President Biden has set ambitious goals for transforming how Americans use energy. In an executive order last month, “Catalyzing Clean Energy Industries and Jobs Through Federal Sustainability,” he directed federal agencies to change how they “build, buy, and manage electricity, vehicles, buildings, and other operations to be clean and sustainable, including by establishing targets for fiscal year 2030 for agency-wide facility energy use intensity and potable water use intensity.”
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But the administration isn’t limiting its efforts to federal facilities. The U.S. Department of Energy (DOE) has 104 regulatory actions underway addressing the energy and water efficiency of residential and commercial appliances and equipment. For example, it is currently seeking public comment on how much water and energy residential clothes washers should use. A timely new report from the National Academy of Sciences offers recommendations that can help DOE improve how it approaches its standard-setting task by better using available data and focusing on social welfare.
DOE has been involved in regulating the energy efficiency of appliances since it was created in the late-1970s. In a series of statutes, Congress has directed the department to design standards for a wide range of products to “achieve the maximum improvement in energy [or water] efficiency…which the Secretary determines is technologically feasible and economically justified.” These terms—technologically feasible and economically justified—were intended to ensure that any standards achieved a significant reduction in energy use while considering economic impacts on consumers or manufacturers of the products.
So, how does DOE decide whether our appliances are efficient enough? Over the decades, it has developed an elaborate process for setting new standards, including an assessment of the technologies available and what reductions in energy or water use they could achieve, estimates of the types of products that could meet new efficiency standards, and predictions of increases in manufacturer and consumer costs associated with revised requirements. It uses those inputs in models of how producers and consumers would respond to changing regulations. In doing these analyses, the department relies heavily on input from manufacturers, but it also gathers its own data and even hires contractors to tear existing products apart to estimate the costs of component parts! As I said, it’s an elaborate process.
DOE goes through this process for dozens of consumer and industrial products every six years and determines whether the standards need to be amended. If its modeling concludes that a different portfolio of available products will save consumers money over the long run, DOE will set mandatory efficiency standards even though new appliances will cost consumers more up front.
The regulations that emerge from these reviews are not intended to be “technology-forcing;” rather they have the effect of prohibiting the manufacture (or import) of existing products that don’t meet the new minimum efficiency targets. The standards thus reduce consumers’ buying options, but DOE justifies them largely on the grounds that, on average, consumers will save money on the more expensive appliances over the lifecycle of use. The department also considers the environmental benefits of more efficient appliances, but those benefits tend to be dwarfed by the estimated consumer savings.
Manufacturers have often supported revised standards, perhaps because the regulations remove less-expensive models from the shelves, forcing customers to purchase their more expensive product lines. Consumers are often unaware of the effect the standards have on their appliance purchases, except perhaps when new machines don’t work as well as their old ones. For example, a recent peer-reviewed study found that clothes washers that met DOE’s most recent standards suffered design flaws that caused mold to build up in the drum bearings, which forced owners to incur high repair costs or simply replace their machines after a few years.
Because of concern over how DOE sets its standards, the National Academies of Sciences, Engineering, and Medicine convened a panel of experts in 2019 to peer review DOE’s methods for setting building and equipment performance standards and recommend improvements. I served on that committee, which produced a Consensus Report, published last month, that offers constructive recommendations for improving DOE’s methodology, and ultimately, for increasing the net social benefits of the appliance and equipment standards it establishes.
An important finding of the NAS Committee is that DOE’s current analytical approach may put the cart before the horse. It recommends that, instead of beginning with detailed engineering modeling, the department use the longstanding Regulatory Impact Analysis framework, which would better allow DOE to examine and present the social welfare implications of alternative approaches to meeting its statutory goals.
Another finding is that DOE’s current methods obscure both the uncertainty embedded in the numerous assumptions it currently relies on and the variability of impacts on different segments of the population. The Report offers specific recommendations for presenting and addressing uncertainty and variability in ex-ante estimates, and for more accurately quantifying different impacts (including better accounting for environmental benefits).
The National Academies Report also calls DOE out on its failure to gather actual data on whether its ex-ante predictions of impacts hold up in reality, including how existing standards affect product attributes (such as moldy clothes washers). It offers concrete recommendations for gathering data on actual use patterns, operating costs, environmental benefits, etc., to improve future analyses, rather than continuing to rely on unreliable assumptions and models. Relatedly, it encourages DOE to consider the role of standards in a changing environment and to avoid methods or standards that would impede innovation (such as fuel switching, emerging technologies, interconnected devices, an increasingly integrated electricity grid, etc.) that could further DOE’s statutory goals as well as pressing environmental goals.
DOE’s energy efficiency standards have a long history. Some hail them as win-win (saving consumers money and reducing energy use), while others are concerned that limiting consumers’ choices ends up reducing social welfare. As DOE proceeds with the 104 regulatory actions it has underway, it would do well to pay attention to the National Academies’ recommendations to be sure those actions are based on the best evidence possible.
