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Wasting Energy on Energy Efficiency

Ben Lieberman is a policy analyst with the Competitive Enterprise Institute in Washington, D.C.

Few aspects of our daily lives are more heavily regulated by the federal government than our use of energy. The cars and trucks we drive, the structures in which we live and work, and virtually every major appliance we use has been transformed by Washington’s near obsession with energy efficiency. Chances are, if it runs on electricity, gasoline, natural gas, heating oil, or any other energy source, it has been substantially affected by federal laws and regulations.

The energy efficiency crusade was originally launched in the 1970s as part of the solution to the so-called energy crisis. Washington was convinced that world oil supplies were rapidly dwindling and that drastic energy conservation measures were needed. As a result, Congress enacted several laws for the purpose of reducing energy consumption. Some statutes set energy-use standards, be it miles per gallon for motor vehicles or kilowatt hours per year for refrigerators. These laws not only set initial standards but gave the implementing agencies (Department of Energy [DOE] for most appliances, National Highway Traffic Safety Administration [NHTSA] for motor vehicles) the authority to periodically tighten them without going back to Congress for approval. Several laws also created tax incentives or other inducements for individuals and businesses to reduce energy use beyond the level they would achieve on their own.

A Second Ill Wind

The energy crisis has long since faded away. The “experts” could not have been more wrong—oil supplies are so plentiful today that the price has reached a 25-year low. Nonetheless, the efficiency agenda lives on. These same statutes and regulations, and the army of bureaucrats and activists that make their living from them, are experiencing their second wind as one of the putative solutions to global warming. If consumers can be made to use less energy, the argument goes, then less carbon dioxide, the chief anthropogenic greenhouse gas, will be emitted into the atmosphere.

Last November, when the Clinton administration signed the Kyoto Protocol, the international agreement to reduce emissions of greenhouse gases, Stuart Eizenstat, undersecretary of state for economic, business, and agricultural affairs, emphasized the role energy efficiency will play in its implementation. He announced new funding for research into more efficient automobiles and housing, and an effort to “begin setting new energy efficiency standards for major appliances.” Indeed, until the Kyoto Protocol is submitted to a skeptical Senate for approval, these already existing energy-efficiency statutes are among the few tools the Clinton administration can legally use to combat energy use.

Before the nation embarks on new rounds of tougher efficiency standards for everything from washing machines to light bulbs to SUVs, it is worth examining what the first wave of such centrally planned austerity measures has done for us. Despite the positive publicity accorded measures enacted in the name of energy efficiency, they have accomplished nothing. However, they have raised the cost and reduced the quality of affected products, and have created or exacerbated several health and safety problems.

An Ineffective Solution

Even assuming the global warming crisis is not as spurious as the energy crisis (but see Jonathan Adler, “Global Warming: Hot Problem or Hot Air?” in The Freeman, April 1998) and that substantial environmental benefits will accrue from reduced energy use, there still are serious limitations on how much can be achieved through federally mandated energy efficiency measures. True, if consumers use less energy, then less carbon dioxide will be emitted into the atmosphere, either directly in the case of motor vehicles or fuel-burning appliances, or indirectly in the case of electrical appliances whose energy is generated through fossil-fuel combustion by utilities. But 25 years of energy efficiency measures have failed to stem the increases in national energy use.

“People always seem to find more uses for energy,” says Herbert Inhaber, author of Why Energy Conservation Fails. Today’s refrigerators may require half the electricity of a comparable 1980 model, but people are more likely, given the lower operating costs, to own a larger one, or even have two. Better gas mileage has led to increases in vehicle miles traveled.

Studies have shown that owners of high efficiency heating systems tend to set their thermostats a bit higher than others. Many consumers “spend” their savings from efficient appliances on other energy-using conveniences, like additional lighting. Ironic but true, a quarter century of federal energy-efficiency mandates has increased, not decreased, total energy use.

Ratcheting down current efficiency standards will probably have the same effect. In all likelihood, the only way for Washington to actually reduce energy use is to sharply increase energy costs. Proponents of the Kyoto Protocol are also seriously considering energy taxes or other price-raising schemes, but these cannot be enacted until the treaty is ratified, or new legislation is enacted. In addition, such options are fraught with the kind of direct adverse political consequences the energy efficiency agenda has thus far avoided.

Bad Deal for Consumers

The level of consumer satisfaction with many things targeted by the energy-efficiency crusade has declined as a result of Washington’s dictates. This should not be surprising—in a free market, most technological improvements that allow efficiency gains without adverse side effects would be incorporated anyway. Manufacturers, responding to competitive forces, have plenty of incentives to provide the best available balance of price, performance, and operating costs. Efficiency mandates simply upset this balance, placing arbitrary energy-use standards above everything else. Alan Kessler, vice president of Raytheon Appliances, noted in congressional hearings on appliance standards that “from the perspective of DOE and standards advocates, the purpose of major appliances is solely to save energy,” and not to provide maximum overall consumer satisfaction.

Energy efficiency, Washington-style, comes at a cost. For example, DOE estimates that the latest energy standard for refrigerators will add $80 to the cost of a new model when the standard takes effect in 2001. DOE is also considering regulations mandating certain highly efficient types of clothes washers that currently cost hundreds more than their conventional counterparts. One study estimates the total cost of appliance standards of $59 billion. True, these and other goods save on energy, but the payback periods are often very long.

Beyond appliances, studies have also shown that the sticker price of automobiles has increased because of NHTSA’s Corporate Average Fuel Economy (CAFE) standards, and that energy-saving features add considerably to new housing costs.

