerator-freezers, clothes d r y e r s , central air conditioners, and furnaces would be able to earn sufficient capital to comply with the standards, only 93-94% of the manufacturers of room a i r conditioners and of kitchen ranges and ovens might be expected to do s o , a n d only 80% of water heater manufacturers and 75% of freezer manufacturers. Response to the D O E Proposed Standards P u b l i c hearings a n d invited comments on the proposed appliance standards indicated a number of concerns a b o u t the D O E analysis, both technical and economic. Though i n many of the comments there was objection to the presence, or to the method of imposition and enforcement, of the proposed standards, industry spokesmen offered evidence to indicate that the D O E analysis had underestimated the costs of compliance to i n d u s t r y , and had overlooked a number of important practical problems related to the s i z e , s h a p e , and performance capabilities of certain appliances designed to meet the proposed standards. Faced with these comments, D O E performed a new round of economic and energy a n a l y s i s , making appropriate changes i n basic assumptions. This produced a marked reduction i n total expected energy savings: from a range of i3.8-25.1 Quads in the first round of a n a l y s i s to 10.9 Quads in the second r o u n d , a s outlined i n the TABLE 2. As a r e s u l t , DOE intended to revise its proposed standards downward i n required e f f i c i e n c y , and to drop standards for kitchen ranges, o v e n s , and clothes dryers. ' A New Round of A n a l y s i s , and Reversal of Viewpoint ' O n Dec. 1 7 , 1 9 8 0 , . D O E notified Congress that i t could not meet the Jan. 2 , on Feb. 1 9 8 1 deadline for a final determination on the proposed standards. 2 3 , 1 9 8 1 , D O E issued notice to Congress that i t intended to delay implementing the standards that i t originally proposed pending further study. D O E formed a n internal task f o r c e of senior officials to review the appliance standards developmental work that had been performed and to recommend what course D O E should follow with respect to stan.dards. T h e task f o r c e commissioned a new analysis of the costs and benefits of standards, using hypothetical standards requiring three or f o u r different levels of efficiency for each appliance and postulating a more rapid rise in energy prices than had been assumed i n the past. T h e results were published in the Federal Register Apr. 2 , 1 9 8 2 (Vol. 4 7 , No. 64). In this new a n a l y s i s , DOE revised its basic approach f o r calculating the benefits of setting energy efficiency standards , f o r . a p p T i a n c e s . The calculations were performed in two steps. F i r s t , C a l ~ ~ l a t i O nwere S performed to estimate the energy savings that would result from consumer preferences energy price f o r more e f f i c i e n t . a p p l i a n c e s i n response to D O E ' S projected increases. S e c o n d , these savings were compared .with the energy savings calculated by D O E to be expected from the imposition of energy efficiency standards, but neglecting the e f f e c t s of energy prices on consumer appliance preferences. Calculations were performed using the Oak Ridge National CRS- 6 MB82233 UPDATE-12/12/83 Laboratory (ORNL) Residential Energy End Use Model, the same model used - to calculate energy savings f o r the 1 9 8 0 findings. T h e time period was changed to 1987-2005 from 1982-2005. On the basis of th'is latest analysis, and of its analysis of ' t h e costs imposed by standards o n manufacturers, D O E concluded' that efficiency standards a r e not necessary, because the pressure of rising prices wili prompt consumers to d e m a n d , and manufacturers to produce, appliances that a r e of efficiency comparable to the efficiencies that would be required under standards. The DOE finding was that: T h e increase i n the cost of energy i n the l a s t ten has created substantial incentives for manufacturers years to m a k e , and consumers to buy, more energy efficient appliances. T h e s e incentives to a certain extent have been restrained by reguiation of the price of o i l and natural g a s , which subsidized consumption and discouraged conservation...In the years ahead...with the deregulation of o i l and the scheduled deregulation of most natural g a s i n 1 9 8 5 , market f o r c e s are expected to play a n increasingly dominant role i n the pricing of a l l energy. Therefore, DOE expects that the appliance market will respond swiftly i n the level of energy efficiency provided i n new