ENERGY (GENERAL);

ENERGY;

You asked for a discussion of the issues surrounding appliance energy efficiency standards.

SUMMARY

The most commonly cited reasons for energy efficiency standards for appliance are the existence of market failures and externalities. Consumers often have imperfect information about the energy implications of their appliance purchases, and in many cases the person buying the appliance is not the person who will pay its energy costs.

The federal government currently has efficiency standards for a wide range of appliances, including refrigerators, clothes washers, ovens, and water heaters. Connecticut has its own standards for fluorescent lamps and ballasts. These standards have reduced energy consumption, avoided the need to build new power plants, and have saved consumers tens of billions of dollars.

In addition to these mandatory standards, federal law imposes energy consumption labeling requirements for many appliances, as a means of encouraging consumers to think about the energy implications of their appliance choices. Finally, there are a number of voluntary programs, most notably the federal Energy Star program.

Legislation was considered this year to establish state standards for several products that are currently not subject to state or federal standards.

RATIONALES FOR STANDARDS

The most common reason given for appliance energy efficiency standards is the existence of market failures, such as imperfect information. Although there are appliances on the market that use substantially less energy than more commonly purchased models and save consumers money over the appliance’s life, consumers often lack the information to make an economically rational choice. It is difficult for consumers, on their own, to determine the energy and other operating costs of an appliance over its lifetime. This is particularly true when the consumer is making his decision under time pressure, for example when a consumer buys an air conditioner in the midst of a heat wave. At the same time, there is little incentive for appliance makers to voluntarily provide this information in a consistent way that facilitates consumer choice.

Another type of market failure occurs when the person buying an appliance is not the one who will pay for its operations. This occurs in home construction, where the builder has an incentive to minimize the price he pays for appliances as a way of minimizing the cost of the house. Energy efficient appliances generally have a first cost (purchase price) that is somewhat higher than less efficient appliances, and this provides a disincentive for homebuilders to buy them, even though they will cost the homebuyer less over the long run. A similar phenomenon occurs in rented buildings. Because the tenant often pays the energy bills, the landlord has little incentive to replace appliances such as water heaters or furnaces with more efficient models. At the same time, the tenant generally does not have the right, under the lease, to replace the appliances. Even if the tenant can replace an appliance, the amount of time it would take for the energy savings to exceed the cost of the new appliance often is longer than the term of the lease.

A related rationale for appliance efficiency standards is the existence of externalities. More efficient appliances reduce the demand for power, thereby cutting power plant pollution that harms public health and the environment. The increased efficiency can also reduce the need for new power plants and transmission lines. But the buyer of the more efficient appliance does not receive the full benefit of these benefits, and thus is less likely to buy them than if he did.

Finally, standards can reduce the cost of more efficient appliances due to economies of scale. If appliance manufacturers believe that there is little demand for more efficient appliances, they will produce relatively few of them, which increases their per unit costs. Even if a manufacturer believes that demand for efficient appliances is growing, it may be reluctant to increase production because they are uncertain that the additional revenues produced by manufacturing more units will exceed the marginal cost of producing them. Standards eliminate this uncertainty and allow manufacturers to benefit from economies of scale.

MANDATORY STANDARDS

Federal Standards

Congress established minimum energy efficiency standards for many major appliances under the Energy Policy and Conservation Act, PL 94-163, National Appliance Energy Conservation Act, PL 100-12, National Appliance Energy Conservation Amendments of 1988, PL 100-357, and by the Energy Policy Act (EPAct) of 1992, PL 102-486. Appliances covered under these acts include refrigerators, refrigerator-freezers, freezers, room air conditioners, fluorescent lamp ballasts, clothes dryers, clothes washers, dishwashers, kitchen ranges and ovens, pool heaters, and water heaters. EPAct also allows for the future development of standards for many other products.

Higher standards will go into effect in 2004 for water heaters, 2006 for central air conditioning systems, and 2007 for clothes washers. A Department of Energy (DOE) Website http: //www. eere. energy. gov/consumerinfo/refbriefs/ee8. html, describes the standards.

While most of the standards specify the minimum energy efficiency of a product, some are prescriptive. For example, pilot lights have been banned in new gas clothes dryers since January 1987.

Most of the standards have been developed collaboratively with the involvement of environmental groups, manufacturer trade groups, and others. In most cases, the standards have not been controversial, although in the case of air conditioners there was a controversy as to the level of efficiency to require, and the federal standard that finally was promulgated was significantly less stringent than the one first proposed by DOE.

Connecticut Standards

State law (CGS Sec. 16a-48) establishes efficiency standards for fluorescent lamp ballasts and luminaries. (The ballast is the device that provides power to the lamp; the luminaire consists of the lamp itself and certain related parts. ) The law also provides for efficiency standards for showerheads, which indirectly save energy used in water heaters. A bill was introduced last session that would have expanded the types of products subject to state energy efficiency standards.

