Energy Efficiency Standards for Appliances: Are They Needed?

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

...

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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.

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MB82233

UPDATE-12/12/83

TABLE 1. The Original D O E Calculations of Energy

Savings to Result from Appliance Standards.

Net Present

Value of the

Regulation

(Billion $s

1 9 7 8 dollars)

class

1'982-2005

Cumulative

Energy

Savings

(Quads)

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

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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.