appliances. In s h o r t , if standards are not a d o p t e d , the appliance market can be expected, over the period 1987-2005, to increase the l e v e l of shipment-weighted energy efficiency of the average new appliance to. levels generally comparable to those that might be required by mandatory standards. ... D O E ' S analysis found that in the absence of standards, the average efficiency of six of the most energy consumptive appliances Will improve i n efficiency by 32% in t h e period 1978-2005. The imposition of standards would produce a n average improvement of 37% i n these same appliances (oil and gas furnaces, room air conditioners, central air conditioners, electric and g a s water heaters, refrigerator-freezers, and freezers.) P u t more broadly, DOE estimates that improvements i n efficiencies without standards f o r any of the appliances will result, i n the 1987-2005 period, i n savings of 27.6 Quads, whereas D O E estimates that the imposition of standards would produce savings D O E ' s conclusion i s that the difference of 32.8 Quads i n that s a m e period. between these two predictions is not significant, primarily because of theuncertainties in such predictions. In a d d i t i o n , D O E points out that to every appliance customer because of standards may not be beneficial variations i n the expected use of each appliance and because of variations i n the expected duration of ownership of the appliance. Continuing this line of thought, D O E ' s 1 9 8 2 analysis f i n d s that such factors a s 1) reductions i n life cycle cost, 2) reductions i n electrical generating capacity to power appliances, (3) r e d u c t i o n s - in environmental 4) the a c t u a l impact from the reduced combustion of f u e l for energy, and savings in energy fuels and energy costs a r e not predicted (by the Oak R i d g e Model) to be significantly affected by the imposition of standayds. TABLE 3 lists the increases in energy savings that the Oak Ridge Model predicts will occur if appliance standards are imposed instead o f le-aving energy efficiency improvements to the marketplace. T h e , s a v i n g s listed a r e those predicted for the most stringent standards that D O E analyzed (less stringent standards would produce lower savings of energy, except where noted). CRS- 7 TABLE 3. MB82233 UPDATE-12/12/83 T h e 1 9 8 2 D O E Calculations of Energy Savings to be Expected from Appliance Standards 1987-2005 Cumulative Energy Savings (Quads) Class Refrigerators and refrig. freezers Freezers 0.16 maximum 0.33 maximum Clothes dryers (elec) (gas) 0.19 0.02 maximum maximum Water heaters (elec) (gas) 2.07 0.08 maximum maximum 0.64 maximum Room a i r conditioners Kitchen ranges/ovens (elec) ('gas) -0.33* 0.28 maximum Central air conditioners 4.52 Furnaces 0.0 0.0 (gas) (oil) Net Present Value of the Regulation ( $ i n billions 1 9 7 8 dollars) maximum *In this c a s e , the imposition of the most stringent efficiency standard was predicted by the Model to cause more energy to be used with the standard than without it. If a lower level of energy efficiency were required under a lower standard, a small saving in energy was predicted by the Model. SOURCE: Federal Register, Apr. 2 , 1 9 8 2 (vol. 47, no. 64) CRS- 8 The General Accounting Office examined the 1 9 8 2 D O E analysis of appliance standards (Rept. EMD-82-78) and summarized its conclusions a s follows: D O E ' S basis f o r i t s proposal that no appliance efficiency Standards be established i s highly questionable. F i r s t , the analysis i n support of D O E t s proposal relies heavily on a n unvalidated k e y assumption that consumers will purchase substantially more efficient appliances in response to increases in real energy prices. Secondly, D O E has been inconsistent in projecting the e f f e c t of market forces On Consumers and appliance manufact'urers. F i n a l l y , during the standards development process, D O E projected future energy savings from standards using four markedly different energy price assumptions, and used a significantly higher price assumption in its April 1 9 8 2 NOPR [ ~ o t i c eof Proposed Rulemaking, a s published i n the Federal Register] than other available estimates. T h e ~ o t e n t i a limpact of the inconsistent treatment of market forces and the use of high energy price assumptions is to decrease the energy savings f r o m , a n d increase the costs o f , appliance standards. In testimony before the House Committee on Energy and Commerce on May 21, 1 9 8 2 , Dexter P e a c h , Director of G A O ' s Energy and Minerals D i v i s i o n , stated