A bill was introduced this session, sSB 894, “An Act Concerning Minimum Energy Efficiency Standards,” that would have required the Office of Policy and Management to establish, by regulation, energy efficiency standards by July 1, 2004, that were specified in the bill for a variety of heating, cooling, lighting, and other types of products. The standards were based on the Energy Star program described below, California state regulations, and other sources. Among the products covered by the bill were torchiere lamps and commercial washers and refrigerators. The bill was favorably reported by the Energy and Technology, Government Administration and Election, General Law, and Appropriations committees and passed the Senate, but died in the House. The OLR bill analysis describes the bill in greater detail.

Effects of Standards

According to analyses in 2000 by DOE and the American Council for an Energy Efficient Economy (ACEEE), standards reduced U. S. electricity use by approximately 88 billion kilowatt-hours, or about 2. 5 % of U. S. electricity use. The existing standards also reduced peak demand in 2000 by about 21,000 megawatts, the equivalent of 42 500-MW plants. DOE estimates that the standards have saved enough natural gas over their lifetime to heat 19 million typical U. S. homes for a year. The 2004 water heater standards are projected to increase the efficiency of electric water heaters by 4%, and gas water heaters by 8%.

Over the 1990-2000 period, standards reduced consumer energy bills by approximately $ 50 billion. A 2003 study by Lawrence Berkeley National Laboratory and ACEEE found that the standards will reduce residential energy consumption and carbon dioxide emissions by 8–9% in 2020 compared to the levels expected without standards. The estimated cumulative net present value of consumer benefit amounts to nearly $ 80 billion by 2015, and grows to $ 130 billion by 2030. (This value estimates the benefits of measure into the future, minus its costs and adjusted for inflation. ) The overall benefit/cost ratio of cumulative consumer impacts from 1987 to 2050 is nearly three to one.

LABELING REQUIREMENTS

The Federal Trade Commission issued its original Appliance Labeling Rule in the 1980s to help consumers comparison shop for energy-efficient appliances. The rule requires manufacturers of most major home appliances to attach labels that estimate its energy consumption or energy efficiency. Energy use must be estimated in kilowatt-hours per year for electric appliances, therms per year for gas appliances; and gallons for oil-fired appliances. Estimated annual costs must be provided as well. The labels also show estimates of the highest and lowest energy consumption or efficiency of similar appliance models, based on DOE test procedures. This information enables consumers to compare the energy use of the models they're considering.

The label is required on clothes washers, refrigerators, freezers, water heaters, dishwashers, window air conditioners, central air conditioners, furnaces, boilers, heat pumps, and pool heaters. All of these appliances are significantly more energy-efficient today than they were 20 years ago, due to technological advances and competition for cost- and energy-conscious consumers. Labels are not required on ranges, microwave ovens, and clothes dryers because their energy consumption does not vary significantly between models. A Federal Trade Commission Website, http: //www. ftc. gov/bcp/conline/edcams/eande/popups/20years. htm, provides additional information on the labeling requirements.

VOLUNTARY PROGRAMS

Energy Star

The Environmental Protection Agency (EPA) established the Energy Star voluntary labeling program in 1992. The program is designed to identify and promote energy-efficient products to reduce greenhouse gas emissions. Computers and monitors were the first labeled products. The Energy Star label is now on major appliances, office equipment, lighting, home electronics, and more. Among the products covered by the program are televisions, clothes washers, compact fluorescent lights, EPA has also extended the label to cover new homes and commercial and industrial buildings.

Through its partnerships with more than 7,000 private and public sector organizations, the program delivers the technical information and tools that organizations and consumers need to choose energy-efficient solutions and best management practices. Over the past decade, the program has been a driving force behind the more widespread use of such technological innovations as LED traffic lights, efficient fluorescent lighting, power management systems for office equipment, and low standby energy use computers. Additional information on the program is available on its Website, http: //www. energystar. gov/.

Other Programs

Non-profit organizations and appliance manufacturer trade groups have been very involved in the development of standards under the Energy Star program. ACEEE also publishes a guide to the most energy efficient appliances on its Website, http: //www. aceee. org/consumerguide/mostenef. htm.

Private groups also been involved in other programs. For example, Lawrence Berkeley National Laboratory, the Alliance to Save Energy, and the International Institute for Energy Conservation have promoted energy efficiency standards and labeling programs in developing countries. In 1999, these three organizations formed the Collaborative Labeling and Appliance Standards Program (CLASP) to facilitate the design, implementation, and enforcement of energy efficiency standards and labels for appliances, equipment, and lighting products in countries around the world. Further information about CLASP is available on its Website, http: //www. clasponline. org/index. php3.

KM: ro