Quality also suffers. Air conditioners rated as highly efficient under the federal standards are less reliable than average models and some do a poor job dehumidifying the air. “I’ve seen state of the art, high efficiency air-conditioners in homes where there’s mold and mildew on the walls,” says Dave Debien, owner of Central City Air, in Houston. Many consumers are dissatisfied with the weak trickle from federally mandated low-flow shower heads. Some highly efficient refrigerators have freezer sections that don’t stay as cold as they should to safely preserve foods for extended periods. Efficiency mandates often have a performance downside to go along with the energy savings.

Beyond the effect on price and quality, these standards also limit the choices available to consumers. Kessler noted that the need to meet arbitrary efficiency standards is leading to product lines “so homogenized and energy-oriented that other product innovations or features are placed on the shelf.” In addition, several manufacturers have stopped producing certain products, such as the lowest priced air conditioners, because they have been rendered unprofitable by efficiency regulations. Directly and indirectly, Washington is telling us what we can and cannot have.

The efficiency crusade has also exacted a price in health and safety. The problem of indoor air pollution is in large part attributable to the government’s attempts to conserve on energy used to heat and cool homes and buildings. Though the federal government does not directly set energy standards for homes and offices, it has been quite effective in doing so indirectly. For example, Washington requires that newly constructed houses meet certain efficiency requirements in order to be included in federally backed mortgage programs. The government also pays for insulation in low-income housing, and has provided tax breaks for energy-saving expenditures.

These and other efforts sought to reduce “excessive” ventilation, considered wasteful of energy. Granted, heavily insulated, weathertight buildings and homes do save energy by holding in more of the already heated or cooled air and reducing the influx of outside air. However, there has been an unanticipated side effect—these energy-efficient structures concentrate the levels of contaminants inside. The result has been a two-decades long increase in indoor air-related health problems as people inhale higher levels of airborne pollutants, including biological contaminants from molds, mildew, microorganisms, and insects, as well as chemicals like formaldehyde and volatile organic compounds. Even the federal government has admitted this oversight. The Environmental Protection Agency (EPA) now concedes that “the current trend toward sealing off homes to conserve energy may have serious health consequences.”

Perhaps most disturbing is the sharp rise during this period in the incidence and mortality of pediatric asthma, especially among minority youth. While the reasons for this increase are not fully understood, one New England Journal of Medicine editorial suggested “decreased ventilation after the energy crisis in the United States in the 1970s” as one possible cause of increased exposure to the indoor contaminants that trigger and exacerbate asthma attacks.

Deadly Light Cars

CAFE standards may have also cost thousands of lives. To meet the average-miles-per-gallon requirements, automakers have had to reduce the weight of cars. Studies have consistently shown that, all other things equal, lighter vehicles are less crashworthy. A 1989 Harvard/Brookings study estimated that CAFE standards have increased motor vehicle fatalities by 14 to 27 percent. This works out to about 2,000 to 4,000 lives per year. As is typically the case with the energy-efficiency agenda, such non-efficiency considerations have been almost completely ignored by the government. CAFE proponents now want to sharply raise the bar on automakers to help avert the highly speculative threat of global warming, but still deny the well-documented size-safety tradeoff.

The frequency with which federal measures to promote energy efficiency have led to these adverse “unintended consequences” has an interesting flip side. In retrospect, the levels of energy use in appliances, houses, and vehicles prior to Washington’s interference implicitly included a good deal more wisdom than their critics assumed, for they managed to avoid these problems. Once again, so-called market failures turn out not to be such failures after all. It’s the efficiency mandates that have proven more regrettable.

The Future of Energy Efficiency

Federally mandated energy efficiency has been touted as a real win/win policy for consumers—we save on energy and enjoy the societal benefits from a national decline in energy use. In reality, it has been lose/lose—we must endure the negative effects of Washington’s preoccupation with energy conservation while the overall policy proves pointless.

The real winners are the hundreds of energy-efficiency bureaucrats and allied activists, most of whom receive substantial federal funding for their efforts. They are frequently joined by opportunistic manufacturers who stand to benefit from federal energy policy, such as insulation producers or appliance makers who believe that their most efficient models are superior to the competition and can gain market share if a new standard is promulgated.

Thus far, these special interests have made for an almost unbeatable coalition. The energy-efficiency activists occupy the moral high ground, at least among Democratic legislators and the media, and the industry proponents provide enough lobbying clout and Republican support to win the day. The Naderites and other big consumer advocates are so smitten with the efficiency agenda that they turn a blind eye to its adverse effects on consumers; thus the battles have been mostly one-sided.

But there are a few signs that the efficiency crusade has marched too far. The 104th Congress set a moratorium on new energy efficiency standards for appliances, though it was criticized for doing so and eventually lifted it. Nonetheless, the moratorium managed to kill some truly silly regulations, like the proposed prohibition on oven windows, and delayed the implementation of several others.

Low-flow showers and toilets have been so unpopular that they sparked a grassroots backlash. In response to constituent complaints, Representative Joseph Knollen-berg introduced a 1997 bill to repeal the low-flow requirements. The bill garnered 76 co-sponsors, not bad for a supposedly anti-environmental and anti-conservation measure. Knollenberg has promised to introduce a new bill in 1999.

The burgeoning backlash will only intensify if Washington embarks on new rounds of standards in the name of fighting global warming. The efficiency gains that were relatively easy to achieve have long since been used up to meet existing standards, and even those have proven quite painful. Whatever the alleged merit, additional federal micromanagement may impose an unacceptably severe impact on cost, quality, health, and safety.

Nonetheless, the Clinton administration is intent on spending more of our tax dollars to come up with new restrictions on our choices in the marketplace. Such measures will be an expensive nonsolution to an unproven problem.

Washington should stop wasting its energy.

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