that DOE'S analysis "...relies heavily o n a n unvalidated key assumption that consumers will purchase substantially more efficient appliances i n response to increases in real erfergy prices. We f o u n d that actual consumer purchases of appliances during the 1970s -- a time of rising real energy prices -- did not support DOE' key assumption." Among his other points in that t e s t i m o n y , Peach pointed o u t t h a t , i n performing the analysis for its current reCommendations, D O E used energy price projections that are "significantly higher than other available estimates." He also claimed that the CalCUlatiOnS of the Cost impacts of standards on manufacturers had n o t been performed i n consistent fashion because none of the c o s t s of manufacturing more efficient appliances was ascribed to factors other than standards (such a s consumer preferences for more efficient appliances). However, GAO concluded that DOE'S second proposed set of standards (which were never formally announced, but which relaxed requirements for six of the appliances and provided no standards for kitchen ranges and ovens or for clothes dryers) "had potential." This was based in part o n a GAO finding that even With n o increase i n real energy prices the second set of standards might produce 1.5 Quads o f . e n e r g y savings i n the single year of 2 0 0 0 , . if it was assumed that the average efficiencies of purchased appliances remained unchanged unless standards were imposed. In p a r t i c ~ ~ a rG-A0 , f e l t that the second proposed set of standards provided useful efficiency levels for f u r n a c e s , central a i r conditioners, water heaters, and refrigerators. GAO recommended that the Secretary of Energy not adopt a " n o standzrd'l rule until reviewing GA'O's views and conclusions. CRS- 9 THE FOCUS OF CURRENT ISSUES The crux of the issue would seem to be whether appliance customers will assimilate and act upon the energy labeling information that EPCA requires; labeling requirements will not be affected by decisions about appliance standards. With the exception o,f furnaces and central air conditioners, where customers must rely on manufacturers' specification sheets (which are. generally regarded a s being too comblicated for most to use effectively), this information will continue to be provided by l a b e l s that report the results of standardized.testing procedures mandated under EPCA. If consumers ignore the information provided, or if manufacturers f a i l to offer highly efficient appliances for s a l e , then the use of standards would increase energy savings. The Pre-emption of State Standards At present, "no standards" determination by the Secretary of Energy w o u l d , by virtue of the provisions in EPCA mentioned a b o v e , preempt individual States and localities from imposing their own energy efficiency standards unless the Secretary concurs that some special circumstance exists which justifies such standards for their areas and that it can be shown that such standards will not burden interstate commerce. Legislation has been proposed '(H.R. 3244) by Rep. Richard Ottinger to remove the preemption provisions from EPCA so that States and local governments could adopt their own standards. This could result in a good deal of regulatory disparity among States. It might even create a situation i n which a State (or States) with a l a r g e and attractive appliance market might make regulations that came to be observed by a l l major appliance producers. In such a c a s e , individual States might effectively preempt a Federal decision that no standards be imposed. Officials from States such a s Florida and California in congressional hearings have claimed that the State standards, which h a v e been applied in the interim period before Federal standards are d e c i d e d , have saved a great amount of energy and enabled their residents to avoid considerable c o s t s in constructing new electrical generating capacity. They a r g u e for the value of State standards i n lieu of Federal standards from the standpoint of local needs a n d interests. A Proposed Alternative An alternative proposal has been offered by Rep. Carlos Moorhead (H.R. 2283) to circumvent the entire question of F e d e r a l energy efficiency standa'rds by eliminating the standards and State preemption provisions of EPCA while retaining the energy efficiency labeling pr0Vis.ionS of the Act. His position has been that State and local governments should be primarily responsible for the regulation of energy conservation activitie-s, rather than the Federal Government.